When Hughes Aircraft announced last spring the impending sale of a space satellite system to Japan, the big news seemed to be that an American telecommunications firm had, at last, cracked open a sealed market.
"It is sui generis-- altogether unique," said John E. Koehler, executive vice president of Hughes Communications, who spent 18 months negotiating a contract unlike any achieved by a foreign telecommunications company.
But even more significant than the $300 million and 1,000 new American jobs that the contract will bring was the technique that helped Hughes to win it. Hughes formed a joint venture with two Japanese partners, C. Itoh & Co. and Mitsui, then presented its proposal to the Ministry of Posts and Telecommunications through the partnership. The joint approach worked.
Along with much of corporate America, Hughes is participating in a dynamic trend that is not only getting positive results but reflects a whole new outlook, at least for many of America's most staid and long established companies: the international joint venture.
It is not a painless process. The failure rate is high and the aggravation is astronomical, American executives said in a series of interviews across the country. Most discuss joint ventures as if talking about personal relationships, in terms familiar to Dear Abby readers. For instance:
"With companies as with people, a torrid love affair can lead to marriage, but a bitter divorce may follow," said Jervis C. Webb, president and chairman of Jervis B. Webb Co., a leading international maker of conveyors and other materials-handling systems.
Until recently, many multinational corporations stayed out of global joint ventures. Like bachelors, they enjoyed the efficiencies and latitude of being single--100% control of their foreign subsidiaries. Marriage was out. As for countries with strict "local participation" laws, which require a foreign company setting up a subsidiary to take a local partner, the markets on the whole were not worth the bother. In most cases, they could be reached almost as efficiently through exports.
But all that is changing.
"Markets ripen, risks improve, policies change," said Alan D. Bickell, vice president in charge of Hewlett-Packard's intercontinental operations. Today, some of the world's most enticing markets are developing in "local participation" nations. And American-based multinationals are responding by lining up at the altar.
On the whole, a number of the interviewed executives made clear, they really would prefer to do business abroad in some other way. But the cost in terms of lost markets would be too dear. And done right, most seemed to agree, the international joint venture works; it is good for business and, with care, its perils can be sidestepped most of the time.
"It is the wave of the future," said Jagdish Bhagwati, director of Columbia University's International Economics Research Center. "The wave, in fact, has already started.
"The American company, through a joint venture, may not only enter an otherwise closed (foreign) market but do so with the protection and other advantages offered by a local partner," he said. "The local partner, in turn, may have access through the foreign partner to technology, capital, other markets."
International joint ventures have been around a long time. A number of them were established decades before World War II. But they did not begin proliferating until the 1970s when many more American companies found their old markets maturing and pressures building to find new markets.
In 1977, when the U.S. Commerce Department undertook a complete survey of foreign affiliates of U.S. corporations, American companies were partners in 6,937 joint ventures. More than twice as many--16,704--had wholly owned foreign subsidiaries. Now, the ratio of joint ventures to wholly owned ventures abroad is closing, a Commerce Department analyst said. Figures from a survey of 1982 are still being compiled, he added, "but the trend is definitely toward joint ventures."
From industry to industry, company to company, reasons for entering international joint ventures vary. For some, it is the only viable way to reach a market. Others want to share risk, meet competition or simply have a partner who knows--and has influence--in the local culture.
For Hewlett-Packard, the worldwide electronics multinational based in Palo Alto, one appeal is that, in Bickell's words, "as a joint partner, you are not a foreign body that will be rejected.
"We are participating in a global market, and strategic partnerships are key," he said.
Until a year ago, Hewlett-Packard had only one joint venture, in Japan. Now it has them in South Korea, Mexico and China, where its partner is the Ministry of Electronics. Through a written agreement, Hewlett-Packard retains complete management control as it does in Japan.