Strategic Global Operations - Essay Example

INCAT entered into joint venture with AFAI of Hong Kong against its previous strategy of licensing shipyards to build vessels in different countries. INCA is globally knows for its two high-speed ferry designs. It enjoys excellent reputation for its customer service and the safety of its vessels. Although INCAT had initially licensed shipyards, it entered into joint venture in 1996 due to heightened global demand. The growth of the company has taken place through innovation, diversification and globalization as competition has intensified and as economic situation has worsened (Wickham, 2005).

This paper evaluates why INCAT chose to enter into joint venture against licensing for building catamaran vessels. Depending upon the equity participation desired, the technology transfer, the risks and controls, the costs involved, an organization chooses to either enter into licensing agreement, joint ventures, or have a wholly-owned subsidiary. Licensing is a contract in which the licensor provides the licensee with access to one or a set of technologies in exchange for financial compensation (Rajan & Pangarkar, 2000).

In this agreement there is very little equity stake by the licensor or the multinational unit. Licensing requires a high level of technological competence. INCAT would just receive the royalty in exchange for the technology but would have little control over the quality. When technology is transferred to new and uncertain markets, the transaction cost is high and hard entry mode is preferred (Zhao & Decker, 2004). INCAT and AFAI had worked together for several years and developed a relationship of trust and commitment.

INCAT received inclination from several shipbuilders located in Malta, England, China and Sweden but it preferred AFAI for several reasons. Cultural distance can pose an obstacle in the management of joint ventures and this can be reduced through experiential