Post on 31-May-2015
The Design and Management of Interna-tional
Joint Ventures (JV)
Author: Paul W. Beamish
About the Author
• Paul Beamish is a Professor of International Busi-ness at Ivey.
• Author or co-author of over 50 books, and 100 ref-ereed articles.
EXPERIENCE • Full Professor, since 1996; Tenured, 1990.• Associate Professor• Proprietor : Nomad Trading Company
Manager : Comptroller’s Division The Procter and Gamble Com-
pany of Canada
EXPERTISE• Joint Ventures and Alliances• Business Strategy,• Emerging Markets: China/Japan/Asia• Exporting, International Management
Table of Content
• Introduction
• Joint Venture Definition
• Equity Joint Venture
• Why Companies create International Joint Ventures?
• Requirements for International Joint Ventures
• Joint Ventures Checklist
• Summary
• Discussion
Introduction
• Competitive Advantage • Introduce products or services to new Markets• Scarce Capital• Organizations Collaborating
What is a JV?
• A formal agreement sign by two or more organizations with the objective of do certain business together and share between all the parties the profits and the losses of the agreement.
• International• Domestic
Types
JV Specific Forms
Joint VenturesForms %
Minority Less than 50%
50/50 JV 50%
Majority More than 50%
Can you Remember ?
Joint Ventures
Forms
Form Denomina-
tion %
Cameron Auto Parts
TCL MultimediaAnother JV of your knowledge?
Minority 40/60
Majority 67/33
50/50 % 50/50
Effect of Foreign Equity Holding on Subsidiary Mortality Risk.
Types of Strategic Al-liances
Lessons Learned from Joint Ventures
• 50% of Companies with Joint Ventures were dissatisfied with their venture performance. • Reputation of Being difficult to manage.• Failure exist and are publicized
Examples:-As an example what lessons do we learned from TCL JV:
- Different Cultures. - Different Strategies Orientation. - Different approaches
Association of Strategic Al-liance Professionals (ASAP)
• Established in 1998, ASAP is the only professional member-ship association dedicated to alliance formation
Motivations for International Joint Ventures Formation
Exis
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ar-
kets
New
Mark
ets
To Take Existing Products to Foreign Markets
To Strengthen the Existing Business
Existing Products
To Take Existing Products to Foreign Markets
To Diversify into a New Business
To Bring Foreign Products to Local Markets
New Products
TCL
TCL
Cameron Auto Parts
Codetel-Verizon
Strengthening the Existing Business
This type of Joint Venture allow firms to acquire par-ticular technology and Know How, reducing financial risks of major projects.
Exis
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kets
To Take Existing Products to Foreign Markets
To Strengthen the Existing Business
Existing Products
To Take Existing Products to Foreign Markets
To Diversify into a New
Business
To Bring Foreign Products to Local Markets
New Products
New
Mark
ets
Achieving Economies of Scales
• In Raw Materials
• Component Supply
• Research and Development
• Marketing and Distribution
• Achieve Divisional Merge
Raw Materials
• Obtain Raw Materials • Jointly Manufacture Components (e.g. Auto Makers)
Research and Develop-ment
• Save Time and Money• Collaborating and Combining Efforts of HR• Incredible Outcomes
• Simply Coordinate Efforts and Share Cost• Set up a jointly owned company.
Two possible Forms to ac-complish R&D JV:
Marketing and Distribu-tion
• Not a Common Form of JV.
• Anti-Trust feelings emerge.
• Achieving Economies in Marketing and Distribution
• Cover Market at Lower Cost
• Loss Direct Control of Sales Force
• Slower Decision Making Process
Divisional Mergers
• Combining “Too Small” companies
• Practice when both organizations are performing poorly
• Allow firms graceful exit from a business in which is not longer
interesting
Acquiring Technology in the Core Business
• Through License Agreements
• Through developing the technology themselves
• Giving access to Patent Rights
• Having employees of both organizations working shoulder to shoul-
der
Reducing Financial Risks
• Split the cost for searching new field
• Reduce Complexity of find resources (oil companies)
• One partner take the lead role.
• Manage day-to-day basis.
• The rewards of the venture are easy to divide between
partners.
Taking Products to Foreign Markets
Firms with Domestic developed products have the opportunity to success in foreign markets.
Options:
• Produce the product at home or export it. • License Technology• Establish Subsidiaries in Foreign Markets• From Joint Ventures
Exis
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kets
To Strengthen the Existing Business
Existing Products
To Take Existing Products to Foreign Markets
To Diversify into a New
Business
To Bring Foreign Products to Local Markets
New Products
New
Mark
ets
Following Customers to Foreign Markets
• Reduce Risk• Follow firms that are already customers at home• Learn from knowledge transfer • Tap into growing markets.
Investing in “Markets of the Future”
• Taking early position in Emerging Markets
• Possible source of Low-Cost
• “Know the Ropes” JV
• Government regulations
• Currency Exchange
• Unfamiliarity with the local culture
Bringing Foreign Products to Local Markets
Exis
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ar-
kets
To Strengthen the Existing Business
Existing Products
To Take Existing Products to Foreign Markets
To Diversify into a New
Business
To Bring Foreign Products to Local Markets
New Products
This is the complementary effect that makes JV possible, for every firm that uses an international JV to take its product to foreign market, a local company sees the JV as an attractive way to bring a foreign product to its existing market.
Using JV for Diversifica-tion
Exis
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ar-
kets
To Strengthen the Existing Business
Existing Products
To Take Existing Products to Foreign Markets
To Diversify into a New
Business
To Bring Foreign Products to Local Markets
New Products
New
Mark
ets In the previous example we have illustrate, many JV where one par-
ent knows well the product and the other parent knows well the market, but when we talk of diversification JV we are referring to a new ground and move one or both parents into products and markets that are new to them.
Enter New Product, New Market with a New Partner = (.8 x .8 x.8 ) about 50% !
Requirements for International JV Success
“Permanent solutions to temporary Problems”
Measuring JV Performance: The Search for Congruity
Foreign Partner
1. Profitability – 20% ROS (within 12-24 months)
2. Require limited senior man-agement time
3. Maximize local sales4. Exploit peripheral or mature
technology
Local Partner
1. Profitability (within 9-12
months)
2. High paying salaried po-
sitions
3. Opportunity to export
4. Obtain newest technol-
ogy
JV
1. Partnership and Fit
Does the partner share your objectives for the venture?Does the partner have the necessary skills and resources? Will you get access to them?Will you be compatible?Can you arrange an "engagement period"?Is there a comfort versus competence trade-off?
Shape and Design
Define the Venture´s Scope of activity and its strategic freedom vis-a-vis its parents.Lay out each parent´s duties and payoffs to create a win-win situ-ation. Ensure that there are comparable contributions over time.Establish the managerial role of each partner.
Doing the Deal
How much paperwork is enough? Trust versus legal considerations?Agree on an endgame.
Making the Venture Work
Give the venture continuing top management attention Manage cultural differences Watch out for inequities Be Flexible
What others Cultural Differences?
•Small Firms vs. Large Firms
•Firms working with two partners from the same country (e.g. Rural Japan from Tokyo dun business)
•Cultural Differences between managers within in different functional areas.
The True Joint Venture versus the Pseudo Joint Venture
The True Alliance The Pseudo Alliance
Planned level of parent input development and involvement Continuing One-time
Distribution of Risks/Rewards Roughly even Uneven
Parent attitude toward the JVA unique organization with unique needs One more subsidiary
The Formal JV Agreement Flexible guidelinesFrequently referenced
rulebook
Performance ObjectivesClearly Specified and
CongruentPartially overlapping/
ambiguous