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Shifting Power Balance in

Strategic Alliances The case of Emerging Markets

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JVs are by their very nature opportunistic: organisations sopportunity to gain an immediate, though perhaps temporary, com

advantage through an alliance that gets them into a new business o

an old one. It follows that once that possibility is exhausted, the rat

that particular JV might vanish - but not for JVs per se.

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Motivations for Strategic Alliances in Emerging

Local Partner

Knowledge

Global Brand

Capital infusionRegulation

Potential market entry

Global/Foreign Part

Distribution

Local knowledge

Cost economiesRegulation

Building trust

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What is Power Balance?

Origin in world politics: English Foreign Policy to thwart attempts at unification of Eu

under a single monarch

Grand alliances with Ottoman Empire, Netherlands, Portuga

Distributed military capability - no super power - relatively w

nations protected

Cooperative strategy:

Control that individual alliance members have over the allian

Decision making and sharing benefits

Significant determinant of alliance success over the long term

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Power Balance in Strategic Alliances & JVs

Initial

Alliance

SustainablePower

Balance

Power shifttowards

globalpartner

PowerCollision

Power shifttowards

localpartner

Achievibalan

emerginchallengof differeculture,

objeASHWIN

ASIF ADERNST, A

VThe McKinse

Number 4

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Evolution of Strategic Alliances

NascentStrict RegulationLack of Market

Transparency

FrenziedDeregulation of

industryFlurry of activity

TurbulenceFurther

deregulationFamiliarity with

local market

MatureMarket

stabilizationDeveloped mark

scenario

Non equitytechnologylicensing

Distribution

arrangements

Investing intomany options

Compliancewith localownership

provisions

Restructuringand

dissolution ofalliances

Alliancestructuredriven byprimary

business logic

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Auto Sector | Maruti Suzuki | 1981

Akhil and Lalima

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Telecom Sector | Uninor | 2009

Ownership Structure

Telenor, a Norwegiantelecom service operatorinjected 61.35 billion inUnitech Wireless, asubsidiary of the Unitech

Group. Telenor major stake

holder with 67.25% stakein Unitech Wireless,remaining was with theUnitech Group

Objective

Unitech Group Business diversification,increased revenues andcash flow

Telenor Get access toWorlds second largesttelecom market

Agreements

Neither of theCompanies woulddirectly or indirectlycommence any

business in Indiadirectly or indirectlycompeted with thebusiness of Uninor

Fallou SCs r

2G lic2008 lall of Unino

Telenagaindema

from tfor allbreachrelatethe lic

Telento exit

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Financial Services | Max NewYork Life | 200

Akhil and Lalima

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Education | TataMcGrawHill | 1970

Akhil and Lalima

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Alliance name

Constituent companies When and why of the alliance/venture

Mechanism/covenants in agreement regarding sharing ofpower/control and benefits

Change in power/control over life of alliance and venture

Reasons for change

Outcome bought by one, dissolved, etc.

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FMCG| P&GG | 1992

Ownership structure

P&G 51%, Godrej 49% in the JV,formed in year1993

CEO P&G IndiaHead, Chairman

MD, Godrej, heldno executivepowers

Single Godrejrepresentative in 11member P&Gmgmt. committee

Objective

Marketing andDistribution of arange of soapbrands belongingto both companies

Godrej facing

tough competitionfrom HUL andP&G, decliningmargins, excesscapacity

P&G had access toa substantialmarket

Covenants

Godrej soap brandslicensed to the JV

Sourcing fromGodrej till cap.Utilization

Godrej not allowedsubcontracting forany other firms

Payment on cost-plus basis

F

Godrebeing propeshare from 1

Manyto be d

Brandreversfocus

Godreunfille

P&G aGodreexpen

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Outcome Buyout by P&G in 1996

Godrej sold stake,P&GG became

fully ownedsubsidiary of P&G

Sales force andDistribution

network underP&GG control

Scouring brandssold to P&G

Soap brands backin Godrej

Initial

Alliance

SustainablePower

Balance

PowerCollision

Power shifttowards

localpartner

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Retail, F&B| Tata Starbucks Ltd.| 2012

OwnershipStructure

50:50 JV, Tata GlobalBeverages andStarbucks Corp.

Classified as Co-Marketing

CEO Tataemployee

Objective

Starbucks entryinto emergingmarkets, highergrowth rate,potential globalcoffee supplier

Tata Strengthenposition in globalmarket, retailexpertise

Agreements

Separate agreement:Tata Coffee tosupply roasted coffeeto JV

Plan to open 100stores by next year,22 in operation

InitialAlliance

SustainablePower

Balance

PowerCollision

Power shifttowards

localpartner

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F&B | Coca Cola Parle | 1993

Joint Venture BottlingInvestments

Bottlers of Parle Exports willcontinue to produce brands such

as Thums Up, Limca licensing itfrom the Coca Cola Company,which would further introduce

brands such as Coke and Sprite asand when appropriate

Joint venture initially capitalized

at $ 20 million with 50%ownership by Parle Exports and50% by wholly owned subsidiary

of the Coca Cola Company

$40 million paid to buy off brands

such as Thums Up, Limca etc

The alliance also envisaged amarketing services company

headed by Mr Ramesh Chauhan

Parle Exports would gain fromthe marketing expertise of theWorlds Number 1 soft drink

manufacturer while Coca Cola

would gain from the distributionnetwork of Indias number 1 soft

drink manufacturer

Entire buyout once RameshChauhan ceded control, PrakashChauhan required capital for hisother businesses which were not

faring so well

S

Power shifttowards

localpartner

S

Power shifttowards

localpartner

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Entertainment |Worldwide Media Pvt Ltd. | 2

Joint Venture between BBCWorldwide and Times of India

Group to publish magazines in India

It will facilitate the exchantitles, content and know-ho

Indian market

This JV marks a new beginningfor both media houses. Together,we will bring to our readers our

collective skills and aim tosuccessfully produce and marketmagazines that capture the pulse

and mood of readers

Vineet Jain, MD, BennCo Ltd, and chairmanMedia.

There will be significanthe Indian market over t

BBC has a long-establiIndia through BBC Wo

World, and the combirespected Times Group avery impressive and

Peter Phippen, MD, BBCMagazines, BBC WorldwideLtd, and a member of the boardof Worldwide Media

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Retail| Bharti Walmart | 2007

The companies signed a 5050 JV for back-end supply chain management and wholesaleoperations.

However, this partnership is non-exclusive in nature, which means Walmart can forge oin India

Wal-Mart got access to a highly regulated Indian

retail market, which was valued at US$320 billion in2006 and was expected to expand to US$637 billionby 2015.

Bharti would own retail shops under the Wal-Martfranchise

Both would jointly opIndian retail indusaccessible for foreign logistics and cash-and

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Department of Industrial Policy and Promotion (DIPP) in 2012 alleged that even beforepermitted in multi-brand retail in India, Walmart held a stake in Bharti Retail through CSupport Services, a company owned by Bharti Enterprises to control Bharti Retail and twas designed to get around India's complete ban on FDI in multi-brand retail.

Enforcement Directorates probe into Walmart's investment in Cedar Support Service,, biggest hurdle for the JV. Without getting a clean chit on the ED probe, it's tough for th

Bharti JV to proceed.

Bharti Retail is unlikely to go it alone in the retail business, as it is not seen as its area ofWalmart, too, may have few choices in the Indian market. However, there is a buzz thacould tie up with the Future group for a deal

Retail| Bharti Walmart | 2007

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Auto Sector| Hero Honda | 1984

Honda agreed to provide tech. know-how to HHM and setting up

manufacturing facilities. This included the future R & D efforts.The deep penetration network of hero largely benefited the

JV.

Honda agreed for a lump sum fee of $500,000 & 4% royalty onSP.

Both Partners held 26% of the equity with other 26% sold tothe public and the rest held to financial institutions.

HHM had grownconsistently, earning

the title of the worldslargest motorcycle

manufacturer

Worlds largest two-wheeler manufacturer

with annual salesvolume of over 2

million motorcycles

Owns worlds biggestselling motorcycle

brand Hero HondaSplendor.

Depenetra

26.2

26

37.54

10.25

Investme

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In 2004

Honda entered the motorcycle market through HMSI.

At the same time, Honda allowed Hero to have a minority stake in HMSI, and alloweexamine the motorcycles that HMSI would release in the market.

Though Hero Honda launched several new products from time to time, it was reporteto share its technology with Hero Honda, though it had an agreement to do so.

As a result, Hero Honda was unable to bring out new bikes with better technology whcompetitors came out with better versions, as innovation was solely in the hands of H

In December 2010, both the companies decided to part ways in a phasbecause of unresolved differences and independent plans. Honda decits stake of 26% to the Munjal family and to exit from the venture.

Auto Sector| Hero Honda | 1984

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