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Joint ventures final

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  • Gary Hamel proposes the idea that a firm can be conceived as a portfolio of core competencies rather than a portfolio of product-market entities. In this conception, competition between individual firms is based on acquiring new skills, and how fast, how efficiently and how much skills a firm acquires defines its competitiveness. Porter’s ideas of competitive strategy or competitive advantage fail to fully explain this new skill acquisition process.Lack of skills or the urge to skill building motivates firms to enter join ventures or alliances. An alliance maybe a business alliance where firms come together to exploit their existing capabilities/skills/assets or a learning alliance where firms hope to learn products, skills, knowledge from each other.The choice to engage in such alliances is a function of expected returns from these strategies, managerial cognition of the environment and strategic intent of the firms.The way an alliance is structured and managed is dependent on what type of alliance it is.
  • Research has indicated that in any market, most alliances are exploitative than explorative. It is a race to learn from the partner, i.e. acquire and internalize the partner’s skills, etc rather than have access to such. Bargaining power of a partner in an alliance is based on relative urgency of cooperation, available resources, individual strengths and weaknesses. Dependence on a partner – the access to key resources.Shifts in bargaining power and the degree of dependence on a partner contribute to instability in JVs.Another way to look at this is that each firm derives payoffs from alliances in different forms(private benefits, common benefits, relative scope). Magnitude of benefits derived and the transferability of these benefits defines how the JV is structures and managed. Changes in these can lead to instability and friction within JV.

Transcript

  • 1. Joint Ventures
    Venkat Ramachandran 2008064
    Joel Johnson 2009019
    SubhraJyotiSaha 2009066
    Vishnu Bhavraju 2009080
  • 2. Why JVs form?
    Inter-firm competition is concerned with skill acquisitions
    Skill discrepancies motivate joint ventures/alliances
    Motivation is for either:
    Exploring new opportunities
    Exploit existing capabilities
    Terms for motivation is based on:
    Expected returns
    Managerial cognition of the environment
    Strategic Intent
  • 3. Why are JVs instable?
    Alliances can tend towards exploitation than exploration
    Hence, alliances are a race to learn
    Primary factor contributing to instability is a shift in partner bargaining power
    Secondary factor is dependence on the partner - for resources which the partner controls
    Payoffs from the alliance vary as:
    Private benefits
    Common benefits
    Relative scope
    Shifts in payoff structure shifts bargaining power and dependence within the alliance
    Long-term value is not substantial when compared to obtained gains, irrespective of magnitude of value.
  • 4. JV instances in India
    Automotive
    Hero Honda
    Kawasaki Bajaj
    TVS Suzuki
    Mahindra Renault
    Toyota Kirloskar
    Consumer Goods
    Foodworld
    Brittania-Danone
    BhartiWalmart
    Lee Cooper India Ltd.
    Godrej Sara Lee
    Telecommunications
    Tata Sky
    Vodafone Essar
    Uninor
    Financial products
    Bajaj Allianz
    Tata AIG
    BhartiAxa
    Others
    Modi Xerox
    Godrej Boyce
  • 5. Reasons for JV Creation in India
    For foreign partner
    Government restrictions
    Indian market unlike other monolithic markets
    Access to local distribution channels
    For local partner
    Access to new technology and processes
    Opportunity for larger chunk of revenue
    Pre-empt creation of JV with a rival
    Proving ground for exporting to external markets
  • 6. Why do Indian JVs fail?
    Imbalance in elements of exchange
    Foreign partners bring in intellectual capability which is difficult to learn quickly
    Indian partners hand over information of local market, making it comparatively easier to learn.
    Foreign partners come in with an intent to learn and incorporate this in their process.
    Indian partners are very lax when it comes to learning. When they do realize, it’s very late.
    Foreign partners, mainly MNCs, compartmentalize certain knowledge in certain regions – R&D in US, manufacturing in Taiwan, etc.
    Indian partners do not have this advantage.
    Big Brother’s hand
    Foreign partners initiate the JV due to government restrictions, not due to partner’s capability
    Indian partners take advantage of this, and try to add more restrictions to prevent the foreign partner from creating other alliances instead of learning successfully.
  • 7. Implications for industry
    • Advantages to market
    • 8. Increased competition  Competitive product portfolios
    • 9. Enhanced product evolution
    • 10. Greater choice for customer
    • 11. Foreign player
    (Brings tech, innovation)
    • Monetary benefits leave the country
    • 12. Launch vicious cycle of (economies of scale revenue) raising barriers of entry
    • 13. Capture a majority portion of the local industry
    • 14. Local player
    (Brings market knowledge and access to distribution channels)
    • Monetary benefits stay within country
    • 15. Systemic knowhow is transferred within the region
    • 16. Begins entering external markets
    • 17. Reuse learning across other entered domains.
  • A Case in Point
    No More
    It’s
    vs
  • 18. Is “Hero Honda” a Success?
    Achievement - World’s largest two wheeler manufacturer - 50% Market Share in India
    Competition - Successfully ends the “Bajaj” raj
    Image - Perceived as the company that put Indian middle class on wheels – DhakDhak Go
    Investors - $ 3.6 Billion Revenue – 4700 Employees. FY09 – FY10: Operating Profit increases by 28% and Net Profit by 74%
    Financiers - LAAA Rating
  • 19. Then is it a bitter divorce?
    Honda selling its stake at 50% of market valuation
    Increase in Hero’s royalties to Honda – 3% to 6%
    Shares sank 9% on the day of announcement of termination
  • 20. JV Formation & Termination
    High Strategic Importance
    Low Strategic Importance
    Spider Web of cooperative agreements
    No inter firm agreements
    Volatile Competitive Environment
    Post Liberalization
    Stable Competitive Environment
    Cooperative Agreements (Kawasaki Bajaj)
    Joint Ventures (Hero Honda, TVS Suzuki)
    1980s
    SourceManaging for JV Success – Kathryn Harrigan
  • 21. Where did the instability start
    Race to Learn – New Emission Norms for 2015
    Shift in Partner Bargaining Power – Indian firms growing more confident in R&D. Strong local supply chain.
    Dependence on the partner - Honda is well equipped with knowledge about Indian market conditions. Hero ambitious to invest in its own R&D
    Payoffs from the alliance vary:
    Private benefits – Honda would like to extract higher royalties for latest technologies
    Common benefits – Higher royalties would hit “Hero Honda” profitability
    Relative Scope – JV inflexibilities ceding market share to competition and creating hurdles in grabbing new opportunities
  • 22. Kyon Hero
    Strengths
    Weaknesses
    - Established distribution network
    • Higher installed capacity
    • 23. Market leader
    • 24. Relied for too long on Honda’s R&D
    • 25. Weak exports
    Opportunities
    Threats
    - Growing Indian two wheeler market (both motor cycles and scooters)
    - Exports opportunities
    - New emission norms
    - Intensive competition
    - Increasing input costs
  • 26. How is Honda Poised
    Strengths
    Weaknesses
    - Strong Brand Name
    • R&D
    • 27. Dealer network not a match to other competitors
    • 28. Lower installed capacity
    Opportunities
    Threats
    - Unmet scooter demand
    - Growing motor cycle market
    - Intensive competition
    - Increasing input costs
  • 29. Discovering – Together or Individually?
    Hero Group 1984
    New
    Discover
    Build new competencies through JV ( Motorcycle manufacturing)
    Diversify
    Market Opportunities
    Defend
    Develop
    Existing
    Competencies
    Existing
    New
  • 30. Discovering – Together or Individually?
    Hero Group 2011
    New
    Discover
    Build new competencies alone ( R&D, Exports)
    Diversify
    Market Opportunities
    Defend
    Develop
    Existing
    Competencies
    Existing
    New
  • 31. Diversifying – Together or Individually?
    Honda 1984
    New
    Diversify
    Explore new market opportunities jointly
    Discover
    Market Opportunities
    Defend
    Develop
    Existing
    Competencies
    Existing
    New
  • 32. Diversifying – Together or Individually?
    Honda 2011
    New
    Diversify
    Explore new market opportunities alone
    Discover
    Market Opportunities
    Defend
    Develop
    Existing
    Competencies
    Existing
    New