The Design And Management Of InternationalPresentation Transcript
The Design and Management of International Joint Ventures (JV) Author: Paul W. Beamish
• Paul Beamish is a Professor of International Business at Ivey.• Author or co-author of over 50 books, and 100 refereed articles.EXPERIENCE• Full Professor, since 1996; Tenured, 1990.• Associate Professor• Proprietor : Nomad Trading Company Manager : Comptroller’s Division The Procter and Gamble Company of CanadaEXPERTISE• 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. Types • International • Domestic
JV Specific Forms Joint Ventures Forms % Minority Less than 50% 50/50 JV 50% Majority More than 50%
Can you Remember ? Joint Ventures Form Forms Denomination % Minority 40/60 Cameron Auto Parts Majority 67/33 TCL Multimedia 50/50 % 50/50 Another JV of your knowledge?
Effect of Foreign Equity Holding on Subsidiary Mortality Risk.
Types of Strategic Alliances
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 publicizedExamples:-As an example what lessons do we learned from TCL JV:- Different Cultures.- Different Strategies Orientation.- Different approaches
Association of Strategic Alliance Professionals (ASAP)• Established in 1998, ASAP is the only professional membership associationdedicated to alliance formation
Motivations for InternationalNew Markets Joint Ventures Formation Cameron TCL To Take Existing Products to to Take Existing Products For ForeignMarkets eign Markets To Diversify into a New Business Auto PartsExisting Markets TCL To Strengthen the Existing Business Codetel-Verizon To Bring Foreign Products to Local Markets Existing Products New Products
Strengthening the Existing New Markets BusinessThis type of To Take Existingfirms to acquire to Joint Venture allow Products to particular technology Take Existing Products For To Diversify into a Newand Know How, reducing financial risks of major projects. ForeignMarkets eign Markets Business Existing Markets To Strengthen the To Bring Foreign Existing Business Products to Local Markets Existing Products New Products
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 Development • Save Time and Money • Collaborating and Combining Efforts of HR • Incredible OutcomesTwo possible Forms toaccomplish R&D JV:• Simply Coordinate Efforts and Share Cost• Set up a jointly owned company.
Marketing and Distribution• 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 shoulder
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 New Markets Foreign Markets To Take Existing Products to To Diversify into a New Foreign Markets BusinessFirms with Domestic developed products have the opportunity to success in foreignmarkets.Options: Existing Markets• Produce the product at home or export it.• License Technology• Establish Subsidiaries in Foreign Markets To Strengthen the To Bring Foreign• From Joint Ventures Existing Business Products to Local Markets Existing Products New Products
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 This is the complementary effect that makes JV possible, for every firm that uses aninternational JV to takeExisting Products to market, a local company sees the JV as an To Take its product to foreign To Diversify into a Newattractive way to bringForeign Markets its existing market. a foreign product to Business Existing Markets To Strengthen the To Bring Foreign Existing Business Products to Local Markets Existing Products New Products
Using JV for Diversification In the previous example we have illustrate, many JV where one parent knows well the product and the other parent knows well the market, but when we talk of diversification New MarketsJV we are referring to a new ground and move one or both parents into products andmarkets that Take Existing Products to To are new to them. To Diversify into a New Foreign Markets BusinessEnter New Product, New Market with a New Partner = (.8 x .8 x.8 ) about 50% ! Existing Markets To Strengthen the To Bring Foreign Existing Business Products to Local Markets Existing Products New Products
Requirements for International JV Success “Permanent solutions to temporary Problems”
Measuring JV Performance: The Search for Congruity Foreign Partner Local Partner1. Profitability – 20% ROS (within 12-24 1. Profitability (within 9-12 months) months)2. Require limited senior management 2. High paying salaried positions time 3. Opportunity to export3. Maximize local sales4. Exploit peripheral or mature 4. Obtain newest technology technology
1. Partnership and FitDoes 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 DesignDefine 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 situation.Ensure that there are comparable contributions over time.Establish the managerial role of each partner.
Doing the DealHow much paperwork is enough? Trust versus legalconsiderations?Agree on an endgame.
Making the Venture WorkGive the venture continuing top managementattentionManage cultural differencesWatch out for inequitiesBe Flexible
What others Cultural Differences?•Small Firms vs. Large Firms•Firms working with two partners from the same country (e.g. Rural Japan fromTokyo 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 A unique organization Parent attitude toward the JV with unique needs One more subsidiary Frequently referenced The Formal JV Agreement Flexible guidelines rulebook Clearly Specified and Partially overlapping/ Performance Objectives Congruent ambiguous