IJVs have become increasingly popular in the past decade (Beamish & Delios, 1997) as companies find themselves under pressure to expand internationally, in order to stay competitive. Joint ventures can offer the following advantages to companies (Hewitt Associates, 2008): They provide companies with the opportunity to obtain new capacity and expertise. They allow companies to enter into related businesses or new geographic markets, or obtain new technological knowledge. They have a relatively short life span (5-7 years) and therefore do not represent a long-term commitment for the companies.
However, IJVs are challenging to manage and often lead to failure. In 12 past studies of IJVs, Beamish and Delios (1997) found that the performance of between 32 and 61 percent of the IJVs in each sample was unsatisfactory. In Russia in particular, managing an IJV is no small task. There are many challenges in setting up an IJV in Russia, and most investors have been traditionally wary of investing in such business arrangements due to the many risks and challenges associated with joint ventures on Russian soil.
IJVs in Russia must deal with problems such as weak infrastructure, a constantly changing environment, corruption, constantly changing legislation, and bureaucracy (Fey, 1996). However, despite these challenges, it should be noted that Russia is the largest country in the world, with over 148 million people. It occupies one-eighth of the world’s land. Its work force is inexpensive and highly educated since the average Russian is better educated than the average American.
Russia is also rich in natural resources – it is considered one of the largest oil producers in the world (Fey, 1996). Thus, Russia presents great opportunities for a successful IJV business arrangement. Due to the inherent difficulties associated with setting up an IJV in Russia, however, it is important to design an IJV agreement that will minimize risks and maximize the advantages that Russia has to offer. Russia is too important a market and has too many attractive resources to be ignored by foreign investors (Kvint, 1994).
The international oil and natural gas industry, in particular, is one of the most vital markets in the world. This industry serves as a source of energy and basic raw materials which form the basis of a host of other industries such as the manufacturing, agricultural, and service industries. Russia holds the world’s largest natural gas reserve and the eighth largest oil reserve in the world. It is also the largest gas exporter of natural gas, and in recent times has emerged as the largest exporter of oil as well (Katsioloudes & Isichenko, 2007).
The country’s energy industry is thus a force to reckon with, and has become increasingly important in the global economy especially after the Russian economy has steadily moved away from a centrally planned system towards a capitalist model (Katsioloudes & Isichenko, 2007). Thus, despite the challenges and risks involved in starting an IJV in Russia, there are nevertheless many advantages and benefits that can be gained from such a business arrangement. STATEMENT OF THE PROBLEM
In the main, this study aims to determine the key success factors for international joint ventures in the oil and gas industries of Russia. As such, the following research questions will be answered: What are the key factors that are responsible for their success in other industries? What is the history of international joint ventures in the oil and gas industry in Russia? What are the trends for international joint ventures in the oil and gas industry in Russia?
What are the problems of international joint ventures in the oil and gas industry in Russia which led to many failures? and What are the key success factors of international joint ventures in the oil and gas industry of Russia? HYPOTHESIS The following factors are the keys to successful international joint ventures in the oil and gas industries in Russia: Mutual trust. Ensure that trust exists between the IJV and its parent organizations; Common understanding.
Attain a common understanding of each parent organization’s contribution to the IJV agreement; Empowerment. Persuade workers that they are empowered. Mutual long-term commitment. Ensure that both parent organizations are involved in the IJV for the long term. Having both parent organizations committed to the IJV for the long-term decreases the risk of shirking responsibility and increases the likelihood of mutual forbearance between the IJV and its parent firms.