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Joint ventures: Decisions, Dos and Don’ts Rotorua Export Club 28 Feb 2008 Mark Bayly

Joint ventures: Decisions, Dos and Don’ts Rotorua Export Club 28 Feb 2008 Mark Bayly. 9A Sunbrae Grove PO Box 10361 Mt Maunganui. +64 7 575 2575 [p/f] + 64 21 385154 [m] mark@360strategy.com [e]. Contents. Definition of JV. Motivations for forming IJV Success of IJV

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Joint ventures: Decisions, Dos and Don’ts Rotorua Export Club 28 Feb 2008 Mark Bayly

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  1. Joint ventures: Decisions, Dos and Don’tsRotorua Export Club28 Feb 2008Mark Bayly 9A Sunbrae GrovePO Box 10361Mt Maunganui +64 7 575 2575 [p/f]+ 64 21 385154 [m]mark@360strategy.com [e]

  2. Contents • Definition of JV. • Motivations for forming IJV • Success of IJV • The Mode of Entry (IJV) decision • Case studies • SMART car • NZAS • Sandy Creek • Cebec • Check lists • Decisions • Dos • Don’ts • Discussion

  3. Definition An entity formed between two or more parties to undertake economic activity together.

  4. JV as a mode of entry Exporting Outsourcing Franchising / Licensing Strategic Alliance Joint Ventures Wholly owned subsidiary

  5. Motivation, Success & Failure

  6. Motivations • Financial • Increased market size • Supply efficiencies • Access to investment funding • Overcome transport/production costs • Access to factor inputs • Overcome cultural distance • Operations (production side) • Credibility with market • Gain access to new competencies • Forward or backward integration (which may involve exports) • Access to technology / spillovers • Political • Overcome barriers to trade (China and Russia) • Avoid tariffs

  7. Success & reasons for failure of IJV 30-60% IJV fail • Cultural differences • Breakdown in trust • Issue with sharing control • Time differences (and getting things done) • Change in the economic/competitive landscape1 • Difference in expectations between the parties • Disruptive to [home-base] business2

  8. IJV v other entry modes(Hollensen 2006)

  9. Case studies

  10. Case study JV between Swatch watches + Mercedes Benz Engineering and style (SMART) Two strong companies with huge resources BUT Battles of management (design v engineer cultures) Loss of €4 billion between 2003 and 2006 Swatch pulled out Key points: Governance Get the culture right (national, industry, firm)

  11. Case study NZAS a JV between 2 (originally 3) major international organisations Operating in a third country Unequal shareholding Key points: Don’t have to have 50:50 shareholding Experience in international ventures Workable combination of resources (money, expertise) Strong Governance and agreed objectives are the KSF

  12. Case study • JV between retirement village property developer and Te Puke based kiwifruit growers • Based on a 35 year friendship • Joint interests • - Land-banking (long term) • - Horticulture (short and medium term) • Business practice issues (now resolved) • Key points: • Strong in trust (key success factor) • Workable combination of resources (funding / expertise) • Changes required to home-base business (systems, structure, staffing) • [Ideally] still need to formalise the longer-term strategy

  13. ChecklistsDecisions │Dos │Don’ts

  14. Decisions • Is the firm ready for international expansion • Is a JV the best option • What sort of JV is being considered (acquisition v greenfield) • What do [I] want out of the JV: What does my [JV partner] want – Are we both happy? • Partner selection • Competencies, etc (long term sustainability) • Reality check: will I be able to work with this partner (culture: national, industry, organisational) • What do I need to contribute (and am I able to contribute it) • Financial commitment • Time • How is the IJV structured • Governance and control • Changes in competitive landscape/demand • Dispute resolution / termination • Clarity of vision (remember/articulate the reasons for the JV) • Do I have to run my [home base] business differently?

  15. Dos • Business plan for the JV • Strategic purpose • SWOT • Key success factors • Comprehensive due diligence • Partner(s) selection, and/or • Target (if acquisition) • Understand the cultural context and how the parties are to work together • Encourage strong dialogue (inc. financial /operational reporting) • Put in place mechanisms for resolving disputes (termination/mediation/arbitration) • Termination options (buy-outs, mediation/arbitration) • Work towards building and maintaining trust/achieving financials & other objectives • Appoint some local professional advice (accountant / lawyer) • Work on relationships

  16. Don’ts • Don’t take IJV lightly • Explore other options (exporting. Wholly owned subsidiary, licensing) • Don’t gloss over planning stages • Understand the strategy behind [your] IJV • Understand each parties contributions (and make sure you are happy with the balance) and control • Put in place strong governance and dispute resolution • Don’t assume your product / system in NZ will work [without any changes in other countries] • Don’t be put off by high failure rates [of others] … done properly, IJV can be hugely rewarding.

  17. Discussion

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