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A Joint Venture may be defined as any arrangement whereby two or more parties co-operation order to run a business or to achieve a commercial objective. This co-operation may take various forms, such as equity-based or contractual JVs. It may be on a long term basis involving the running of a business in perpetuity or on a limited basis involving the realization of a particular project. It may involve an entirely new business, or an existing business that is expected to significantly benefit from the introduction of the new participant. A JV is therefore, a highly flexible concept. The nature of any particular JV will depend to a great extent on its own underlying facts and characteristics and on the resources and wishes of the involved parties. Overall, a JV may be summarized as a symbiotic business alliance between two or more companies whereby the complimentary resources of the partners are mutually shared and put to use. It is an effective business strategy for enhancing marketing, positioning and client acquisition which has stood the test of time. The alliance can be a formal contractual agreement or an informal understanding between the parties.
Reason for Joint Ventures
Joint ventures provides a lower risk option of entering into a new country. For ExampleMOTOROLA entered India in Joint ventures with blue star company, a brand with repute and vast distribution network. It also provides an opportunity for both the partners to leverage their core strengths and increase the profits. It also provides a learning opportunity for both the partners.
Sharing Capabilities, Expertise and Liabilities Parties to a JV may have complementary skills or resources to contribute to the JV; or parties may have experience in different industries which it is hoped will produce synergistic benefits. The basic tenet of a JV is the sharing of capabilities, expertise and liabilities of both the partners on mutually agreed terms. Such sharing grants a competitive advantage to the JV partners over other players in the market. Technology etc.
and other expenses. Need For Joint Venture Joint ventures are very common – and in fact. Sharing innovative and proprietary technology can improve products. The Contractual JV might be used where the establishment of a separate legal entity is not needed or the creation of such a separate legal entity is not feasible. Internal Reasons to Form a JV Spreading Costs and risks – In a JV partners can share costs and risks associated with marketing. more common than one might think. The main classification of JVs is that it is either Equity / Corporate JV Contractual JV. Here‘s a look at why big businesses form JVs. An Equity JV is an arrangement whereby a separate legal entity is created in accordance with the agreement of two or more parties. reducing the financial burden.Types of Joint Ventures Joint ventures (JVs) may be either contractual or structural. This structure is best suited to long-term. Oil and gas companies are common allies when it comes to forming joint ventures for drilling purposes. broad based JVs. Access to new technologies and customers . such as Sony Ericsson. fuel innovation and global access to untapped markets.People might want access to technological resources that couldn‘t have been afforded on theirr own. 2 . JVs are quite prevalent amongst big business. Improving Access to New Markets – The JV partners can combine customer contacts and together even form a joint product that accesses new markets. The parties undertake to provide money or other resources as their contribution to the assets or other capital of that legal entity. or vice versa. Electronics joint ventures. This agreement can be entered into in situations where the project involves a temporary task or a limited activity or is for a limited term. as well as their own understanding of technological processes. or both. They may be broad based or narrowly defined. Particularly. product development. Improving access to financial resources – Together JV partners might have better credit or more assets to access bigger resources for loans and grants than could have been obtained on their own.
Access to innovative managerial practices Competitive goals Influencing structural evolution of the industry pre-empting competition Defensive response to blurring industry boundaries Creation of stronger competitive units Speed to market Improved agility Strategic Reasons Synergistic Reasons – People may find JV partners with whom you can create synergy. Share and Improve Technology and Skills – Two innovative companies can share technology to improve upon each other‘s ideas and skills. Companies of different sizes may also benefit from joining together. Economies of scale and advantages of size . etc. development of diverse products.Economies of scale can be achieved when two or more firms pool their resources together. The large company offers its capital and resources in exchange for the efficiencies or innovations found at the smaller company. which produces a greater result together than doing it on your own. 3 . Cooperative strategies also allow small companies to join together to compete against an industry giant. Diversification – There could be many diversification reasons: access to diverse markets. diversify the innovative working force. maximizing efficiency based on the project's needs.
Be sure about the organisational behaviour of the partner to ensure synergies. Need to have a clear long term goal and set the terms and conditions of the Joint ventures Clearly define the role and responsibility of each partner. To make for the long term success of the joint venture. Key executives must be assigned to implement the joint ventures. The partners should clearly agree on the way the joint venture will be managed. Take measures to be sure that the partner has a compatible work culture. There should be provision in the agreement for termination including buyout by one of the participants. 4 . The agreement or contract should provide for flexibility in the future. it is also important that both partners Are equally able to service its growing need for capital as the business expands. A distinct unit be created in the organizational structure which has the authority for negotiating and making decisions. Successful joint venture require Each participant has something of value to bring to the venture. It is important that both partners work towards a system based on trust and transparency. The participants should engage in careful preplanning.Before entering a Joint Venture Both partners should appreciate the need for the joint venture.
000 square feet and sell a wide range of fruits and vegetables. This venture promises to bring great value to millions of farmers. Additionally. footwear. small manufacturers and retailers across India. agribusiness. groceries and staples. modern supply chain and back-end logistics expertise. operates Wal-Mart discount stores. stationery. mall manufacturers and retailers. Both retail groups will hold a 50-50 stake in their joint-venture. A typical facility will stand between 50. which will further enhance their businesses and profitability. The aim will also be to enable minimum wastage. linking farmers. Those that will be served by this joint-venture include kirana stores.000 employees. With world-class processes and technologies. The combined operations of the two retail giants will make available for small retailers and business owners a wide range of quality products at competitive wholesale prices. artisans. local suppliers will be encouraged to develop and derive significant benefits for their businesses. followed by 10 to 15 wholesale cash-and-carry facilities in the next seven years. These facilities are positioned to hire as many as 5. We are pleased to be a partner in developing this sector which is set to become a significant engine of India‘s economic growth. restaurants and other business owners. 5 . insurance and retail. has picked Bharti for the latter‘s deep understanding of the local market. Bharti Enterprises expressed his delight at being able to partner with Wal-Mart for wholesale cash-and-carry and back-end supply chain management operations in India. He went on to say that ―Wal-Mart‘s global expertise in supply chain and logistics will bring enhanced efficiencies across the retail ecosystem. The two have now joined hands to sign a memorandum to establish a joint-venture for a cash and carry and wholesale retail chain in India. the result will be better quality. Wal-Mart Stores. Inc. which will be called Bharti Wal-Mart Private Ltd. Chairman and Group CEO. clothing.000 and 100. Additionally. fruit and vegetable resellers. The first wholesale cash-and-carry facility is targeted to open by the end of next year. Bharti Wal-Mart Private Limited will make investments to set up an efficient supply chain. Neighborhood Markets and Sam‘s Club locations in the United States. particularly of fresh foods and vegetables. consumer durables and other general merchandise items. while Bharti Enterprises is one of India‘s leading business groups with interests in telecom. Super centers.Examples of successful Joint Ventures Bharati Walmart Wal-Mart StoreInc. Bharti Wal-Mart Private Limited will introduce modern retailing in India. and more choice at better prices. Sunil Bharti Mittal. farmers and small manufacturers with limited infrastructure and distribution strength can expect support from the joint venture.
' a school for children with special needs (in partnership with the Coorg Foundation) and aim to increase its capacity and outreach into the rural communities 6 . Through an initial financial commitment. TATA Starbucks Limited brings together two companies with a rich heritage in and passion for coffee. Starbucks brings unique retail expertise as well as a shared sense of business values.Tata Starbucks Tata Global Beverages Limited and Starbucks Coffee Company announced a joint venture between the iconic international coffee brand and the 2nd largest branded tea company in the world. Starbucks will work with Tata to support 'Swastha. We are excited about the opportunities the alliance presents to innovate in the retail space and bring new beverage experiences to more consumers in India. Through a separate coffee sourcing and roasting agreement. the companies have agreed to jointly leverage assets and innovation to offer a premium tea product branded Tata Tazo. As an example. and legendary service. leveraging the global in-home expertise of Tata Global Beverages and the global out-of-home expertise of Starbucks. ―We look forward to bringing the Starbucks Experience to customers in India by offering high quality arabica coffee. This partnership will enable the introduction of the unique Starbucks Experience to Indian consumers. as well as improving the quality of coffee through sustainable practices and advanced agronomy solutions. will own and operate Starbucks cafés which will be branded as Starbucks Coffee ―A Tata Alliance. ―It opens up exciting business opportunities and new formats for Tata Global Beverages. named TATA Starbucks Limited. Together. and to export to Starbucks Coffee Company. Starbucks China and Asia Pacific. handcrafted beverages. This agreement paves the way for consumers in India to enjoy the premiumStarbucks Experience.‖The retail stores will be developed in cities across the country. tea and innovative beverages. Starbucks and Tata share common values of responsible business ethics and a commitment to community.‖ The TATA Starbucks Limited joint venture will operate cafés under the Quick Service Restaurant category. The 50/50 joint venture. Tata Coffee Limited will roast coffee to supply TATA Starbucks Limited. the JV will enable an expanded range of beverage offerings for Indian consumers. locally relevant food.‖ said John Culver. president. beginning with stores in Delhi and Mumbai in calendar 2012. Starbucks and Tata Coffee Limited will work toward developing and improving the profile of Indian-grown arabica coffees around the world by elevating the stature of Indian coffee through joint marketing efforts. In a separate sourcing and roasting agreement between Starbucks Coffee Company and Tata Coffee Limited. Tata Coffee Limited has been working to improve the lives of coffee growing communities in the State of Karnataka. while further discovering the unique taste of highquality Indian arabica coffee worldwide.‖ ―We‘re very pleased to have found the best partner for Starbucks in Tata – a company that shares so many of the same values for conducting business in a way that earns the trust and respect of our customers and partners (employees).
along with exploring community projects which could positively impact the communities in the coffee growing regions where Tata is active. Today. 7 . Asia. with more than 17. Starbucks Coffee Company has been committed to ethically sourcing and roasting the highest-quality arabicacoffee in the world.000 MT of shade grown Arabica and Robusta coffees at its 19 estates in South India and its two Instant Coffee manufacturing facilities have a combined installed capacity of 6000 metric tonnes. Tata Coffee is a subsidiary of Tata Global Beverages. Tetley. The group‘s annual turnover is US $1. The Company produces more than 10. It is Asia‘s largest coffee plantation company and the 3rd largest exporter of instant coffee in the country. About Starbucks Since 1971. the company is the premier roaster and retailer of specialty coffee in the world. The Company focuses on ‗good for you‘ beverages and has a stable of innovative regional and global beverage brands.5 bn and it employs around 3000 people worldwide.000 stores around the globe. technicians and agronomists to improve their coffeegrowing and milling skills. About Tata Global Beverages and Tata Coffee Tata Global Beverages is a part of the global Tata Group. Himalayan natural mineral water and Eight O‘ Clock Coffee. Tata Coffee‘s farms are triple certified: Utz. Tata Coffee Limited and Starbucks also plan to work together on initiatives including the promotion of responsible agronomy practices and the provision of training for local farmers. It exports green coffee to countries in Europe. we bring the unique Starbucks Experience to life for every customer through every cup. Middle East and North America. including Tata Tea. Tata Global Beverages is a global beverage business and the world‘s second largest tea company. Rainforest Alliance and SA8000. Through our unwavering commitment to excellence and our guiding principles.in the coffee growing region of Karnataka. reinforcing its commitment to the people and the environment.
which will employ 2.Volvo will contribute $275 million in cash and $75 million by transferring its Indian truck dealer and service network to Eicher. in the central Indian state of Madhya Pradesh 8 . The joint venture will provide [a] platform for all future truck projects for Volvo in India.‖ Merrill Lynch said in a research note. We believe this will drive Eicher‘s future growth in the domestic market.300 and focus production at Eicher's current plant in Pithampur.Volvo Eicher Motors The Swedish truck maker is investing $375 million for a joint venturewith EicherMotors. Eicher will transfer its entire truck and bus operations and their business and engineering services to the joint venture. the third-largest commercial vehicle manufacturer in India. and market share expansion. Its motorcycle-making division will not be part of the venture. giving it 50% of the venture through direct and indirect holdings. for necessary infusion of funds and technology.1% of Eicher. Sweden-based firm said it also plans to buy 8. The Gothenburg.
(Kinetic Honda) armor were reported by Business India. Parent companies are unable to share control or compromise on difficult issues Examples of failed Joint Venture Kinetic Honda Break Up Blues It was in August 1998 that the first chinks in the Kinetic Honda Motors Ltd. (when the market price was almost double).either he buy their 51% stake or Honda would buy out his 19% stake. More so. People with expertise in one company refused to share knowledge with their counterparts in the joint venture. Both Honda and the Firodias of Kinetic were quick to deny rumors of a split. Honda had been reported to be planning to make further investments in Kinetic . 9 . The Firodias were even reported to have securitised the assets of their twowheeler finance company . Eventually.20th Century Kinetic Finance (TCKF) .to raise this money. Firodia negotiated a deal with Honda. at a total cost of Rs 35 crore. Eventually Honda decided to put the matter to rest and called Arun Firo dia (Firodia) to Japan in December 1998. It was also perhaps the only instance of a Honda failure anywhere in the world. Analysts remarked that it was difficult for Firodia to let go of the company that he had nurtured for the best part of his life. Honda made Firodia an offer . as it was quite uncharacteristic of Honda Motor to give up a segment. Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture. Honda also agreed to continue providing technical know-support in return for royalty and technical fees from Kinetic. to acquire its stake at Rs 45 per share. Considering the fact that Honda was the world's biggest and most successful scooter manufacturer.Reasons for failure of a Joint Venture Inadequate preplanning for the joint venture. as just a couple of months earlier. The hoped-for technology never developed. the pullout came as a surprise to industry observers. This was seen as a major setback for the company. 6 crore in the first quarter of 1998. though reports of the Firodias quietly raising resources to buy out Honda's stake kept surfacing. He also signed an agreement with them for continuing to manufacture and sell the existing Kinetic Honda models. Trouble had been brewing since the company recorded a loss of Rs.
its operating margin was the lowest in the industry because of the high import content of raw materials. that Luna became a generic name for mopeds. At a time when its competitors were spending 1-1. Throughout the 1980s. A decade later. proved to be a huge success in the initial stages." The new agreement involving the Honda stake sell-off and the technical collaboration arrangement was signed after this.56%. But by 1999. Kinetic just managed to double its turnover. After the December 1998 deal.K. Firodia claimed. Kinetic also had to shelve its plans to launch a small.) Kinetic's financial position also took a beating in the late 1990s. The company's primary business was manufacturing scooters. it would bring in new products more quickly and thereby improve the company's prospects. In 1985. This.With Kinetic Honda's fortunes declining. was competing on an equal turf with the Rs 140 crore TVS Suzuki and the Rs 150 core Hero Honda4.Firodia buying the 'Luna' moped's design from a foreign company. went on to become such a huge success. while TVS and Hero Honda grew seven times over to Rs 1. Kinetic Honda's market share declined steadily during 1996-98.5% of the turnover on R&D. "It's a win-win scheme for everybody.16 crore from Rs 2. A major reason for this was the fact that Kinetic seemed to have missed the pulse of the market. Kinetic Honda's sales grew marginally to Rs 353 crore over the previous year. Kinetic Honda Motor Ltd was renamed Kinetic Motor Company Ltd.K. Sales of spare parts formed a minor part of the turnover. But Firodia soon realized that this was not to be. coupled with the Rs 6 crore loss for the first quarter of 1998 made the Firodias give serious thought to parting ways with Honda.146 crore respectively. Kinetic's story began in 1972 with the founder H. The 'KH-100. Also. Kinetic had no motorcycles to offer – mainly due to the Honda joint venture stipulations. (KHML) with both the partners holding an equal stake of 28.31%.Kinetic Engineering Ltd and Kinetic Motor Company Ltd. compared to its competitors. Honda spent just Rs 20 crore during 1993-98. Kinetic Honda did not move beyond 0. Kinetic. Commenting on this. 10 . Firodia agreed to let Honda increase its stake to 51% in 1993. but profit after tax dipped to Rs 2." Though Firodia claimed that Honda's equity sale decision was taken jointly by both partners.018 crore and Rs 1. "There was no growth. media reports had a different story to tell. On advertising. so we decided to review the contract. 2-cyclinder car after a substantial sum was spent on the project5. in 1991.Firodia's son) leadership. the Kinetic Group had two automobile companies . under Arun Firodia's (H. which was fast moving towards motorcycles. which aimed at capturing the bicycle market.Starting Problem! In 2001. Kinetic remained India's largest moped manufacturer with a 44% market share and a 15% share3 of the overall two-wheeler market. The moped. As a result. with a turnover of Rs 121 crore. (Kinetic could not make motorcycles because that meant competing with Hero Honda. perhaps hoping that if Honda were in control.' the first ungeared scooter in India. 500cc. Firodia said. While sales grew slowly.30 crore. the company's moped market share halved to 22% and the overall market share figure reached an 5%. Kinetic tied up with Japanese auto major Honda Motor2 to form Kinetic Honda Motors Ltd. In 1997-98.
But the investment required to develop and introduce new models was very high. but Honda did not agree. the economy went into a tailspin and we couldn't grow. Honda claimed that the Firodias did not have the marketing acumen of the Munjals of Hero Honda. Industry watchers pointed out that Honda. The joint managing director. the Kinetic group remained in mopeds and scooters. Both of them could not manufacture each other's products or motorcycles. unlike in India. Honda saw it as an unfriendly move. As a result. marketing strategies. could have easily engineered a product for the Indian roads. a Honda nominee. Yet. Honda's margins were much higher in these markets – even a 50cc Honda scooter cost more in other parts of the world than the lead model being sold in India. Kinetic Honda manufactured scooters and Kinetic Engineering made mopeds. but was simply not interested. Firodia admitted that there were serious differences over issues like introduction of new models. Honda admitted that having just a single model for several years had worked to the company's disadvantage. Kinetic had ambitions of becoming a full range two-wheeler company as it was strong in operations and also had a large distribution network. To support the Kinetic brand as an umbrella brand with a number of products under it. but did not see them as belonging to the same business house. They also said that Honda was too preoccupied with other markets such as Indonesia and Thailand which were growing much faster and where. Because Honda was present in the motorcycle segment with Hero Honda. Under the joint venture agreement. with all its resources.Souring Ties Reports claimed that right from the beginning there had been differences between Honda and the Firodias over the issue of management of Kinetic Honda. the Firodias wanted to advertise heavily and bring out new products. Kinetic wanted Honda to increase the advertising expenditure. rendering the end product uncompetitive and hence an unattractive proposition. Company sources said. etc.' as an umbrella brand was not being promoted. but it didn't." However. the company suffered in terms of growth and profitability. Consumers associated the name Kinetic with scooters and 'Luna' with mopeds. advertising expenditure. When Kinetic developed indigenous technology for its four-stroke step-through vehicle K400. Honda scooters were considered expensive in India. We thought it would go up. "The tie-up with Honda was limiting our competitive capabilities. Instead. According to Sulajja . Honda was doing well. Honda wasn't quick enough to react to the demands of the marketplace." Kinetic Honda insiders claimed that Honda had always taken a 'half-hearted approach' towards managing the company. Disagreements over advertising expenditure and the interference of the Firodias in the appointment of dealers widened the rift between the partners. "We miscalculated the purchasing power of the Indian middle class. was changed 11 . This was not in favor of Kinetic because the moped market had declined considerably during the 1990s. a competitor to Hero Honda's Street model. Honda claimed that it had decided to position itself as a niche player at the upper end of the segment and that segment did not grow as much as the company had anticipated. Being a large organization with various decision-making layers. Also.The Firodias were unhappy about the fact that 'Kinetic.
things were easier for Hero Honda. The profitability of Hero Honda. Honda's technical support limited to the existing range of products. therefore. Unlike the Hero Honda venture. Hero Bmw Hero India based two wheeler manufacturer and bmw german automobile manufacturer joined hands and come in joint venture in 1995 for Hero BMW F650 but the deal fail in 1996 because of poor consumer response. "If we could have done the same. where the Munjals and Honda showed complete faith in each other and worked together as a team right from the beginning. Firodia said. was much more and they could afford to spend more on advertising. In Hero Honda.Kinetic Honda and Marvel – were not doing very well at that time. the withdrawal was seen as an unwelcome development. But Kinetic Honda had to compete with a giant like Bajaj. by the time he understood the demands of the marketplace. Moreover. the selling price of the latter was Rs 10. while the cost of making the Kinetic scooter was higher than the cost of manufacturing a motorcycle. Also. And as the existing products . it would definitely have increased Kinetic's visibility and volumes would have grown faster. Thus.000 more. the Firodias and Honda reportedly never shared a good rapport. It was thought that the Rs 35 crore the Firodias paid for acquiring the entire stake would put a great strain on their finances and weaken the company. Also. Analysts were quick to comment that Kinetic would have problems regarding the development and induction of new products. because of lack of competition for a long time. the Munjals could take their own decisions regarding adspend. it was time for him to be replaced." Honda's exit raised questions about Kinetic's survival. the partners had equal stakes and this made decision-making easier.every three years. 12 .
The estimated worth of world-wide state-owned industry sales in 1995 reached $65 billion. More and more companies are adopting the joint venture approach as a part of their growth strategies. Foreign companies can benefit mutually by combining their technological and monetary resources and taking advantage of respective market conditions. the wave of privatization.THE FUTURE OF JOINT VENTURES It is almost certain that the number of joint ventures will continue to increase in the near future. Finally. particularly in the international arena. and still relatively unfamiliar and structurally adverse. on a global scale. Joint ventures may grow in importance so much in the next few years that many companies could lose their national identities. This trend will make investment and inroads by companies into previously closed. There could be a growth in the activities of multinational corporations to the point where joint ventures will be virtually unrecognizable. have already lost sight of the fact that they engage constantly in joint ventures because they have become so commonplace. of state-owned industries and enterprises promised an added catapult for joint venture formations. countries such as China and the former eastern bloc nations increasingly attractive. some companies. 13 . Thus. In fact. international joint ventures are becoming the norm rather than the exception— and in more industries than ever before. especially those in capital-intensive industries.
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