Question

Initially, GE considered expanding global market through acquisitions and establishing
greenfield subsidiary. Since the early 2000s, General Electric changed its strategic tool to
form joint ventures with the host company such as cooperated with Hyundai in South Korea.
Do you think GE use an appropriate strategy? Justify your answer by critically
discussing FOUR advantages and disadvantages respectively for joint venture.

Answer 1

In 2004,GE consumer finance , which is the global consumer lending arm of GE entered into a strategic joint venture agreement with Hyundai capital services ltd , which is the leading consumer finance company in south Korea. The move by GE was an appropriate strategy to enter into a joint venture as against the acquisition strategy.

Advantage

• The move into a new market like South Korea through a joint venture like Hyundai provides the company with a new and fresh insight about the market and the expertise that is required to tap the market and grow, as the region's dynamics are completely different from other markets in terms of conducting business, culture & norms etc.
• Even though Hyundai being a major force in the market, GE provides the Joint Venture with better resources and financial products that are truly global that will create a powerful and dynamic new vehicle to strategically grow and also by adopting advanced management experience in financial business.This will help the companies also to understand what each individual companies are bringing on the table.
• The chances of succeeding are  higher as the joint venture partner in the target market already has a name in the market and is respected. This will help the JV credibility to improve further.
• The move by GE will help the company to build relationships and networks, which could eventually lead to investments into other business in the same market.

Disadvantages

• Joint Venture does not give full control of the entire business as it restricts it flexibility and has to respect the partner's role in the business. This leads to bearing risk among the partners and also bear the risk of sharing the the technology and IP rights to partners for use in the market
• Shared ownership as in Joint venture can lead to conflicts and battles among partners if the objectives of the business changes over the period of time.So, the JV objective has to be clearly written and documented.
• Both the partners has to approach in the business on a long term perspective, as the time and investments required are high are break even
• GE will have limited outside opportunities, since due to the presence a credible and a large partner from the region, there will be restricted outside activities of the participant company.