Joint Ventures Venkat Ramachandran 2008064 Joel Johnson 2009019 SubhraJyotiSaha 2009066 Vishnu Bhavraju 2009080
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
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.
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
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
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.
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
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
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
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
Kyon Hero Strengths Weaknesses - Established distribution network
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
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
Diversifying – Together or Individually? Honda 1984 New Diversify Explore new market opportunities jointly Discover Market Opportunities Defend Develop Existing Competencies Existing New
Diversifying – Together or Individually? Honda 2011 New Diversify Explore new market opportunities alone Discover Market Opportunities Defend Develop Existing Competencies Existing New