Joint ventures are becoming very popular as an entry mode into foreign markets. Why is this strategy so attractive to companies interested in entering other markets in the world?

What will be an ideal response?

A joint venture with a local partner represents a more extensive form of participation in foreign markets than either exporting or licensing. A joint venture is an entry strategy for a single target country in which the partners share ownership of a newly created business entity. This strategy is attractive for several reasons such as the sharing of risk. Sharing of risk is a very important advantage when a company is entering a new and unfamiliar region. Also, by pursuing joint venture entry strategies, a company can limit its financial risks as well as exposure to political uncertainty. A company can also use the joint venture experience to learn about a new market environment. Joint ventures also allow partners to achieve synergy by combining different value chain strengths. One company may be helpful in providing knowledge about local markets and availability of resources, and the other company may have a brand name and well-established reputation in the market. Thus, there can be a complimentary effect by linking the attributes of both the companies. Joint venture is recommended for companies which lack enough resources or technical know-how. Also, in cases where the governmental policies restrict the full ownership of the companies by foreign businesses, joint venture is the only option to enter.