Why Is an Ijv Considered a Successful Entry Strategy in the Brics Countries? Where Are They Most Frequently Located?

Why is an IJV considered a successful entry strategy in the BRICS countries? Where are they most frequently located?

An international joint venture (IJV) is defined as a “collaboration between two or more companies who between them create a third enterprise or corporation” (Bryers, 2013). Through establishing an IJV with a firm which is located in the desired nation, they are seen as a method for multinational companies to break into a new market. They allow firms to establish themselves within a market and therefore move beyond the exporting stage to more regular international involvement. There are many motives for IJVs which help us explain why they can be considered a successful entry strategy into emerging markets, as opposed to other forms of market entry. IJVs allow both parties to receive a mutual benefit, as they are usually formed because each party has something new to offer to the other. This essay will use the case study example of BMW’s IJV with Chinese automobile manufacturer Brilliance China Automotive Holdings Ltd to demonstrate the motives and benefits behind successful IJVs in the BRICS countries.

IJVs are becoming increasingly popular strategies for firms to use, despite the failure rate being as high as 45-50% in emerging economies and 30% in developed economies (Robock & Simmonds, 2007). In recent years the BRICS countries have been a very popular choice for them. The economies of these five nations are currently enjoying high levels of growth and prosperity, and one of the reasons for this is because they contain ‘special economic zones’. This refers to geographic regions that possess more free-market-orientated economic laws than other countries, usually in the aim of encouraging foreign direct investment which should lead to further economic growth. These can include free trade zones, export processing zones and free ports. Thus many multinational companies see these more relaxed laws and favourable investment conditions as a reason for entering such markets. The Chinese government abolished central planning in 1984, which led to the establishment of five special economic zones and has seen foreign investment soar since the early 1990s. India and Russia followed a similar route in 1991 and 1992 respectively, opening their economies to foreign investors through the likes of special economic zones, which has helped their economies grow. Therefore this has been a key reason as to why IJVs are frequently being located in the BRICS. However, it is not just BRICS which have set up special economic zones. Many export processing zones have been established throughout Africa, with free trade deals signed by three African trade blocs in 2008. Having said this, there are reasons beyond special economic zones as to why IJVs are frequently established in the BRICS. I shall attempt to explain this by relating to the example of BMW.

BMW Brilliance Automotive Ltd is an IJV