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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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REASONS FOR FORMING JOINT VENTUREREASONS FOR FORMING JOINT VENTURE
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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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REASONS FOR FORMING JOINT VENTUREREASONS FOR FORMING JOINT VENTURE
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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
2. Management10
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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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Examples: Sony, Ericsson Link Up For Joint
Venture
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Examples: Sony, Ericsson Link Up For Joint
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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Hero Honda Joint Venture
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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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Hero Honda Joint Venture
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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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Hero Honda Joint Venture
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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