International Joint Ventures-final

8/8/2019 International Joint Ventures-final

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JOINT VENTURESJOINT VENTURES

Joint venture is a strategic alliance in which two or more firms

create a legally independent company to share some of their

resources and capabilities to develop a competitive

advantage. The parties agree to create a new entity by bothcontributing equity, and they then share in the revenues,

expenses, and control of the enterprise.

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WHY NEED JOINT VENTURE?WHY NEED JOINT VENTURE?

The growing market competition and for the aim of going

global blue sword was lacking money

To overcome this problem, management of the blue sword

decide to form an alliance with an international company, thiswould also help international companies to enter the Chinese

market

So after consulting with the French investment bank Blue

Sword agreed to form an alliance with the company called

Belgian Interbrew S.A.

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REASONS FOR FORMING JOINT VENTUREREASONS FOR FORMING JOINT VENTURE

Internal Reasons

Competitive Goals

Strategic Goals

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Internal Reasons

y Build on companys strengths

y Improving costs and risks

y Economies of scale

y Access to new technologies and customersy Access to innovative managerial practices

y Tax advantages

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(CONT)(CONT)


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Competitive Goals

y Influencing structural evolution of the industry

y Pre-empting competition

y Defensive response to blurring industry boundaries

y Creation of stronger competitive unitsy Improved agility

y Speed to market

Strategic Goals

Synergies

Transfer of technology/skills

diversifications

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(CONT)(CONT)


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GOVERNMENT APPROVALS FOR JOINTGOVERNMENT APPROVALS FOR JOINT

VENTURES IN INDIAVENTURES IN INDIA

Inter-ministerial Committee under the Ministry of Commerce.

IJVs is covered by the Foreign Exchange Regulation Act, 1973 (FERA).

FICCI also active in promoting joint ventures.

To facilitate and encourage IJVs, the Government of India hasestablished economic divisions in the

Ministries of Commerce and External Affairs

Industry, and Indian Embassies outside

Indian Investment Centre (IIC)

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KEY ISSUES IN THE JOINT VENTUREKEY ISSUES IN THE JOINT VENTURE

Management Issues- The agreement should be clear in terms ofmanaging the J.V., clear assignment of responsibilities among the

directors

Financing Issues- working capital needs , distribution of profits &

sharing of losses , expansion cost Issues Regarding Transfer Of Shares- In case of winding up of J.V. ,

Intra group transfer, in case one of the parties becomes insolvent

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Issues Related To Termination- cases where J.V. is automaticallyterminated, one of the partners has the right to terminate

Contingency Issues- alteration in government rules, change in

market, requirement of more funds

Commercial Issues- limitation and scope of location, right of export

and import

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KEY ISSUES IN THE JOINT VENTURE (CONT)KEY ISSUES IN THE JOINT VENTURE (CONT)


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DEVELOPING JOINT VENTURESDEVELOPING JOINT VENTURES

COMPANY A

Identifying & Selecting JV

Partner1. Market Research

2. Partner Search

3. Evaluating options

4. Negotiations

5. Business Valuation

6. Business Planning

7. Due Diligence

COMPANY B

Legal Procedures

1. MoU

2. JV Agreement

3. Ancillary Agreements

4. Regulatory Approvals

JV COMPANY

1. Formation

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JOINT VENTURESJOINT VENTURES--BUSINESS BENEFITSBUSINESS BENEFITS

Developing or acquiring marketing or distribution expertise Sharing of scientists or professionals with unique skills

Financial support or sharing of economic risk

Acceleration of revenue growth

Ability to increase profit margins

Expansion to new domestic markets

New product development

1/3 of Fast growing companies are involved in Joint Ventures

Joint Ventures

Independent Ventures

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Human Resources (HR) Action Steps to PrepareHuman Resources (HR) Action Steps to Prepare

for a Successful JVfor a Successful JV

Business Strategy

Human Resources (HR) Strategy.

Leadership

Communication

Talent

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DIMENSIONS CRITICAL TO SUCCESS OFDIMENSIONS CRITICAL TO SUCCESS OF

INTERNATIONAL J.V.INTERNATIONAL J.V.

CHOOSING THE RIGHT PARTNER based on

Task related criteria- access to new market, supplier, distribution channels

Partner related criteria-size of partners co., partners goodwill, financial

condition

GOVERNANCE AND CONTROL- the level of control to be exercised bypartners

PERFORMANCE- like profitability, growth

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Check list for JVsCheck list for JVs

Contribution of joint venture partners Business of the joint ventures

Self dealing

Theft of joint venture opportunity

Territory

Funding requirements

Management

Profit distribution

Selling out

Dispute resolution

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ADVANTAGESADVANTAGES

Provide companies with the opportunity to gain new capacity andexpertise

Allow companies to enter related businesses or new geographicmarkets or gain new technological knowledge

Access to greater resources, including specialized staff and

technology Sharing of risks with a venture partner

Joint ventures can be flexible. For example, a joint venture can have alimited life span and only cover part of what you do, thus limitingboth your commitment and the business' exposure.

Companies can gradually separate a business from the rest of theorganization, and eventually, sell it to the other parent company.Roughly 80% of all joint ventures end in a sale by one partner to theother

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DISADVANTAGESDISADVANTAGES

It takes time and effort to build the right relationship and partneringwith another business can be challenging.

Problems are likely to arise if: The objectives of the venture are not

100 per cent clear and communicated to everyone involved.

There is an imbalance in levels of expertise, investment or assets

brought into the venture by the different partners.

Different cultures and management styles result in poor integration

and co-operation

The partners don't provide enough leadership and support in the

early stages

Success in a joint venture depends on thorough research and analysis

of the objectives

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Examples: Sony, Ericsson Link Up For Joint

Venture

Japanese consumer electronics giant Sony Corp. and Swedish

telecommunication company Ericsson sealed a pact to merge their

worldwide mobile phone businesses.

The two companies establish the joint venture, Sony Ericsson Mobile

Communications, on Oct. 1, 2001.

The company's global management is based in Hammersmith, London.

The stated reason for this venture is to combine Sony's consumer

electronics expertise with Ericsson's technological knowledge in the

communications sector. Both companies have stopped making theirown mobile phones.

Sony has said the joint venture will be capitalized at $500 million.

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Initially, Sony was a marginal player in the worldwidecell phone market with a share of less than 1% in2000.

By 2009, it was the fourth-largest mobile phonemanufacturer in the world after Nokia, Samsung andLG.

The sales of products largely increased due to thelaunch of the adaptation of Sony's popular Walkmanand Cyber-shot series.

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Venture


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Venture Sony Ericsson's recovery is credited to

the success of the T610 model.

P800, P900 phone.

P910, Walkman phones.

XPERIA X1

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This was due to continued

challenging market conditions in

all regions, particularly in Latin

American markets.


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Hero Honda Joint Venture

Hero group was started by the four Munjal brothers in the year1944 by establishing bicycle spare parts business in Amritsar.

Honda Motor Company Ltd is a Japanese multinationalcorporation primarily known as a manufacturer of automobilesand motorcycles.

Honda selected the Hero Group for a variety of reasons whichincluded.

Its engineering capability.

Relevance and salience of HERO brand.

Distribution network.

Commitment to Quality.

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Know-how and experience in handling large volumeproduction and distribution.

Tight focus on financial and raw material processes.

Cordial Industrial Relations.

June, 1984: Honda agreed to provide tech. know-how to HeroHonda Motors and setting up manufacturing facilities. Thisincluded the future R & D efforts.

Honda agreed for a lump sum fee of $

5

00,000 & 4% royalty. Both Partners held 26% of the equity with other 26% sold to

the public and the rest held to financial institutions.

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Success Story.

Hero Honda Motors had grown consistently, earning the title of the worldslargest motorcycle manufacturer after having churned out 1.3 million

vehicles in 2001. During the fiscal year 2009-10, the company has sold 4.6 million bikes with

a turnover of` 16,099 crore and the net profit of the company stood at `2231.8 crore, up 74% from the previous fiscal year.

Worlds No. 1 Two wheeler Company for the 9th consecutive year.

Every second motorcycle sold in India rolls out from one of the Hero

Hondas Factories. Owns worlds biggest selling motorcycle brand Hero Honda Splendor.

Deep market penetration with 5000 outlets.

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Reasons of Success:

The deep penetration network ofHero largely benefited the sales.

Absence of major competitors in initial years.

Sound and proven technical capabilities of Honda and the reliability

of Hero.

Increased market for motorcycles:

Better Fuel efficiency.

Change in peoples perception.

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Project Maruti started by Indira and Sanjay Gandhi.

Indian experts started search for collaborator.

Negotiated with-Toyota, Nissan, Honda and Suzuki.

After rounds of negotiation Suzuki was selected.

With 30:70 Ratio of Suzuki Corporation and Maruti ltd.

The success of the joint venture led Suzuki to increase itsequity from 26% to 40% in 1987, and further to 50% in 1992.

During the fiscal year 2009-10, the company has sold 10.18million cars (incl. Exports) with a turnover of` 28,958.5 croreand the net profit of the company stood at ` 2497.6 crore, up105% from the previous fiscal year.

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MARUTI SUZUKI


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BENEFITSOF JOINTVENTUREForMaruti

Suzuki Motor Corporation, the parent company, is aglobal leader in mini and compact cars for threedecades.

Suzukis technical superior .

lightweight engine that is clean and fuel efficient.

Nearly 75,000 people are employed directly by MarutiSuzuki and its partners.

For Suzuki

Large Indian Market

Monopolistic trade in the Indian automobile market

Availability of resources.25

MARUTI SUZUKI


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UNSUCCESSFUL: JOINT VENTUREUNSUCCESSFUL: JOINT VENTURE

When the mission or goal behind the Joint Venture is not achieved, the

Joint Venture is assumed to be unsuccessful.

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RUSSIA: GAZRUSSIA: GAZ--FIAT JOINT VENTURE FAILSFIAT JOINT VENTURE FAILS

Russia's second-largest car maker, GAZ, has said that its planned jointventure with Fiat to produce Italian cars in Russia has failed

Russian news agencies quoted the head of GAZ, Dmitrii Strezhnev, as

saying conditions had changed in Russia since the project was first

announced in 1997 and that the plan was no longer economically

feasible

Fiat and GAZ were to control 40 percent stakes and the European

Bank for Reconstruction and Development (EBRD) another 20 percent

in the venture.

The project's fate was made more uncertain by the 1998 Russian ...

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GENERAL MOTORS AND TOYOTA JOINTGENERAL MOTORS AND TOYOTA JOINT

VENTURE FAILSVENTURE FAILS

New United Motor Manufacturing, Inc. is an automobilemanufacturing plant in Fremont, California

The factory was originally a General Motors plant opened in 1962 andshut down in 1982. GM and Toyota reopened the factory as a joint

venture in 1984 to manufacture vehicles to be sold under bothbrands.GM pulled out of the venture in June 2009. Toyota indicated itplans to pull out by March 2010

When it reopened for production in 1984, it was the first automotivejoint venture plant in the United States.

GM saw this joint venture as an opportunity to learn about the ideasof lean manufacturing from the Japanese company, while Toyotagained its first manufacturing base in North America and a chance toimplement its production system in an American labor environment

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GENERAL MOTORS AND TOYOTA JOINTGENERAL MOTORS AND TOYOTA JOINT

VENTURE FAILS (Cont)VENTURE FAILS (Cont)

As of July of 2009, the NUMMI plant produces the Toyota Corolla

compact car, Toyota Tacoma pickup truck, and the Pontiac Vibe

hatchback, although the latter will be discontinued in August 2009 as

GM phases out the Pontiac brand

In the past, it produced the Chevrolet Nova (1984-1988); the GeoPrizm (1989-1997), the Chevrolet Prizm (1998-2002) and the Hilux

(1991-1995, predecessor of the Tacoma), as well as the Toyota Voltz

On June 29, 2009 General Motors announced that they would

discontinue the joint venture with Toyota

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EXAMPLES OF COMPANIES INTOJOINT VENTURES

The Nokia Siemens Networks (Nokia + Siemens

AG) + =

LG. Philips Components (LG + Philips)

+ =

Sony Ericsson (Sony + Ericsson)

+ =

NUMMI (General Motors + Toyota)

+ =

Strategic Alliance (Northwest Airlines + KLM

Royal Dutch Airlines)

+ =

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FUTURE OF JOINT VENTUREFUTURE OF JOINT VENTURE

The number of joint ventures will continue to increase in the near

future

More and more companies are adopting the JV approach as a part of

their growth strategies

Foreign companies can benefit mutually by combining their

technological and monetary resources and taking advantage ofrespective market condition

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MOST COMMON REASONS OF FAILURE CITEDMOST COMMON REASONS OF FAILURE CITED

BY CEOsBY CEOs

Other factors that contribute to the poor track record of

International joint ventures:

o Conflict over delegation of decision making

o Disagreement over operating policies, strategies, and tactics

o Differences in the approach towards management style and systems

Poor Integration Processes

Cultural Difference

Poor or Unclear Leadership

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Failure of JVs

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Why Joint Ventures Fail?Why Joint Ventures Fail?

Cultural and ideological differences

Insufficient planning

Bad ideas

Inadequate capitalization

The managers of one company may be more adept

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4 Secrets of Successful Joint Ventures4 Secrets of Successful Joint Ventures

Set Clear Goals: Know from the beginning what you want to

accomplish

Find a Partner: The best partnership is based on a mutual win-win

relationship

Plan the Venture: Map out your negotiation tactics and understand

the legal aspects of the deal. Keep win-win agreement in mind

Manage the Relationship: Once a winning joint venture is formed the

real work takes place. A good alliance is like a marriage. It is built on

communication, trust and understanding

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RecommendationsRecommendations

Most of the merger failed because of cultural differences, So, try toavoid the cultural differences

Who is taking the responsibility should also be very lucid, and the

questions like why we are doing this merger should be well

communicated among the merging companies

Power and responsibility of managers must be clear, and the

managers should spend more time with the local employees to

understand the work culture of the company

Proper communication of the integration and every steps of the

merger should be made clear to everyone associated with themerging organizations

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TH

ANK

Y

OUTH

ANK

Y

OUPresentedBy:PresentedBy:Sumit Kumar - 05920803909

Gaurav Kumar - 00920803909

Deepak Relhan - 06320803909

Manish Kumar - 04920803909

Ved Prakash - 04720803909

Documents

International Joint Ventures-final