JOINT VENTURES WHY?

Group Effort & Presented By: Abhishek Das Amit Puri Abhinav Shukla Anurag Gupta Harshit Sultania Neha Topno Prateek Singh Gautum Pallavi Arun Paritosh Jha Saksham Gurha
26 August 2010 2

INTRODUCTION A joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity. and then they share in the revenues. expenses. and control of the enterprise 26 August 2010 3 .

It also provides a learning opportunity for both the partners. 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.example. 26 August 2010 4 . .motorola enterred India in JV with blue star company.REASON FOR JV·s JV provides a lower risk option of entering into a new country.

Need for setting up a Joint Venture INTERNAL REASONS COMPETITIVE GOALS STRATEGIC GOALS 26 August 2010 5 .

26 August 2010 6 . 5) Access to new technologies and customers. 2) Spreading costs and risks. 3) Improving access to financial resources. 6) Access to innovative managerial practices. 4) Economies of scale and advantages of size.INTERNAL REASONS 1) Building on company's strength.

COMPETITIVE GOALS 1) Influencing structural evolution of the industry. 26 August 2010 7 . 3) Creation of stronger competitive units. 4) Speed to market. 2) less competition.

26 August 2010 8 .STRATEGIC GOALS 1) Shared risk. 3) Diversification. 2) Transfer of technology/skills.

Valuation Problems. Conflict Resolution. 26 August 2010 9 . Changes in ownership shares. 3. 2. Division of management responsibility and degree of management independence 5. 4. Transparency.Problems of JV·s 1.

26 August 2010 10 . Cultural Problems. Dividend Policy.6. Marketing and Staffing Issue. 7. 8.

‡Be sure about the organizational behavior of the partner to ensure synergies.Before entering a Joint Venture. . ‡The partners should clearly agree on the way the joint venture will be managed. ‡ Both partners should appreciate the need for the joint venture. ‡Take measures to be sure that the partner has a compatible work culture..

‡ It is important that both partners work towards a system based on trust and transparency. ‡ Need to have a clear long term goal and set the terms and conditions of the JV. ‡ To make for the long term success of the joint venture.Before entering a Joint Venture.. 26 August 2010 12 . it is also important that both partners are equally able to service its growing need for capital as the business expands. ‡ Clearly define the role and responsibility of each partner.

Successful joint venture require: ‡ Each participant has something of value to bring to the venture. ‡ A distinct unit be created in the organizational structure which has the authority for negotiating and making decisions 26 August 2010 13 . ‡ Key executives must be assigned to implement the joint ventures. ‡ The participants should engage in careful preplanning. ‡ There should be provision in the agreement for termination including buyout by one of the participants. ‡ The agreement or contract should provide for flexibility in the future.

Example :‡ Virgin Group and Tata Tele Services ‡ Maruti Suzuki ‡ Marks & Spencer and Reliance Retail of India 26 August 2010 14 .

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the JV broke off before the operations started ‡ Haier re-entered indian market with a 100% subsidiary in 2003. ‡ Hotline disagreed to these. 26 August 2010 16 . ‡ Haier wanted to focus in imports. multi-split AC¶s etc.Concerns in a JV ‡ Change of strategy of either of the partners creates rift in certain JV¶s ‡ The JV between Hotline group(india) and Haier(china) missed at that point. ‡ Haier planned to increase its share to 49% to introduce wide ranges of products including washing machines.

JV between TVS group (INDIA) and Suzuki(japan) formed in 1983 was called off in 2001. making the JV redundant ‡ For example. 26 August 2010 17 .Concerns in a JV ‡ In some cases access to technology or capital provides sufficient confidence in the partners to go alone.

26 August 2010 18 .Concerns in a JV ‡ At times either of the partners are accused of breaching the terms of the JV creating tensions in it.Wadia accused Danone of using the popular Britannia brand Tiger products outside india. ‡ For example. not permitted as per the existing agreement between the two.

GE alleged lack of professionalism in the Indian partner. 26 August 2010 19 .83 billion in 1998-99. ‡ There was poor cultural integration between the two partners.Concerns of doing a JV There are cases of JV falling apart due to lack of synergy.the 40:60 JV between Godrej and GE formed in 1993 . ‡ For example. was called off in 2001 ‡ The JV failed to meet the projected turnover of Rs 35 billion and managed only 1.

Reasons for failure of a joint venture ‡ Inadequate preplanning for the joint venture. ‡ People with expertise in one company refused to share knowledge with their counterparts in the joint venture. ‡ The hoped-for technology never developed. ‡ Parent companies are unable to share control or compromise on difficult issues 26 August 2010 20 . ‡ Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture.

Example :‡ ‡ ‡ ‡ ‡ Lufthansa and Modi Group Daewoo and Proctor & Gamble Kinetic Honda Tata IBM LML Piaggio 26 August 2010 21 .

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‡ Foreign companies can benefit mutually by combining their technological and monetary resources and taking advantage of respective market conditions. 26 August 2010 23 .FUTURE of JV ‡ 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.

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