International Joint Ventures

It is being a business organization established by two or more companies that combines their skills and assets.

1. A JointVenture is formed by two businesses that conduct business in a third country. (US firm + British firm jointly operate in the Middle East)
2. joint venture with a local firm
3. joint venture includes local government.
   Bechtel Company, US
   Messerschmitt-Boelkow-Blom, Germany => Iran Oil Investment Company
   National Iranian Oil Company

Whats the reason behind?

• Large capital costs - costs are too large for a single company
• Protection - LDC governments close their borders to foreign companies
• bypass protectionism.
  e.g.: US workers assemble Japanese parts. The finished goods are sold to the US consumers.

Problems

Control is divided. The venture serves "two masters"

Welfare Effects to the society

The new venture increases production, lowers price to consumers.

The new business is able to enter the market that neither parent could have entered singly.

Cost reductions (otherwise, no joint ventures will be formed) increased market power => not necessarily good.