Submitted to: Prof.

Tae-Koo Kang Submitted by: Akhil Agarwal Faiz Ahmed

y Strategic alliances which allow companies to gain

competitive advantage through access to a partner s resources, including markets, technologies, capital and people.
y Practical vehicle for knowledge transfer, such as

technology transfer, from multinational expertise to local companies.

y Limited purpose and duration

y Formed for specific business objective and can have a limited life

span or be long term.

y Joint property interest

y Each IJV participant contributes property, cash, or other

assets and organizational capital for the pursuit of a common and specific business purposeSpecific

y Contractual agreement
y Established by express contract consist of one or more

agreements

y Shared Profits, Losses, Management, and Control.

y The IJV participants share in the specific and

identifiable financial and intangible profits and losses, as well as in certain elements of the management and control of the IJV

y Common Financial and Intangible Goals and

Objectives.
y The IJV participants share a common expectation

regarding the nature and amount of the expected financial and intangible goals and objectives of the IJV.

y provide companies with the opportunity to obtain new

capacity and expertise y allow companies to enter into related business or new geographic markets or obtain new technological knowledge y allowing companies to make short term commitments rather than long term commitments

y Provide Opportunities to companies to:

y Increase profit margins y Accelerate their revenue growth y Produce new products y Expand to new domestic markets y Gain financial support y Share scientists or other professionals that have unique

skills

y Developed when two companies work together to meet

specific goal.
y Process involves following steps:
y y y y y y y

Market research Partner search Evaluating options Negotiations Business valuation Business planning Due diligence

y Legal procedure:
y IJV agreement y Ancillary agreements y Regulatory approvals

y Final steps
y Formation y Management

y Pose a challenge when there are difference between

two parties in following factors:

y Different cultural backgrounds y Different jurisdiction y Difference between management, y Size of corporations, y Nature of business.

y Shared management
y Both parents managing the enterprise y Each parent organizes functional managers and

executives that will be within the board of directors.

y Further two types of IJV in this: y First type is 50:50 IJV y Second type is where one partner has more than a co-equal role in IJV

y Dominant parent
y All projects are managed by one parent knows as

working parent
y It decides on all functional and operating decisions

y Steps include in financing:

y Establishing the capital required to start the IJV y The impact of securing a strong strategic alliance

partner
y Financial reporting y After this arrangement a tax-planned joint venture will

be created

y Economic Factors
y Unexpected poor financial performance y Poor formation and planning y Inappropriate management structure y Management problems

y Economic Environment of JV y Cultures of IJV

y Unexpected poor financial performance y Fastest ways for disputes between parties is financial disputes due to poor performance than expected.
y Reasons for poor performance:
y Failure to approach the market with sufficient management

efficiency
y Unanticipated changes in the market situation.

y Poor information and planning

y Most of the problems arise due to poor planning or the

parties being too hasty. Example: a marketing strategy may fail if a product was inappropriate for the joint venture or if the parties involved failed to appropriately asses the factors involved

y Inappropriate management structure y There could be a misfit of managers. As a result , there is a major slowdown of decision making processes. y Management problems y Biggest problem is the ineffective blending of managers. Having entirely different ways of approaching issues.
y Misunderstanding over leadership strategies.

y The ultimate goal of a successful JV partnership is more

customers and a stronger body. To ensure a JV's partnerships are as profitable as possible, it helps to look at them from the customer s point of view. The features a JV partnership should aim to address for an effective marketing campaign: Channelling the expertise and strengths of both parties to maximize value for the customers and stakeholders while downplaying the weaknesses and presenting a united font

y Blending of cultures is very important task. Lack of

understanding of the cultures of the individual parties poses a huge problem if not addressed. A common problem in these multi-cultural enterprises is that the culture is not considered in their initial formation. It is usually assumed that the cultural issues will be addressed later when the new unit has been created. Usually, compromises are reached and certain cultural from the parties are kept on while others are others are either out rightly discarded or modified

y Joint ventures enable companies to share technology

and complementary IP assets for the production and delivery of innovative goods and services.
y For the smaller organization with insufficient finance

and/or specialist management skills, the joint venture can prove an effective method of obtaining the necessary resources to enter a new market. This can be especially true in attractive markets, where local contacts, access to distribution, and political requirements may make a joint venture the preferred or even legally required solution

y Joint ventures can be used to reduce political friction

and improve local/national acceptability of the company

y Joint ventures may provide specialist knowledge of

local markets, entry to required channels of distribution, and access to supplies of raw materials, government contracts and local production facilities

y In a growing number of countries, joint ventures with

host governments have become increasingly important. These may be formed directly with Stateowned enterprises or directed toward national champions.
y There has been growth in the creation of temporary

consortium companies and alliances, to undertake particular projects that are considered to be too large for individual companies to handle alone (e.g. major defence initiatives, civil engineering projects, new global technological ventures)

y Exchange controls may prevent a company from

exporting capital and thus make the funding of new overseas subsidiaries difficult. The supply of knowhow may therefore be used to enable a company to obtain an equity stake in a joint venture, where the local partner may have access to the required funds

y A major problem is that joint ventures are very difficult

to integrate into a global strategy that involves substantial cross-border trading. In such circumstances, there are almost inevitably problems concerning inward and outward transfer pricing and the sourcing of exports, in particular, in favour of wholly owned subsidiaries in other countries.[
y Problems occur with regard to management structures

and staffing of joint ventures

y The trend toward an integrated system of global cash

management, via a central treasury, may lead to conflict between partners when the corporate headquarters endeavours to impose limits or even guidelines on cash and working capital usage, foreign exchange management, and the amount and means of paying remittable profits.
y Many joint ventures fail because of a conflict in tax

interests between the partners

y Another serious problem occurs when the objectives of

the partners are, or become, incompatible. For example, the multinational enterprise may have a very different attitude to risk than its local partner, and may be prepared to accept short-term losses in order to build market share, to take on higher levels of debt, or to spend more on advertising. Similarly, the objectives of the participants may well change over time, especially when wholly owned subsidiary alternatives may occur for the multinational enterprise with access to the joint venture market.

y When two or more partners agree on an International

Joint Venture, there are possibilities for disputes to arise.

y There can be issues between the partners whom are

likely to want their home country s governing law and jurisdiction to apply to any disputes that may come up
y To avoid such a problem, a neutral governing law and

jurisdiction has been chosen.

y A popular dispute resolution technique used in IJV s is

arbitration; however, many times a court process is given priority as this system has more authority.
y Other dispute resolution strategies utilized are

mediation and litigation.

y Entering into an International Joint Venture

agreement begins with the selection of partners and then generally this process continues to a Memorandum of Understanding or a Letter of Intent is signed by both parties.
y The Memorandum of Understanding is a document

describing an agreement between parties.

y Another document signed by both parties is a letter of

intent.
y Letter of Intent is a document outlining an agreement

between the parties before the agreement is finalized.

y Before signing an IJV, specific aspects of the agreement

must be addressed such as :

y applicable law, y holding shares, y transfer of shares, y board of directors, y dividend policy, y funding, access, y confidentiality and termination.[

y IJV in China
y An IJV is an attractive way to get into Chinese market for

the people who are unfamiliar with the completed culture and the less opened market. But China is becoming more and more global and familiar to the world.
y Two main types of IJV in China y Equity Joint Ventures y Cooperative Joint Ventures

y Equity Joint Ventures (EJVs):

y An equity joint venture is a partnership between an

overseas and a Chinese individual, enterprises or financial organizations approved by the Chinese government.
y Companies in an equity joint venture share both mutual

rewards, risks and losses according to the ratio of investment.

y Equity Joint Ventures (EJVs):

y A minimum of 25% the capital must be contributed by

the foreign partners, and no minimum investment for the Chinese partners.
y A joint venture is free to hire Chinese nationals without

the interference form government employment industries by abiding Chinese Labor Law, and purchase land, build their own buildings, and privileges prevented to representative offices.

y Cooperative Joint Ventures (CJVs):

y CJVs are a rather unevenly regulated form of IJV between

Chinese and foreign-based companies.

y They are usually found in venture, which are both

technology-based and have a substantial requirement for fixed assets, for example infrastructure and volume manufacturing.

y Cooperative Joint Ventures (CJVs):

y No minimum foreign contribution is required to initiate

cooperative venture and the contributions made by the investors are not necessarily expressed in a monetary value. These contributions can include excluded in the equity joint venture process can be contributed such as labour, resources, and services.
y Greater flexibility in the structuring of a cooperative

venture is also permissible including the structure of the organization, management, and assets.

y International joint ventures have been played a

significant role in the reform and liberalization of the laws governing foreign investors as part of Turkey's economic program adopted after 2001.
y Turkey lies on the borders between Europe and Asia

and is used as a way to achieve strategic goals to enter into the Asian or European market, which is important for those wanting to entre EU market since Turkey signed the European Customs Union (ECU).

y Under Turkish Law, a joint venture may be formed

under two umbrellas :

y Commercial Company y Ordinary Company

y Commercial company:
y A Commercial Company is registered and recognized as

having a legal identity separate from its shareholders.

y According to the Turkish Commercial Code, the

commercial enterprise JV may be established under five titles:

y y y y y

an unlimited partnership (general partnerships) limited partnerships (special partnerships) companies limited by shares (stock corporations), limited liability companies (corporations without shares) cooperative companies (cooperative societies)

y Ordinary Company
y Ordinary Company governed by the Turkish Code of

Obligations, is not recognized as having a legal identity

y Normal ordinary partnerships and consortiums are used

as a vehicle for foreigners who want to partner with Turkish entities or participate in a tender and are ideal for achieving relatively short-term specific objectives for example construction of a bridge.

y Pre liberalization scenario

y Indian industry was unaware and unconscious about the

benefits of international business. y Most businesses did not have economies of scale by global standards y Control on collaborations restricted the choice of technology and manufacturing methods.

y Post Liberalization scenario

y Many foreign companies entered Indian market through

different modes of entry. y Foreign players saw India as a land of opportunity to take advantage of low cost of production. y joint venture become a preferred mode of entry in Indian market.

Sectors Mining (commercial) Banking, Airport Insurance Alcohol distillation and brewing, floriculture, horticulture, animal husbandry, petroleum and natural gas, construction and development, SEZ s and free trade, warehousing zones, trading etc. Telecommunication Data published: 8 December 2008

Percentages 51% 74% 26% 100%

49%

y Virgin Group and Tata Tele Services y Maruti ltd. and Suzuki Motors y Hero cycles and Honda motors y Tyson foods and Godrej Agrovet y Marks & Spencer and Reliance Retail

y JV is not a permanent structure. It can be dissolved

when:
y Aims of original venture met y Aims of original venture not met y Either or both parties develop new goals y Either or both parties no longer agree with joint venture

aims y Time agreed for joint venture has expired y Legal or financial issues y One party acquires the other

y JV between TVS group (India) and Suzuki Motors

(Japan)
y Formed in 1983 but called off in 2001 y Causes of failure of JV attributed to: y Uneasy relation between the two partners, in early 90 s TVS lobbied hard against Suzuki increasing its stake in the JV company
y Suzuki s contribution to the JV was shrinking.

y Causes of failure of JV attributed to:

y Conflict around change in strategy of the partners:
y Suzuki looking for manufacturing facility of its own y It was becoming evident that the Indian side can go without

the Japanese collaborator.

y 40:60 JV was formed in 1993 and called off in 2001 y Causes of failure of JV
y GE was a less known brand among the customers at that

time y Off take of high capacity refrigerators and washing machines failed to match expectations. y JV failed to meet projected turn over (against a turnover of Rs 35 billion for the 1996-97 fiscal, the JV managed only Rs 8.13 billion in 1998-99)

y Causes of failure continue:

y Tiff between the promoters, GE insisting on raising

stake has not found favour with Godrej

y Poor cultural integration between the two partners. y GE alleged that lack of professionalism in Indian partner

had aggravate the situation.