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] [email protected] [e]
Dec 18, 2015
Joint ventures: Decisions, Dos and Don’ts
Rotorua Export Club28 Feb 2008
Mark Bayly
9A Sunbrae GrovePO Box 10361Mt Maunganui
+64 7 575 2575 [p/f]+ 64 21 385154 [m][email protected] [e]
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
SAN DY CR E EK
JV as a mode of entry
Exporting
Wholly owned subsidiary
Joint Ventures
Outsourcing
Franchising / Licensing
Strategic Alliance
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
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
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)
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
Case studyJV between retirement village property developer and Te Puke based kiwifruit growersBased on a 35 year friendshipJoint 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
SAN DY CR E EK
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?
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
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.