Paresh Sheth on Joint Ventures

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MERGERS, ACQUISITIONS, ALLIANCES, JOINT VENTURES

THE NEXT 20 MINUTES…OR SO…
Mergers,
Acquisitions,
Alliances,
Joint ventures,
Collaborations,
Start ups,
Buy Outs.

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COMMON DENOMINATOR…
Times Bank ; HDFC Bank
IndiaInfo / Seranova ; Just Dial
Topworth marketing P Ltd ; Sell off to HNI investors
Age Marketing ; Sell Off to Competition above
ICICI Bank ; ICICI Ltd / ICICI PFS / ICICI Capital
ICICI Bank ; Bank of Madura
IDBI Bank ; United Western Bank
IDBI Bank ; IDBI Limited
IDBI Bank ; IDBI Fortis Federal bank Life Insurance
Principal Financial Group ; PNB, Vijaya Bank 8000 Branch Alliance
FirstRand Bank ; India Start Up
HBS Swiss Bank ; Managing Indian Sub in to Investment Banking

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CAVEAT …
My thoughts are
• Mostly based on personal experiences
• Hence Biased

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TAKE AWAY…

• Understanding why JV’s are important
• POA for Students & Practitioners
• Spotting JV opportunities

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Why are alliances / Joint ventures Imperative?

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ALL BUSINESSES ARE …
1. Marketing; and 2. Innovation
Both Require

Resources, Ideas and Markets.

Scarce Emerging Markets
• Population
• Eco Growth
Environmental change; dynamic environments; less predictable
Environment complexity; large number of external factors
Resource scarcity;

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SOLUTION TO SCARCITY

Solution is Sharing, Leveraging, Outsourcing and Borrowing
• Strategic Alliances
• Joint Ventures
• Mergers & Acquisitions
• Solo??

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SO…
If Mergers, Acquisitions, Alliances and
Joint Ventures are IMPERATIVE...
“What are we looking at?”
“Are we in a sweet spot?”
“Is there an emergence of unstoppable trends?”
“What's the challenge?”
“How do MNC’s think and Plan?”

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UNSTOPPABLE TRENDS…
Strategy formulation & implementation is being impacted by 3 unstoppable trends

Globalization, Technological advances, and Partnering
that feed and reinforce each other.
Globalization means blurring, increasingly permeable national boundaries.
Technological advances means industry convergence or blurring industry boundaries.
Partnering (strategic alliances, international joint ventures, global networks) means
blurring firm boundaries. National, industry, and firm boundaries are all becoming
porous, and the unprecedented challenges and opportunities created by such
porosity provide the broad context and the underlying importance of
interorganizational networks to global strategy.

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OPINION…
A recent report by World Bank Vice President Otaviano Canuto
argues that developing countries will be engines of growth and
could carry the world economy in the future, provided they have a
clear strategy.
If so, there may be enormous opportunities for companies to claim
market leadership by helping developing countries to establish
these growth strategies. A different role for business in
development will certainly emerge.
But what will be its parameters, objectives and responsibilities?
What will be the key requirements for a new era and how can we
create sustainable strategies?

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TWO CHALLENGES EMERGE
Two challenges to business :
1. The definition of strategies and partnerships that enhance
sustainability of business and market development;
2. The need to innovate to deliver profitable products and services
in developing countries. ; LOW NEED TO INNOVATE

SOURCE DELOITTE MANUFACTURING

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So what does a Typical MNC do?
(to address the challenges)

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HOW DO MNC’S TARGET A COUNTRY?
• Personal Experiences of Senior Managers
• Gut Feel or Anecdotal Advice / Evidence
• Country Portfolio Analysis & Risk Assessment
• GDP & Per Capita Income
• Population Composition
• Growth Rates
• Purchase Power Parity & Exchange rates
• World Economic Forums Global Competitiveness Index
• World Banks Governance Indicators
• Transparency Internationals Corruption ratings
• Weight in Emerging Market Funds Investments
• Political Forecast

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COMPOSITE INDEX…
Brazil Russia India China
Growth Competitiveness 57 70 55 46
(world eco forum report)
Business Competitiveness 38 61 30 47
(world eco forum)
Voice & Accountability 58 33 60 10
(world bank report)

Composite Risk 70 78 72 76
(100 is least risky)**

Weight in Emerging 6.9% 5.2% 5.0% 4.7%
Market Index***SCB

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WHAT'S WRONG WITH COMPOSITE INDEX?
COMPOSITE INDICES are useful; but only when they are used a basis of drawing up
strategies when home base and target countries have comparable Institutional
contexts
For example US and UK have similar Product, Capital and Labor Markets. They also
have comparable network of skilled intermediaries and strong regulatory systems

Softer Infrastructure Issues are missing !!
- South Africa BEE
- Malaysia ; Government Pro Malay policy
- Its difficult to imagine a business in china without government support
- Financial Reporting in China
- Corporate Governance issues in China and Russia – Threat to Intellectual
Property Rights (IPR)

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EYES OF AN MNC…

If a MNC uses such a composite index to define
the country …

How do they finalize the entry strategy?

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HOW DO MNC’S DECIDE IF M&A OR JV OR
ALLIANCE? OR GO SOLO?
Goals

Strategy Develop Strengths?
Define Time?
Strengths Gap Contract
manufacturing? Money?
Contract Sales? Energy?
Resources
Alliance? Licensing?
Joint Venture?

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QUESTIONS… How close are your strength and internal resources to
those identified in the GAP?
Resistance to internal development; towards fulfilment of
the GAP?
Difference in organizational model required to achieve
strategy?
Resources; availability? Inherent strengths? Organizational
ability for scalability?
Time, Money and Energy cost; estimated to resolve
organizational conflict if any towards achieving strategy?
Cost of outsourcing? Cost of Alliance?
How deep an understanding is required?
How integrated the strength / process / geography / activity; to future strategy?
How important the customer / profitability / branding?
How strategic an alliance is required?
The need to possess certain abilities / competencies before you can profitability acquire certain other competencies
/ abilities / technologies
In any alliance; the more the departments and people have to coordinate; the lesser the chances of success.
How far does this alliance / JV take us? In our goals

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TWO MORE QUESTIONS…

1. How tight an Embrace?
2. Alliance Management Capacity?

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ANSWERS…
Answers to questions posed in the last page…will give us a Solution !
Alliance / Outsource / Joint Venture / Acquisition / Solo

Other Factors
Product / Price / Promotion / Place / Public / Politics
This will give us the final answer; to the kind of alliance we should
strike; if at all.

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WHAT'S WRONG HERE?

Even the Best of GAP ANALYSIS & COMPOSITE INDEX
STUDY leaves out Institutional voids!
In emerging economies; soft infrastructure which plays a
critical role in execution of business models is missing
; These are Institutional Voids !

• These institutional Voids are not shown in any gap analysis or any
Composite Index.
• Institutional Voids hamper the implementation of Globalization Process.

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INSTITUTIONAL VOIDS…
- Skilled Market Research Firms to - IPR & Copyrights
understand Customer Preferences - In country Brand perception / Preference
- End to End Logistics Provider - Supplier Base & Logistics
(Chinese Example) - Modes of Entry / Ownership
- Civil Society & NGO’s
- Manpower & Search Firms - Politics & Corruption
- Lack of Specialized Intermediaries - Trade Unions
- Management talent – education/english
- Efficient Bankruptcy Processes
- Permissible modes of entry
- Financial reporting / GAAP etc - Data base vendors
- Capital Markets & VC funding - Accounting Firms
- Product Rating Companies like JD Power
- Debt Capital Markets - Reserved Products for SME / Indigenous
- Stock Exchanges / SME Exchanges - Contract Enforcing Mechanism

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SO…
If you look at issues with
Composite index and Institutional Voids

The obvious answer ;
“Entering emerging markets without local support is
a folly..”

Alliances / JV’s are in;
Solo is definitely not worth the costs.

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HAVING SAID THAT…
Research suggests that multiple JV’s fail. Even merged
companies are demerged.
– Frankly; this is an entry strategy; which may last 5 to 15
years. Once the MNC company is set in India and has a
foot hold. … to remain together is another question!

Lets leave this for another day…Right now lets see if there
is an action plan we can form to enable JV’s / Alliances /
M & A’s and act as a catalyst for MNC entry.

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SPOTTING OPPORTUNITIES

Goals

Strategy Develop Strengths?
Define Time?
Strengths Gap Contract
manufacturing? Money?
Contract Sales? Energy?
Resources
Alliance? Licensing?
Joint Venture?

**Value Chain Analysis and Multiple Other ways of defining GAPs.
Indus1Advantage has a proprietary model to Identify GAPs.

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HAVE A LOOK AT INSTITUTIONAL VOIDS AGAIN
- Skilled Market Research Firms to - IPR & Copyrights
understand Customer Preferences - In country Brand perception / Preference
- End to End Logistics Provider - Supplier Base & Logistics
(Chinese Example) - Modes of Entry / Ownership
- Civil Society & NGO’s
- Manpower & Search Firms - Politics & Corruption
- Lack of Specialized Intermediaries - Trade Unions
- Management talent – education/english
- Efficient Bankruptcy Processes
- Permissible modes of entry
- Financial reporting / GAAP etc - Data base vendors
- Capital Markets & VC funding - Accounting Firms
- Product Rating Companies like JD Power
- Debt Capital Markets - Reserved Products for SME / Indigenous
- Stock Exchanges / SME Exchanges - Online Platforms
- Contract Enforcing Mechanism

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HOW TO MAKE THE MOST OF IT?
Institutional Voids or Value chain gaps

Opportunities for Investment Bankers and Intermediaries
Sure MNC’s have Expertise, Credibility & Experience

Localities Advantage? Intermediaries are…
- People intensive; local culture & Language required
- Information Sensitive – requires local expertise to access scattered Info and data
- Government Support; Few businesses prohibit Solo FDI / Entry

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EXAMPLE…OF FILLING INSTITUTIONAL VOIDS!
• China Emerge Logistics
8 lane highways
but transportation system underdeveloped
Multiple Tolls
Emerge Logistics; takes foreign companies all the way through the delivery process.
Filling import papers to customer collectibles.

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TOSHIBA …
Toshiba; Strategic Alliances as a Key Element of Strategy
To develop strategic alliances with different partners for different technologies
Because a single company can not dominate any technology or business by itself

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SPOTTING JV OPPORTUNITIES…
1. Identify Gaps – this is the opportunity.
2. Spot Institutional Voids - this is where u make a compelling case for the
Foreign corporate to come to India (if u solve them that is)
3. Identify the right Indian partner who can nullify this void and you have
the right recipe for a great Joint Venture.

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NOTES
Emerging markets = Argentina, Brazil, China, Czech Republic, India, Indonesia,
Mexico, Poland, Russia, and South Korea

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Paresh Sheth

Paresh runs an investment bank “indus1advantage” and specializes in cross border joint ventures and alliances. His clients include
large industrial houses, multinational corporates and listed corporates. He works across multiple sectors including education, Info
tech, energy, clean technology & green energy, banking, financial services, insurance, wealth management, construction, engineering,
health care, water technology & infrastructure.
He is also an advisor to multiple companies including UB Engineering Ltd and P Mac Private Limited.
Prior to this he was India CEO and Full time director for a Swiss bank Indian subsidiary and the Deputy CEO for another Swiss bank
subsidiary in to Brokerage and wealth management.
Paresh has the bandwidth to handle multi-billion dollar conglomerates, various family offices and SME/ MME clients as well; at the
same time. He assist large companies involved in mergers, acquisitions, joint ventures, alliances, technology transfer and distribution
tie ups He advises SME / MME on sales, innovation, alliances, growth and board formation. He also works with various single /
multiple family offices and advises them on setting up new businesses. Paresh currently also works with leading wealth management
and brokerage companies and capital market investors to design their strategies, enhance profitability and establish competitive sales
and risk organisations.
Paresh has played a pivotal role in setting up a MNC bank, an MNC Insurance company and a financial product distribution company
amongst others as a project manager. An entrepreneur at heart; he set up his first company at the age of 21. He has subsequently
worked for 20 years at various BFSI corporates including IDBI Bank, HDFC Sec, FirstRand Bank, Hinduja Bank Switzerland and ICICI
bank in various capacities including CEO, board member and business head. He was the chairman for finance and membership for 3
years at CII YI Mumbai. He is one of the few professionals to have managed a team of 7500 executives and 5 million customers. He
was frequently involved in strategic initiatives to align the retail and wealth banking activities with the changing times and the
introduction of innovative products and services to a new customer base and different markets. He was also a part of business
process reengineering at IDBI Bank and represented the retail banking unit in the BPR forum. Paresh championed the customer value
management unit at IDBI Bank.
Paresh has studied at IIM Calcutta and Mumbai University. He was a faculty for strategy at a leading management institute in Mumbai
for 3 years and now is a regular lecturer at leading management schools including IIM’s. He is a regular speaker at events on
Entrepreneurship, Banking, Investment Banking and Strategic Management. He is currently authoring a book on wealth management.

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“Indus1Advantage” is in the business of investment banking. While we are sector agnostic; the
origination strategy revolves around cross border deals. We assist companies involved in mergers,
acquisitions, joint ventures, alliances, technology transfer and distribution tie ups. And provide ancillary
and advisory services. We also assist in raising capital.

As a boutique investment bank we specialise in scouting for, understanding and bringing global
companies to India to setup base or form joint ventures / alliances with suitable Indian corporates.
Family offices form a considerable part of our customer base. We help them invest in and build up new
businesses. We also assist them in formation of trusts and companies overseas.

We also offer advisory services including sales, accounting, marketing, listing guidelines and board
formation to SME’s / MME’s

Sectors where we have expertise and experience are education, Info tech, energy, clean technology &
green energy, banking, financial services, insurance, wealth management, construction, engineering,
health care, water technology & infrastructure.

We are well connected in the geographies of India, Germany, Italy, Switzerland, Kenya, Burundi, South
Africa, Fiji and New Zealand.

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Paresh Sheth on Joint Ventures

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