Management of Joint Ventures 1 Joint Venture - A business arrangement in which two or more parties...

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Management of Joint Ventures

Joint Venture- A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task- This task can be a new project or any other business activity- In a joint venture (JV), each of the participants is responsible for profits,

losses and costs associated with it- However, the venture is its own entity, separate and apart from the participants' other business interests- JVs represent a great way to pool capital and expertise and reduce the exposure of risk to all involved- It is governed by a joint venture agreement- The agreement delineates specifics – how much each party will contribute and how the proceeds, if any, will be divided- For example, in the oil industry, developers, drilling companies and service providers could agree to form a joint venture to drill an oil well. If the oil well is successful, those parties split the profit based on the value of their respective contributions to the joint venture

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AdvantagesA successful joint venture can offer:- access to new markets and distribution networks- increased capacity- sharing of risks and costs with a partner- access to greater resources, including specialized staff, technology and finance

http://www.infoentrepreneurs.org/en/guides/joint-ventures-and-partnering/

RisksPartnering with another business can be complex. It takes time and effort to build the right relationship. Problems are likely to arise if:- the objectives of the venture are not 100 per cent clear and communicated to everyone involved- the partners have different objectives for the joint venture there is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners- different cultures and management styles result in poor integration and

cooperation- the partners don't provide sufficient leadership and support in the early stages- Success in a joint venture depends on thorough research and analysis of aims and objectives


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Assess Readiness for a

JV

1. What do I sell, and how do I reach my target market?

2. Who are my competitors? If they are better at generating revenues and reaching the marketplace than me, what do they have that I don't?

3. Are there geographical areas that will remain beyond reach without local partners, or acquisition costs that are simply too high?

4. Do I need to develop a know-how, which has already been developed by a company or by an individual?

5. Is there a logical business partner that could help me develop a vertical or horizontal market penetration?

6. Do I have all the human resources I need in marketing, R&D, production, or operations? Is there a company I know which would have resources complementary to mine?

7. How do I feel about combining resources? Do I like to lead by myself and act as a solitary business hero, or am I fine with sharing the pie?

8. Do I have access to the right legal resources to structure the joint venture and insure all aspects are duly covered?

9. Are there local legal regulations I can bypass by partnering with a local business?

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JV

10.Do I have access to successful joint ventures who can share their experience with me?

11.Do I understand that going through the decision process entails sitting down and taking the time to write a full-fledged joint business plan?

12.Am I looking at partnering because I don't see another way out of my current business problems? (Joint venturing should not be considered as a last resort action, but rather as one course of action among several others. This decision needs to be taken in a careful and methodical manner.)

13.Do I already know of a person or a company that I see has a real interest in partnering? Have I discussed this possibility with this person or with the person in charge of the targeted company? If yes, what is the general feeling? If no, then it is time to start a high-level discussion to gauge the level of interest

14.Is my company in need of more credibility? Do I know of a potential joint venture target, which has the level of credibility I am seeking?

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JV

16.What are my strengths and weaknesses? What are the threats and opportunities in my target market?

17.Do I have all the support I need to go through this major change in my business life? If I am going through personal turbulences, does it make sense to start such a major project? Plan JV

Relationship

Before starting a joint venture, the parties involved need to understand what they each want from the relationship;1. Smaller businesses often want to access a larger partner's resources,

such as a strong distribution network, specialist employees and financial resources

2. The larger business might benefit from working with a more flexible, innovative partner, or simply from access to new products or intellectual property

3. One might decide to build a stronger relationship with a supplier, might benefit from their knowledge of new technologies and get a better quality of service. The supplier's aim might be to strengthen their business from a guaranteed volume of sales to you

Any deal should:recognize what you each contributeensure that you both understand what the agreement is expected to achieveset realistic expectations and allow success to be measured



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Choose the Right JV Partner

The ideal partner in a joint venture is one that has;1. Resources2. Skills3. Assets4. A good fit between the cultures of the two organizationsthat complement your own

A good starting place is to assess the suitability of existing customers and suppliers with whom you already have a long-term relationship. Broad consideration points would be;

How well do they perform?What is their attitude to collaboration and do they share your level

of commitment?

Do you share the same business objectives?Can you trust them?Do their brand values complement yours?What kind of reputation do they have?



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Choose the Right JV Partner

If you opt to assess a new potential partner, you need to carry out some basic checks:

Are they financially secure?Do they have any credit problems?Do they already have joint venture partnerships with other businesses?What kind of management team do they have in place?How are they performing in terms of production, marketing and

personnel?What do their customers and suppliers say about their

trustworthiness and reputation?


Important Checkpoints

It's important to;protect your own interestsDraw up legal documentsFind out whether your potential partner holds intellectual

property rights agreementsChecking to see whether they have other agreements in place,

either with their employees or consultants


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JV AgreementContent

________________________

______________________________________________ ______________________________________________

_________________________________

the structure of the joint venture, e.g. whether it will be a separate business in its own right

the objectives of the joint venture

the financial contributions you will each make

whether you will transfer any assets or employees to the joint venture

ownership of intellectual property created by the joint venture

management and control, e.g. respective responsibilities and processes to be followed

how liabilities, profits and losses are shared

how any disputes between the partners will be resolved

an exit strategy – strategy on ending a joint venture


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Ways to Workout a JV Relationship

Get your relationship off to a good startCommunicationEstablishing clear performance indicatorsAim for a flexible relationship. Regularly review how you could

improve the way things work and whether you should change your objectives

Look for "win-win" solutions rather than trying to score points off each other


Ending a JVTermination Condition: For example, you might each be allowed to give three months' notice to end the agreement. Alternatively, if you have set up a joint venture company, one option can be for one partner to buy the other outhow shared intellectual property will be unbundledhow confidential information will continue to be protectedwho will be entitled to any future income arising from the joint

venture's activitieswho will be responsible for any continuing liabilities, e.g. debts and

guarantees given to customers


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http://www.infoentrepreneurs.org/en/guides/joint-ventures-and-partnering/http://en.wikipedia.org/wiki/Kinetic_Engineering_Limited

Company Reason for Break up

Kinetic-Honda Kinetic buys partner’s stake

Kinetic Engineering formed a joint venture with Honda Motor Company to introduce Kinetic Honda scooters, which had electric start and gearless transmissions. Kinetic and Honda parted ways in 1998 with the Firodias bought out the majority stake of the MNC

joint venture partner. In 2008, Kinetic entered into a joint venture with Mahindra Automobiles, where Mahindra held an 80% stake. By this joint venture, Mahindra acquired the two-wheeler manufacturing facilities as well as the then selling brands of Kinetic.After ceasing two-wheeler manufacturing, Kinetic Engineering produces and exports automotive components. Kinetic Motors resumed operations in January 2011 and has announced plans to produce electric vehicles.In February 2014, Kinetic sold its stake in Mahindra Two-Wheelers to Samena capital (investment group) for 182 Crores


http://en.wikipedia.org/wiki/Kinetic_Engineering_Limited

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http://www.infoentrepreneurs.org/en/guides/joint-ventures-and-partnering/h http://en.wikipedia.org/wiki/Mahindra_Renault_Limited

Company

Mahindra- Renault

Mahindra Renault Limited was a joint venture between India’s largest utility vehicle manufacturer Mahindra & Mahindra Limited & Renault S.A. of France (51% & 49% respectively). The joint venture was formed in 2007. On April 15, 2010 Mahindra & Mahindra and Renault together announced restructuring plans by which Mahindra would buy Renault's share in the joint venture and Renault would continue to provide the support for M&M through license agreement and continue to be supplier of key components


http://en.wikipedia.org/wiki/Mahindra_Renault_Limited

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http://timesofindia.indiatimes.com/business/india-business/Godrej-exits-joint-venture-with-Hersheys/articleshow/16305540.cms

Company Reason for Break up

Godrej – Hershey Incompatibility in growth

The Godrej Group is entirely exiting the foods business - along with local brands such as Jumpin', Nutrine, Mahalacto and Sofit - with its decision to divest its holding in joint venture company, Godrej Hershey. Godrej Industries announced its decision to divest its 43% stake in the joint venture company to the US chocolate major for an undisclosed consideration.Adi Godrej, chairman, Godrej Group, said: "Over the last few years, we have been following a disciplined approach to doubling down on our core businesses to drive sustained and profitable growth. We have been making clear choices to focus on areas where we have a competitive advantage and that provide the best growth opportunities for us. Our decision to divest our stake in the Godrej Hershey joint venture is in line with this focused portfolio strategy.

The Hershey Co. has agreed a deal to buy Godrej industries 49% stake. It has announced plans to set up its own subsidiary ‘Hershey India’

http://timesofindia.indiatimes.com/business/india-business/Godrej-exits-joint-venture-with-Hersheys/articleshow/16305540.cms

http://timesofindia.indiatimes.com/topic/Adi-Godrej

http://timesofindia.indiatimes.com/topic/Adi-Godrej

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Cross Cultural Dimensions of International Management

What is Culture?A patterned way of thinking, feeling and reacting that exists in a particular group, organization, profession, subgroup of a society, nation or a group of nations

The core features of culture;a. A past history which may be recordedb. Regulated political, legal, social systems & communication networksc. A dominant organized religion within which the salient beliefs and

activities (rites, rituals, taboos & ceremonies) are given meaning, legitimacy, & a sense of continuity

d. A set of core values & traditions including norms of personal, familial, and social conduct; patterns of socialization, kinship patterns, gender roles

e. Artifacts unique to that society, such as literature, works of art, architecture, paintings, music, dance, drama, religious texts, philosophical texts

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Link Between History, Geography with Culture & Managerial Practices

- In the 18th & 19th Century, people fleeing from poverty, persecution or prison in Europe (Pioneers)- Staked their land & got rid of the original Native Americans- Those were the days of land grabbing (U got there first- U got the land)

-Working hard is the guarantee of success- Americans want to be first- Believe in equality- Have large resources & still want to conquer the environment

-It is an island nation with few natural resources- High population density with little land availability- Had to cooperate to work hard at rice farming

-Harmony & group work continue to be core values- Japan is considered a ‘web society’ - Interdependence between people, moral & social obligations both vertically & horizontally

- Rigid Indian caste system- Long history of colonization where Indians worked for the British

- Caste may not matter in the modern Indian workplace- Indian workplace is hierarchical- Commitment to the org. & its goals is low- Family occupies prime place- If an organization creates a ‘familial’ culture, then Indians feel more comfortable

USA Japan India

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Dimensions of Culture

- Cultures are complex- Common dimensions are relationship with people, equality, time, space, language, priorities, attitude toward risk, emotions, rules & regulations, & control over nature

Relationships1. How important is the role of individual Vs the role of the collective?2. Do individuals make decisions taking their community into account

or based on their own self interest?3. Are tasks considered more important than relationships?4. How important is relationship building for business transactions?

Equality1. How much inequality do people accept?2. Is it expected that the boss be the most powerful person & tales all

the decisions?3. How accessible are bosses to subordinates?

Time1. How do people treat time?2. Is it something precious & not to be wasted?3. How much emphasis do people place on clock time and on

schedules?4. Do people mind spending time on meals or do they find it a waste of

time?5. Does time rule the person or does the person rule time?

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Spoken Language & Non

verbal Communication

1. What are the relative roles of verbal & non verbal communication?2. How much a message is conveyed in words & how much without

words?

Priorities in Society

1. What is given most importance in society?2. Is success defined by money, material goods & position?3. Or is success defined by care, love and a balanced life?

Space1. How is space used?2. Do people stand close to each other or keep a distance?3. Do important people have different access to space?

Risk Taking1. How wiling are people to take risks?2. Are people happier to stick to known ways & resist to change?

Emotions1. Do people feel free to express their emotions in business & personal

relationships? 2. Is it unacceptable to express anger/ displeasure/ enthusiasm in

business relationships?

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Fatalism & control over

nature

1. Do people feel that they have control over their destinies & nature?2. Do they feel it is God’s Will & there is nothing they can do about

their future?

Rules & Regulations

1. Do people have a healthy respect for rules & regulations?2. Are people flexible enough to follow rules & regulations as per the

context?

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Cross Cultural Dimensions: Geert Hofstede’s Model

Geert Hofstede- A Dutch engineer & social scientist- His classic text Culture’s Consequences: Comparing Values, Behaviors,

Institutions & Organizations Across Nations (1981)- Hofstede is third most cited author in understanding cross- cultural

aspects of International Management- Prof. Hofstede conducted his study in the 1960s in the IBM

subsidiaries in 64 nations across the world- Dimensions of National Culture as identified by Hofstede are: 1. Power Distance 2. Individualism & Collectivism 3. Masculinity & Feminity 4. Uncertainty Avoidance 5. Long Term Orientation

Power DistanceIt is the degree to which people in a society or an organization accept inequality High Power Distance Society: Where difference in power between superiors & subordinates, older & younger people, rich & poor people is acceptedLow Power Distance Society: Society equality is part of the social structure. Everyone rich or poor, high or low in the organizational or societal hierarchy expects to be treated equally

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High Power Distance Society

- Philippines, India, China, Venezuela, Malaysia, Mexico are high power distance socities

- Supervisor takes all the decisions & dominates all meetings & discussions

- Subordinates cannot disagree with seniors openly- It is common to find ‘office assistants’ whose job is to meet the

needs of the superiors- Powerful people enjoy many privileges & try to project an image of

being very important in public- Better off houses have dometsic help at home who are low paid &

are from lower social class- Skills, Wealth, Power & Status go together - Example: Indian MNC; top positions have sons or close relatives of

the founder members. Apollo Tyres have three members of Kanwar family on the board, Bharat Forge have three members of the Kalyani family on its board

Power Distance in India

- Term Homo Hierarchicus has been used to describe Indians by French anthropologists Louis Dumont

- Indians are perhaps world’s most undemocratic people living in the world’s largest democracy

- Age, gender, caste, credentials, wealth determine the rank

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Power Distance in India

- Family is the glue that keeps the Indian society together - Relationships in the family are hierarchical in structure- Same tendency manifests in the workplace- Superiors male or female can almost be maternal in behavior , while

subordinates display respect & compliance - An Indian leader can often be idealized & looked upon & a

repository of all virtues

PDI Score & its Factors

Hofstede’s research shows that predictable factors that determine a country's PDI score could be;1. The country's geographical latitude: A higher latitude contributes to

lower PDI. Countries like Panama, India, Malaysia are all near to equator & have high PDI score. Countries like Finland, Norway, Sweden have higher latitude & contributes to lower PDI score

2. Population Size: The larger the population the larger is the PDI score. Sparcely populated countries like Iceland have a low PDI score. Countries like India, China have a high PDI score

3. Wealth: The richer the country the lower the PDI score. Countries like USA, Japan, Germany, UK may have lower PDI scores. China is an exception which is world’s fourth largest economy still having high PDI score

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Criticism- Hofstede’s research shows that employees in low PDI score countries

prefers a boss who decides paternalistically or autocratocally- These results have been questioned by Indian scholars, Prof. Jai

P.Sinha & Prof. Sudhir kakar- Kakar shows that Indians preferred nurturing superiors- Sinha came up with the model of nurturant- task leadership style- Laungani points out how western academicians reinforce stereotypes

by claiming that western societies are individualistic, horizontal, open, flexible, rational & secular. Eastern societies as communalistic, vertical, hierarchical, rigid, religious and superstitious

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Hofstede measured the degree of individualism through the ‘Individualism Index’

Cross Cultural Dimensions: Geert Hofstede’s ModelIndividualism &

Collectivism

- Societies in which the ties between individuals are loose

- Everyone is expected to look after themselves & their immediate families

- Examples: USA, UK, Australia- Personal time & family time are important- Freedom to experiment in a job is

welcomed- Low Context Communication Style:

everything is spelt out clearly in words- Employee- Employer r/p: contract based

on mutual advantage- Hiring & promotion is based on skills &

output- Tasks prevail over r/p

- Societies in which the identity of individual is based on the identity of the group he/ she belongs to

- Examples: Guatemala, Ecuador, Panama- Opportunities to improve skills, good

physical working environment, opportunities to use skills & abilities on the job are important work related goals

- High Context Communication Style: lot of communication remains unspoken

- Employee- Employer r/p: more like a family

- Hiring & promotion is based on employee’s ‘in- group’

- R/p prevails over tasks- Harmony, shame & face are given

importance*Face is an unwritten set of rules by means of which people in society cooperate to avoid damaging one another's prestige & respect

Individualistic Cultures Collectivist Cultures

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Hofstede computed a ‘Masculinity Index’ for the 50 countries & 3 regions in IBM database

Cross Cultural Dimensions: Geert Hofstede’s ModelMasculinity &

Feminity

- Societies in which social gender roles are clearly distinct

- Men are supposed to be assertive, tough, focused on material success whereas women are supposed to be modest, tender & concerned with the quality of life

- Example: Japan, Austria, Venezuela- Masculine cultures give importance to high

salaries & recognition- Prefer jobs that give them the opportunity

to advance & jobs that are challenging- Failing in school is a major disaster &

children commit suicide (social pressure)- Teachers are admired if they are brilliant

academically - Women teach at schools & men teach at

universities- People live in order to work

- Societies in which social gender roles overlap

- Both men & women are supposed to be modest, tender & concerned with the quality of life

- Sweden, Norway, Netherlands- Give importance to having a good working

r/p with one’s supervisor & working with people who cooperate with one another

- Give importance to job security & family life

- There is no pressure to be the best- Excelling in one’s studies & reaching the

top are not necessary to earn respect- Social skills & friendliness are values that a

teacher must possess- People work in order to live

Masculinity Feminity

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Uncertainty Avoidance

- Uncertainty Avoidance can be defined as the extent to which the members of a culture feel threatened by uncertain or unknown situations

- The feeling is expressed through nervous stress & anxiety- The degree to which a culture avoids uncertainty is measured

through the ‘Uncertainty Avoidance Index (UAI)’- In weak uncertainty avoidance cultures anxiety levels are low

whereas in strong UAI countries anxiety levels are high- Uncertain avoidance leads to a reduction of ambiguity, people look

for a structured approach in organizations- Hofstede ranked highest – lowest uncertainty avoidance countries- High Uncertainty Avoidance countries have the credo ‘ What is

different is dangerous’- Low Uncertainty Avoidance countries feel ‘What is different is

curious’

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Hofstede added it wit Michael Bond (Canadian scholar)It was measured in a study among students in 23 countries across the globe

Cross Cultural Dimensions: Geert Hofstede’s ModelLong Term Orientation

- Examples: China has the highest score at LTO, other being Taiwan, Hong kong, Vietnam, Korea & Japan

- Example: USA, UK , Germany, Norway, New Zealand & Sweden

- US corporate’s stress on quarterly results, putting tremendous pressure on top managers to show sort- term profits

- US corporate lay off its employees just to show better quarterly results

Long Term Orientation Short Term Orientation

Values associated with LTO are; - Thrift (economy, saving) - Perseverance (insistence) - Respect for Tradition - Fulfilling Social Obligations - Protecting One’s Face

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Management of Joint Ventures 1 Joint Venture - A business arrangement in which two or more parties...

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