Globalization and You


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Globalization and You

  1. 1. Strategic perspectives in globalization Talk delivered by Himadri Banerji CEO Reliance Energy EPC Distribution Business CEO Forum NMA 29.12.06
  2. 2. Globalization <ul><li>Globalization is altering the world economic landscape in fundamental ways. </li></ul><ul><li>Globalization has profound implications for developing countries. </li></ul><ul><li>It creates </li></ul><ul><ul><li>wider markets for trade, </li></ul></ul><ul><ul><li>an expanding array of tradable, </li></ul></ul><ul><ul><li>larger private capital inflows, </li></ul></ul><ul><ul><li>improved access to technology. </li></ul></ul>
  3. 3. Conclusions… <ul><li>In order to reach scale economies in technology, production and marketing, </li></ul><ul><ul><li>enterprises are choosing among a number of paths to Globalization, e.g. </li></ul></ul><ul><ul><li>foreign direct investment, </li></ul></ul><ul><ul><li>mergers and take-over </li></ul></ul><ul><ul><li>and strategic alliances. </li></ul></ul><ul><ul><li>Joint vetures </li></ul></ul>
  4. 4. Globalization <ul><li>The role of knowledge and information. </li></ul><ul><ul><li>has become increasingly salient in the structure, growth and organization of economic activity all around the world. </li></ul></ul><ul><li>The rapid pace of scientific and technological development is </li></ul><ul><ul><li>a major factor behind the fairly dramatic economic restructuring occurring globally. </li></ul></ul>
  5. 5. Globalization.. <ul><li>In a globalizing economy, alliances and joint ventures are a means of expanding internationally more rapidly. </li></ul><ul><li>Joint ventures between domestic companies in developing countries and foreign companies have become a popular means for both managements to satisfy their objectives. </li></ul><ul><li>Alliances make it possible to </li></ul><ul><ul><li>enter new markets using the distribution networks and the specific knowledge of the local partners. </li></ul></ul>
  6. 6. Globalization Defined <ul><li>Globalization can be defined in several different ways depending on the level we choose to focus on. </li></ul><ul><li>World </li></ul><ul><li>Industry Specific </li></ul><ul><li>Country </li></ul><ul><li>Company Specific </li></ul>
  7. 7. Globalization Defined <ul><li>At a Worldwide level </li></ul><ul><li>Globalization refers to the growing economic interdependence among countries as reflected in increasing cross-border flows of goods, services, capital and know-how. </li></ul>
  8. 8. Globalization Defined <ul><li>At the level of a specific industry </li></ul><ul><li>Globalization refers to the degree </li></ul><ul><ul><li>to which a company’s competitive position within that industry in one country is interdependent with that in another country. </li></ul></ul>
  9. 9. Globalization Defined <ul><li>Key indicators of the Globalization of an industry are </li></ul><ul><ul><li>the extent of cross-border trade within the industry as a ratio of total worldwide production, </li></ul></ul><ul><ul><li>the extent of cross-border investment as a ratio of total capital invested in the industry, and </li></ul></ul><ul><ul><li>the proportion of industry revenue accounted for by companies that compete in all major regions </li></ul></ul>
  10. 10. Globalization Defined <ul><li>At the level of a specific country </li></ul><ul><li>Globalization refers to the extent of the inter-linkages between a country’s economy and the rest of the World. </li></ul>
  11. 11. Globalization Defined <ul><li>Some key indicators to measure the global integration of any country’s economy are </li></ul><ul><ul><li>exports and import as a ratio of GDP, </li></ul></ul><ul><ul><li>inward and outward flows of foreign direct investment and portfolio investment, </li></ul></ul><ul><ul><li>and inward and outward flows of royalty payments associated with technology transfer. </li></ul></ul>
  12. 12. Globalization Defined <ul><li>At the level of a specific company </li></ul><ul><li>Globalization refers to the extent to which a company has </li></ul><ul><ul><li>expanded its revenue and asset base across countries and </li></ul></ul><ul><ul><li>engages in cross-border flows of capital, goods and know how across subsidiaries. </li></ul></ul>
  13. 13. Globalization Defined <ul><li>Key indicators of the Globalization of a company are </li></ul><ul><ul><li>international dispersion of sales revenues and asset base </li></ul></ul><ul><ul><li>intra-firm trade in intermediate and finished goods, and </li></ul></ul><ul><ul><li>intra-firm flows of technology. </li></ul></ul>
  14. 14. Key forces accelerating globalization… <ul><li>Consumer expectations of quality, service and price are higher than ever and still increasing. </li></ul><ul><ul><li>At the same time, future consumer preferences are becoming extremely difficult to predict. </li></ul></ul><ul><li>Technological change : New information technology allows many companies to run their business in a way that was impossible yesterday and at a fraction of the price. </li></ul>
  15. 15. Key forces accelerating globalization… <ul><li>Deregulation : In recent years, the global trend – with the notable exception of environmental regulation – has been towards </li></ul><ul><ul><li>deregulation and </li></ul></ul><ul><ul><li>less government intervention. </li></ul></ul><ul><ul><li>In newly, deregulated industries, competition has increased dramatically. </li></ul></ul>
  16. 16. Key forces accelerating globalization… <ul><li>Regional forces : </li></ul><ul><li>Huge regional differences in cost structure and growth rates in the world. </li></ul><ul><li>Regional trade blocs, such as the European Union and the Association of South East Asian Nations are being formed. </li></ul><ul><li>Objective of a trade bloc is to maximize trade within the bloc and limit trade between blocs to items that cannot be produced locally. </li></ul><ul><li>The rules of the game are changing </li></ul>
  17. 17. Historical Perspectives <ul><li>two divergent historical facts…… </li></ul><ul><li>First, Globalization is not a new phenomenon, and indeed, until 1913, trade was gradually free. So was capital movement and even the movement of labor across countries was free. </li></ul><ul><li>Secondly, capital recognizes no geographic boundaries. </li></ul>
  18. 18. Historical Perspectives <ul><li>It is an inherent feature of capital that it should seek to maximize profits, wherever and howsoever that can be done. The only difference between 1900-01 and now are </li></ul><ul><li>(a) that there now exist universal restrictions on the cross-country movement of labor, and restrictions of diverse types in different countries in regard to the movement of capital, and </li></ul><ul><li>(b) the revolution in communications has made the world a sort of global village </li></ul>
  19. 19. Tensions and Dilemmas of Globalization <ul><li>Any adverse global or regional shock is rapidly propagated to other economies. </li></ul><ul><li>A decline in the import volumes and/or changes in the real price of commodities. </li></ul><ul><li>Economies that depend heavily on a few main commodities as their main source of export earnings and fiscal revenues can be hit hard by these shocks. </li></ul><ul><li>Another transmission mechanism of shock is asset markets. </li></ul><ul><li>This source of financial volatility was largely absent in the world of the 1950s, 1960s and early 1970s when multilateral lending, aid and foreign direct investment dominated global capital movements </li></ul>
  20. 20. Tensions and Dilemmas of Globalization <ul><li>Another tension of globalization lies in its social effects. </li></ul><ul><li>As globalization is often associated with increased instability of output and employment, </li></ul><ul><li>This affects, among other things, job security. </li></ul><ul><li>As labor income is the main source of earnings for the majority of population under capitalism, job insecurity is socially disruptive </li></ul><ul><li>In addition, flexibility in labor markets required to compete, successfully, in international markets, tends to erode long term work and personal relationships between firms and employees, workers and managers that traditionally give a sense of security to people. </li></ul>
  21. 21. Tensions and Dilemmas of Globalization <ul><li>In addition, globalization gives a premium to people with sophisticated skills, high levels of education, and entrepreneurial traits. </li></ul><ul><li>The mirror image of this is that unskilled labor, uneducated workers and marginalized population are likely to benefit less in more competitive world economy. </li></ul><ul><li>Thus, income and wealth inequality can be amplified, underscoring the need for public policy to correct these in egalitarian trends. </li></ul>
  22. 22. Response to Tensions and Dilemmas of Globalization <ul><li>To contend with the challenges of globalization, firms have altered their strategies, </li></ul><ul><li>Strengthening the activities in which they were in a dominant position (refocusing), </li></ul><ul><li>Seeking to achieve critical size and assigning priority to external growth (mergers and acquisitions). </li></ul><ul><li>At the same time, they have multiplied the number of co-operation agreements and alliances and changed their internal organization. </li></ul>
  23. 23. Response to Tensions and Dilemmas of Globalization <ul><li>Globalization has obliged all countries to raise their standards of economic efficiency, whence the growing interest in and concern about competitiveness. </li></ul><ul><li>Analysis of globalization has also revealed the change in the context in which most traditional indicators of competitiveness are interpreted, and demonstrated </li></ul><ul><li>The urgent need to develop a new generation of indicators based on new information, so as to able to throw new light on the more traditional indicators. </li></ul>
  24. 24. Future Scenarios of Globalizations <ul><li>In 1994, developing countries accounted for 24 percent of world imports; this share could rise to 30 percent of by 2010. </li></ul><ul><li>Over the same period, their share of world exports of manufactures could increase from 17 to 22 percent. </li></ul><ul><li>Developing countries currently buy roughly one-fourth of the industrial countries’ exports; on present trends, that share could rise to more than one–third by 2010. </li></ul><ul><li>The main factors driving this increase in trade are the reduction of trade barriers through trade liberalization and other reforms, lower transport and communication costs, and </li></ul><ul><li>Relatively high GDP growth >8% in developing countries. </li></ul>
  25. 25. Corporate responses to globalization <ul><li>Corporate profitability is improved by </li></ul><ul><ul><li>spreading fixed costs between the parent company and its new partners. </li></ul></ul><ul><li>To strengthen their technological capability, firms can either </li></ul><ul><ul><li>continue to internalize activities via mergers or acquisitions of other innovative firms </li></ul></ul>
  26. 26. Corporate responses to globalization <ul><li>A firm can externalize some of its activities in sectors that have attained a certain degree of maturity, and </li></ul><ul><li>Simultaneously enter into alliances to develop new products or business processes. </li></ul><ul><li>If this two-fold trend continues, it could reshape the world economy </li></ul>
  27. 27. Government responses <ul><li>new opportunities for nations </li></ul><ul><ul><li>wider markets for trade, </li></ul></ul><ul><ul><li>expanding array of tradable, </li></ul></ul><ul><ul><li>larger private capital inflows, </li></ul></ul><ul><ul><li>improved access to technology. </li></ul></ul>
  28. 28. Government responses <ul><li>Economic policies all over the world, and especially in the developing world, are being liberalized. </li></ul><ul><li>This was resulted in an increase in competitive pressures, both in the domestic and international markets. </li></ul>
  29. 29. Government responses <ul><li>Outward-oriented reforms is being adopted </li></ul><ul><li>by more and more developing countries </li></ul><ul><ul><li>More agents and beneficiaries of globalization— </li></ul></ul><ul><ul><li>Reforms make access to globalization and </li></ul></ul><ul><ul><li>Reforms expand opportunities for developing countries to participate in its benefits </li></ul></ul>
  30. 30. Government responses <ul><li>The long term efficacy of these liberal policies for the developing countries will largely be determined by </li></ul><ul><li>Impact of development of technological </li></ul><ul><li>capabilities among firms in these countries </li></ul>
  31. 31. Corporate response <ul><li>Strategic Alliances </li></ul><ul><li>Joint Ventures </li></ul><ul><li>Mergers and Aquisitions </li></ul>
  32. 32. Strategic Alliance <ul><li>Alliances were focused during industrialization in the 15th and 16th centuries, </li></ul><ul><li>We are seeing a refocus in the 20th century. </li></ul><ul><li>Strategic alliances are becoming one of the main drivers of Globalization. </li></ul>
  33. 33. Strategic Alliance and IJV <ul><li>Strategic alliances have emerged in recent years </li></ul><ul><li>as a popular strategy for firms to succeed in </li></ul><ul><li>An environment in which fast access to up-to-date technology, business processes and emerging markets is more critical than ever </li></ul><ul><li>Such an environment has been called hypercompetitive and appears to be the direction in which business is moving. </li></ul>
  34. 34. Strategic Alliance and IJV <ul><li>Why </li></ul><ul><li>To achieve certain competitive advantage in domestic as well as in international markets and </li></ul><ul><li>To address resources dependency in various industries </li></ul><ul><li>To respond to increased competition </li></ul><ul><li>To achieve flexibility to changing market conditions and </li></ul><ul><li>To embrace rapid technological change. </li></ul><ul><li>Strategic alliances are being regarded as the latest phase in the search for innovation, entrepreneurial spirit and Globalization among organizations </li></ul>
  35. 35. Strategic Alliance and IJV <ul><ul><li>How </li></ul></ul><ul><ul><li>The objective of the partners in strategic alliance is generally predicated upon two key dimensions – resource and risk. </li></ul></ul><ul><li>The resource dimension addresses what the firm contributes to the alliance, </li></ul><ul><li>while the risk dimension portrays what the firm may fear most. </li></ul><ul><li>Naturally, firms would attempt to obtain maximum </li></ul><ul><li>returns from the resources they commit to the </li></ul><ul><li>alliances, while paying close attention to the risks </li></ul><ul><li>they are exposed to </li></ul>
  36. 36. Strategic Alliance and IJV <ul><li>characteristics: </li></ul><ul><li>(a)     Two or more firms unite to pursue to set of agreed upon goals but remain independent subsequent to the formation of the alliance. </li></ul><ul><li>(b)     The partner firm share the benefits of the alliance and control over the performance of assigned tasks – perhaps the most distinctive characteristics of alliances and the one that makes them so difficult to manage. </li></ul><ul><li>(c)     The partner firms contribute on a continuing basis in one or more key strategic areas (e.g. technology, products). </li></ul>
  37. 37. Strategic Alliance and IJV <ul><li>Equity and non-equity alliances – which represent different levels of internalization and interdependency. </li></ul><ul><li>Both equity and non-equity forms of alliances can be long-term relationships that provide individual firms with the means to broaden their scope and share risks without expansion </li></ul>
  38. 38. Non Equity Strategic Alliances <ul><li>Non-equity alliances include a host of inter-firm co-operative agreements such as R&D collaboration, co-production contracts, technology sharing, supply arrangements, marketing agreements, exploration consortia, etc. </li></ul><ul><li>The non-equity alliance is often a preliminary step to creating a joint venture. It is therefore the most flexible and potentially the least committed form of alliance (at least at the outset). </li></ul><ul><li>Companies can form a non-equity co-operative contract on a minimal basis to see how the enterprise develops and allow it to deepen and broaden by introducing new projects over a period of time. </li></ul>
  39. 39. Strategic Alliance Advantages <ul><li>As the collaboration requires no major initial commitment, it has no limitations. </li></ul><ul><li>It is probably the most appropriate form of cooperation when the extent of the relationship is impossible to foresee at the outset, </li></ul><ul><ul><li>when the alliance is not bound by a specific business or set of assets, and when joint external commitment at a certain level is not specifically sought. </li></ul></ul><ul><li>The non-equity collaborative form may be most appropriate if the activity concerned is a core activity of the partners; if it is non-core, a joint venture may be more appropriate. </li></ul>
  40. 40. Criteria for Selection of Partners <ul><li>Broadly, the criteria can be classified into three categories related to: </li></ul><ul><li>(i) tasks or operations; </li></ul><ul><li>(ii) partnership or cooperation; and </li></ul><ul><li>(iii) cash flow or capital structure. </li></ul><ul><li>Operation-related criteria are associated with; the strategic attributes of partners including </li></ul><ul><li>marketing competence, </li></ul><ul><li>relationship building, </li></ul><ul><li>market position, </li></ul><ul><li>industrial experience, </li></ul><ul><li>strategic orientation, </li></ul><ul><li>and corporate image. </li></ul>
  41. 41. Equity Alliances <ul><li>Joint Venture </li></ul><ul><li>Equity alliances include joint ventures, minority equity investments and equity swaps. </li></ul><ul><li>A joint venture, the most common form of equity alliance, implies the creation of a separate corporation, </li></ul><ul><ul><li>whose stock is shared by two or more partners, each expecting a proportional share of dividends as compensation. </li></ul></ul>
  42. 42. Strategic Alliance and IJV <ul><li>international joint ventures flourished worldwide in the 1980s spurred by the rapid globalization of markets, rapid innovation and new technologies. </li></ul><ul><li>In many LDCs, joint ventures were given a boost by the policy reviews towards privatization during the later part of the decade. </li></ul><ul><li>Though hesitant, withdrawal of the state from business activities has meant in some cases the creation of JVs between the state firms and private firms within the host country and also with foreign firms. </li></ul><ul><li>The establishment of a JV with a host partner increases the participating foreign firm’s potential for purchasing raw materials and intermediate products and for servicing final markets from the host country. </li></ul>
  43. 43. Joint Ventures <ul><li>Joint venture (JV) represent one of the most fascinating developments in international business. They are of particular interest to less developed countries, especially to those countries which are pursuing a policy of liberalization. </li></ul><ul><li>This is because these less developed countries are trying to encourage foreign direct investment, and such investments often take the form of joint ventures. In the last two decades the rate of joint ventures formation has accelerated dramatically. </li></ul><ul><li>Developing country governments tend to favor joint ventures over other forms of foreign direct investment, since they believe that local participation facilities transfer of technology and marketing skills. </li></ul>
  44. 44. Strategic Alliance and IJV <ul><li>The multiplier effect of the JV on the economy, such as developing indigenous entrepreneurial skills and stimulating economic and service activities in the particular regions or country, are among the motivations (Beamish,1985). </li></ul><ul><li>JVs are also considered to be relatively better for ensuring the transfer and diffusion of technology. </li></ul>
  45. 45. Cross Border Alliances <ul><li>In other sectors, alliances may be aimed at more conventional co-operation such as sharing a partner’s sales and distribution networks. </li></ul><ul><li>In all sectors, as deregulation and liberalization of markets proceed, competition is increasing at the international level and stimulating new and different alliances between enterprises. </li></ul><ul><li>These driving forces behind cross-border alliances are discussed below in terms of economic, technological and governance factors. </li></ul>
  46. 46. Cross Border Alliances <ul><li>In general, these alliances provide synergy effects and strengthen the international competitiveness of participating firms </li></ul><ul><ul><li>by consolidating overlapping capacities and business activities on a global scale. </li></ul></ul><ul><li>Multinational enterprises enter into cross-border alliances with other firms in their sector </li></ul><ul><ul><li>to cut costs, streamline operations and concentrate on a few core activities while outsourcing non-core functions. </li></ul></ul>
  47. 47. Cross Border Alliances <ul><li>As a result, increased levels of both cross-border mergers and acquisitions and strategic alliances in the 2000-05 have been accomplished. </li></ul><ul><ul><li>by intensified sectoral and product specialization. </li></ul></ul><ul><li>A considerable portion of international strategic alliances are focused on consolidating and/or accessing tangible assets, </li></ul><ul><ul><li>such as production facilities and distribution networks. In this, many alliances are a defensive reaction to increased global competition </li></ul></ul>
  48. 48. Cross Border Alliances <ul><li>Alliances are also formed </li></ul><ul><ul><li>to combine and/or access intangible assets, </li></ul></ul><ul><ul><li>such as management skills, </li></ul></ul><ul><ul><li>technical know-how or brand names. </li></ul></ul>
  49. 49. Cross Border Alliances <ul><li>Aimed at long-term profit optimizing by attempting to enhance the value of the firm’s assets, rather than at shorter-term cost-cutting </li></ul><ul><li>Alliances between firms for “affinity marketing” build on a partnership with a company with a well-established product or brand name to boost sales of a different product. </li></ul><ul><li>Other alliances are between manufacturing firms and Internet service providers which have a rich and valuable customer database. </li></ul>
  50. 50. Internet driving Cross Border Alliances <ul><li>Electronic commerce and the spread of online shopping enable firms </li></ul><ul><ul><li>to approach customers, regardless of their resident country, more directly via Internet. </li></ul></ul><ul><li>As these new trends have greatly reduced the transaction costs of bringing products to market, companies are </li></ul><ul><ul><li>paring down to what they do best and outsourcing </li></ul></ul><ul><ul><li>the rest through a proliferation of alliances among companies that contract with each other for specialized products and services </li></ul></ul>
  51. 51. Cross Border Alliances <ul><li>Technology Factors </li></ul><ul><li>Technology is driving the formation of strategic alliances at the international level in several different but intertwined ways, reflecting the growing ease of communication, cost of research, and need for international standards. </li></ul>
  52. 52. Effect of the Internet <ul><li>The emergence of new communication tools such as </li></ul><ul><ul><li>the Internet, electronic mail and electronic data interchange (EDI) </li></ul></ul><ul><ul><li>make cross-border collaborations far easier and more practical than ever before, even compared to five years ago. </li></ul></ul>
  53. 53. Effect of the Internet <ul><li>The knowledge assets of one firm such as new product designs and ideas, </li></ul><ul><ul><li>can be enhanced and adopted by firms in a distant country without delay. </li></ul></ul><ul><li>Rapid advances in information and communication technology have provided </li></ul><ul><ul><li>a more conducive business environment for partnerships and </li></ul></ul><ul><ul><li>spurred growth in international strategic alliances and in phenomena such as cross-border patenting. </li></ul></ul>
  54. 54. Technology Alliances <ul><li>Technology-related alliances among firms are generally aimed at </li></ul><ul><ul><li>gaining economies of scale and scope in research and development. </li></ul></ul><ul><li>This is in contrast to alliances for production, marketing and distribution whose </li></ul><ul><ul><li>major objective is to gain access to new markets through sharing facilities and networks. </li></ul></ul><ul><ul><li>R&D alliances are also effective in developing global product and system standards with potential competitors and steering the path of technological change. </li></ul></ul>
  55. 55. Technology Alliances <ul><ul><li>In high-technology sectors, such as electronics and information technology, studies show that the rate of alliances tends to have a cyclical dimension </li></ul></ul>
  56. 56. Technology Alliances <ul><li>The early formative periods of new technological systems, during which no dominant design or standards exist, are characterized by high technological uncertainty and a large number of strategic alliances among firms. </li></ul><ul><li>In later periods when a dominant design emerges and economies of scale and standardization become more evident, co-operative ventures diminish. </li></ul>
  57. 57. Technology Alliances <ul><li>Co-operation is particularly sought with leading multinationals due to their global brand name recognition and marketing power. </li></ul><ul><li>Once a breakthrough product or system (and possible candidate for a new global standard) is developed, </li></ul><ul><ul><li>an allied company can exploit its partners’ assets including sales and marketing networks </li></ul></ul>
  58. 58. Conclusions… <ul><li>Competition effects </li></ul><ul><li>Co-operation among firms in international strategic alliances does not necessarily mean less competition. </li></ul>
  59. 59. Conclusions… <ul><li>These modes of internationalization tend to be combined in complex and complementary ways as firms seek to maximize efficiency and profits. </li></ul><ul><li>As a result, co-operation in one alliance may be paralleled by intense competition in other product or technology areas, at a subsequent point in time and/or with rival alliances </li></ul>
  60. 60. Conclusions… <ul><li>Anti-competitive effects of strategic alliances are less of a danger where barriers to entry and expansion are low. </li></ul><ul><li>Often, where alliances are formed to develop new technologies, one network of collaboration will lead to the formation of a competing alliance composed of different firms. </li></ul><ul><li>In addition, there is a trend for international strategic alliances to include firms of different sizes. </li></ul>
  61. 61. Conclusions… <ul><li>This could translate into </li></ul><ul><ul><li>disproportionate technology access benefits for smaller firms </li></ul></ul><ul><ul><li>and result in a greater number of effective competitors in the market. </li></ul></ul><ul><ul><li>Partnerships for product standardization may lower barriers to entry by enabling new entrants to use common standards at affordable prices </li></ul></ul>
  62. 62. Conclusions… <ul><li>Efficiency effects </li></ul><ul><li>Most studies point to the positive efficiency effects of strategic alliances rather than to negative competitive impacts. </li></ul><ul><li>In general, these alliances can provide private (firm-level) benefits as well as social (economy-wide) benefits by raising efficiency, innovativeness and ultimately consumer welfare. </li></ul><ul><li>Strategic alliances are typically intended to bring together complementary inputs and stimulate innovative activities to introduce new technologies and products (Parkhe, 1993). </li></ul>
  63. 63. Conclusions… <ul><li>In general, these alliances can provide private (firm-level) benefits as well as social (economy-wide) benefits by raising efficiency, innovativeness and ultimately consumer welfare. </li></ul><ul><li>Strategic alliances are typically intended to bring together complementary inputs and stimulate innovative activities to introduce new technologies and products (Parkhe, 1993). </li></ul>
  64. 64. Conclusions… <ul><li>Benefits for firms entering into alliances include cost-economizing in production and R&D activities and </li></ul><ul><li>access to intangibles such as more effective managerial skills and knowledge of markets and customers, </li></ul><ul><li>all of which can contribute to their short- or long-term performance and profitability. </li></ul>
  65. 65. Conclusions… <ul><li>Risk effects </li></ul><ul><li>Strategic alliances involve certain risks since their implementation is beyond the control of a single party and the objectives and roles of allied firms may not be clearly set at the start. </li></ul><ul><li>Unsuccessful alliances can mean a loss of finance, skills and management as well as foregone technological opportunities, since companies could have selected other partners or undertaken alternative strategies </li></ul>
  66. 66. Conclusions… <ul><li>Small contractors or other partners may be swept aside in the process although they could also share the gains when alliances succeed. </li></ul><ul><li>Losses for consumers could occur, if an alliance creates a candidate for a global product standard but fails to promote it in regional or global markets. </li></ul>
  67. 67. Joint Ventures advantages and issues… <ul><li>Joint ventures between domestic companies in developing countries and foreign companies have become a popular means for both managements to satisfy their objectives. </li></ul><ul><li>They offer, at least in principle, an opportunity for each partner to benefit significantly from the comparative advantages of the other. </li></ul><ul><li>Local partners bring knowledge of the domestic market; familiarity with government bureaucracies and regulations; understanding of local labor markets; and, possibly, existing manufacturing facilities. </li></ul>
  68. 68. Joint Ventures advantages and issues… <ul><li>Foreign partners can offer advanced process and product technologies, management know-how, and access to export markets. </li></ul><ul><li>For either side, the possibility of joining with another company in the new venture lowers capital requirements relative to going it alone. </li></ul><ul><li>As attractive as joint ventures might seem, however, they </li></ul><ul><li>Frequently perform unsatisfactorily </li></ul><ul><li>Are comparatively unstable. </li></ul>
  69. 69. Joint Ventures advantages and issues… <ul><li>Both sides are aware that payments for technology are </li></ul><ul><ul><li>an important means of transferring benefits from the venture and of </li></ul></ul><ul><ul><li>indirectly maintaining control; which inevitably leads to prolonged discussion of technology transfer. </li></ul></ul><ul><li>Technology providers are interested in protecting their intellectual property and </li></ul><ul><ul><li>therefore, want to set limits on where and how the technology can be used by the joint venture </li></ul></ul><ul><ul><li>and to place restrictions on who controls derivative technologies, no matter where developed. </li></ul></ul>
  70. 70. Joint Ventures advantages and issues… <ul><li>Valuation Problem :- Each partner brings financial and other assets to the joint venture, and it is often not easy to determine what these assets are worth. </li></ul><ul><li>Transparency : - Getting accurate data upon which to base valuations and other decisions can be very difficult in some countries, especially where accounting standards are quite different from international standards. </li></ul><ul><li>       </li></ul>
  71. 71. Properties of Joint Venture Agreements <ul><li>  Conflict resolution:- Many joint venture agreements spell out how disputes between partners are to be resolved. These provisions are important, since disputes are virtually inevitable in a relationship as complex and dynamic as a joint venture. </li></ul><ul><li>Division of management responsibility and degree of management independence :- There is some evidence that protection of a joint venture’s management from parent company interference is an important determinant of the venture’s success. </li></ul>
  72. 72. Properties of Joint Venture Agreements <ul><li>Dividend policy and other financial matters :- </li></ul><ul><li>To expand and gain market share rapidly while sustaining a level of dividend payout </li></ul><ul><li>Increase cash flows that they can use to support other operations.        </li></ul>
  73. 73. Properties of Joint Venture Agreements <ul><li>Marketing and staffing issue:- . Because marketing is so critical to the joint venture’s success, it should not be surprising that it can be a difficult matter to negotiate. </li></ul><ul><li>From the view point of the local partner’s management, maintaining control over distribution channels and marketing is one way in which its continuing contribution to the joint venture can be assured. </li></ul><ul><li>Such a view, however, may conflict with the plans of the multinational company (MNC) partner, which may see the joint venture as only part of a larger strategy to enter the developing country market </li></ul>
  74. 74. Problems while operating Joint Venture Agreements <ul><li>Operational problems :-Once joint ventures are in operation, they may experience various problems, some of which might have been foreseeable at the time the agreement was negotiated, others of which could not. </li></ul><ul><li>        </li></ul>
  75. 75. Problems while operating Joint Venture Agreements <ul><li>Differing objectives can lead to a variety of </li></ul><ul><li>disagreements on issues like </li></ul><ul><li>Exports Rights. </li></ul><ul><li>Tax Issues. </li></ul><ul><li>Dividend And Investment Policies. </li></ul><ul><li>Partner Size. </li></ul><ul><li>Ownership And Control Problems.  </li></ul>
  76. 76. instability <ul><li>Paul Beamish and Peter Killing, the editors of the 1996 Journal of International Business Studies Special Issue on Global Perspectives on Cooperative Strategies suggest </li></ul><ul><ul><li>that it is time to “consolidate the current and future thinking” on international cooperation. </li></ul></ul><ul><li>With the rapid growth of research, it is a challenging task to review the instability literature both in breadth and in depth..   </li></ul>
  77. 77. FACTORS CONTRIBUTING TO INSTABILITY . <ul><li>Various factors contributing to instability </li></ul><ul><li>have been identified, including </li></ul><ul><li>conflicts in shared management, </li></ul><ul><li>cross-cultural differences, </li></ul><ul><li>ownership structures, </li></ul><ul><li>characteristics of the sponsors and </li></ul><ul><li>external environmental forces.  </li></ul>
  78. 78. FACTORS CONTRIBUTING TO INSTABILITY . <ul><li>The success of joint venture largely depends on the </li></ul><ul><li>selection of the partners. </li></ul><ul><ul><li>A partner with superior strategic traits but lacking strong organizational and financial characteristics may result in an unstable joint venture. </li></ul></ul><ul><ul><li>The possession of desirable organizational attributes without corresponding strategic and financial competence may leave the joint venture unprofitable. </li></ul></ul><ul><ul><li>A partner with superior financial strengths without strategic and organizational competencies can lead to an unsustainable venture. </li></ul></ul><ul><ul><li>The intercultural and inter organizational nature of international joint ventures results in enormous complexity, dynamics and challenges in managing this cross-border, hybrid form of organization. </li></ul></ul>
  79. 79. Summary <ul><li>Globalization has become both a household term and an important historical phenomena. It has followed the end of the cold-war, the collapse of communism and a reconfiguration in the balance of power towards western countries and capitalism. </li></ul><ul><li>A main challenge of public policy in the era of globalization is the seizing of the opportunities it opens while at the same time managing the tensions and problems it poses, particularly, for developing countries. </li></ul><ul><li>The economic order of early 21st century certainly offers opportunities to developing countries and other actors in the global economy </li></ul><ul><li>Non Equity Strategic Alliance is a powerful tool for smaller firms to grow in this environment </li></ul><ul><li>Equity Joint Ventures are susceptible to instability, provide a strong option for gaining technology, markets and capital </li></ul><ul><li>Mergers and Acquisitions of cross border firms is a late entry in this mosaic. </li></ul>
  80. 80. Conclusions… <ul><li>Thank You </li></ul>