Joint VentureJoint Venture

Joint Venture Company

Inputs

MNE Local Firm

HOME COUNTRY HOST COUNTRY

Inputs

Share of Profit

Share of Profit

Joint VentureAdvantages

• Access to partner’s local knowledge

• Reduction of concern about overpayment

• Both parties have some performance incentives

• Significant control over operation

Disadvantages• Potential loss of proprietary

knowledge• Potential conflicts between

partners• Neither partner has full

performance incentive• Neither partner has full

control

When Is a Joint Venture Appropriate? Both partners contribute hard-to-measure inputs Large expected mutual gains in the long-run Trade secrets can be walled off