ASSIGNMENT # 1

INTERNATIONAL BUSINESS

__________________________________________
SHORT CASE 9.1: MANAGING THE INTERNATIONAL JOINT
VENTURE (IJV)

BY:
KHIZER RAZI BABUR
1625144

SUBMITTED TO:
SIR QAZI MUHAMMAD SALMAN

22/11/2017
SZABIST, KARACHI
Q1. Why did the companies go in for IJVs instead of other market entry methods?
Ans1. The main reason for the companies going for International Joint Ventures is to
enhance/increase their global reach and market accessibility. IJV’s is a platform for rapid entry
and penetration in the foreign markets/countries. It is believed that IJV’s are carried out for
operating business through collaborative efforts by transferring knowledge, skills, expertise,
business processes, working methods and techniques, etc. All the companies mentioned in this
case have seen and believed that there is a great potential in the market for shaking hands
together and to take over the majority shares of that company.

Q2. What problems did these IJVs have? What caused them?
1. HCL and Hewlett-Packard in India
 During the 1990s, the Indian market opened up. Duties went down to 32 percent, imports
became financially viable, and new rivals entered the market.
 HCL’s expertise base expanded, and the company developed the low-price, mass market
segment for PCs, building a 50 percent market share of the rapidly expanding market and
producing 15,000 PCs a month.
 The HCL–HP partnership gradually fell apart. HCL executives complained that HP was
treating the IJV “like any other HP division,” and that its export efforts, at nearly $150
million a year, were being inhibited by the partnership.
2. Ericsson’s IJV in India

 Ericsson did not use its top-drawer technologies in India, and local personnel were
developed to take over production responsibilities.
 Over the years, IJV ownership arrangements were changed in favor of the local partner to
comply with government regulations.
 The major cultural differences between Swedish managers and local personnel were
notable, informal communication and mutual trust prevented major conflicts.
 As the Indian market opened up after 1991, a new IJV was formed with the same partner,
but with 51 percent of shares in Ericsson’s favor. This IJV focused on the private sector,
with local components increasingly used in the manufacturing of the major product,
mobile phones.
 Ericsson, with local partner approval, established a wholly owned subsidiary to expand
its product assortment, which did not compete with IJV lines.
3. Kanthal IJV in India

 Legal limitations reduced Kanthal’s ownership to 40 percent. During this time, Kanthal
exerted considerable influence over the IJV, supplying key material inputs and evaluating
local market prospects.
  Little learning took place between IJV participants, and Kanthal constantly pushed for the
adoption of modern marketing techniques by its local partner.
 Kanthal installed its own chief executive in 1986. Conflict ensued and the partnership
was dissolved in 1987.

4. Procter & Gamble and Phuong Dong in Vietnam

 P&G accumulated over $30 million in debts. The Vietnamese government accused P&G
of excessive expenditures on advertising and expatriate salaries.
 Market size had been overestimated. Start-up costs had been underestimated. The
government and Phuong Dong had expected the venture to be profitable very quickly.
 P&G responded by saying their initial plans, shared with the local partners, indicated that
the market was not expected to be profitable for 5–7 years. However, local commentators
noted that Unilever, in a similar situation, had become profitable in less than 2 years.
 Unable to fund the losses, the Vietnamese parent company allowed P&G to buy out an
extra 23 percent of the IJV to cover future debts, leaving the local firm with a face-saving
7 percent stake.

Q3. Prepare a list of dos and don’ts for IJVs based on these illustrations.
Dos

 In order to work parallel two companies business processes must be aligned/structured

 They must have same/common interest
 Should be flexible in decision making, not that one company over powering other like in
the case of P&G and Phuong Dong in Vietnam
 Management should work in collaboration

Don’ts

 Cultural differences in the case of Ericsson (between Swedish managers and local
personnel were notable)
 P&G’s excessive expenditures on advertising and expatriate salaries. Market size had
been overestimated. Start-up costs had been underestimated in the case of P&G and
Phuong Dong in Vietnam