Chapter4-Global strategic alliances 2

Report
Chapter 4
Global strategic
alliances 2
1
Country based joint ventures
 Used to be the main entry mode in emerging
countries
 Most legislations have changed to open the way
to wholly-owned operations
 Still required in some countries (e.g. India) or
in some sectors (e.g. China, Indonesia, Thailand)
2
What motivates a company to go in to a joint
venture?
Administrative/legal
Capabilities acquisitions
• Market complexity and cost of entry:
- Resources, assets, competences
- Culture
• Government industrial policies
• Investment laws
• Speed of entry
• Risks
3
Framework for the analysis
of M&A and strategic alliances
What are the benefits of the
the alliance, aquisition or
merger?
What do we get from it?
How workable is the
deal?
How do we contribute to it,
organize and manage it?
How do we work?
Strategic value
• Defining the scope
• Strategic objectives
• Value creation potential
Fit analysis
• Strategic fit
• Capabilities fit
• Cultural fit
• Organizational fit
Negotiation and design
• Financial architecture
• Operational scope
• Interface
• Governance
Implementatio
n
• Transition
• Integration
• Evolution
4
Shape expectations
Identify issues
Set the agreement
Achieve results
Value creation in strategic alliances
Value of the
parent
A
DIRECT VALUE
Value coming from the
alliance
Value of parent B
Royalties
Dividends
Management fees
Transfer pricing
Learning from B
Learning from A
Cost saving due to combined operations
SYNERGY VALUE
Value coming from joint
operations
Increased revenues due to joint marketing
and complementary products
Increased profitability from joint innovation
5
Partner selection in country-based joint ventures
Same business
+
Suppliers
-
Capabilities
Customers/
distributors
+
-
+
Copying/ Resources Dependence
Market
Learning
Downward
Access
integration
Freedom
of action
Dependence
Upward
integration
+
Contacts
Image
Power
Government
Investors
+
Diversifiers
No operational
support
+
Power
No operational
support
Politicking
6
+
Access to
decision
makers
No operational
support
Opportunism
Politica
l
partner
No operational
support
Political liability
Opportunism
Partner analysis
7
Strategic fit
CRITICALITY
• How strategically important is the business for partners?
• To what extent do partners need to achieve objectives (degree of capabilities autonomy)?
DIFFERENCES IN EXPECTATIONS
• How different are the partners’ expectations?
• To what extent are the differences compatible/workable?
8
Strategic fit: criticality and degree of commitment
+
B
A
D
C
STRATEGIC
IMPORTANCE
AA = High commitment
BB = No partnership
CC = Low commitment
DD = Very low commitment
AB = Potential conflicts
AC = Potential conflicts
AD = High chance of conflicts
-
+
NEED FOR A PARTNER
9
Strategic fit: differences in expectations in joint ventures
VENTURING VIEW
EXTRACTIVE VIEW
SHARING VIEW
INVESTOR VIEW
$
POLITICAL PARTNER
$
10
Strategic fit: same bed but different dreams
What local partners
look for in a JV
What foreign partners
look for in a JV
KNOW -HOW
• Product
• Processes
• Management
MARKET
• “1.4 billion pairs of shoes” (China)
• Market access
• Understand the market
• Expand nationally
• Distribution
• Contacts
UPGRADE
• Factory/equipments
• Systems
• Products
• “Get out of the mess”
(Chinese SOE)
RESOURCES
• Low labour cost
• Regional export base
• Components
• Raw materials
MARKETS
• Export channels
• Marketing expertise
RESOURCES
• Experts
• Financing
• Reputation/ image/brand
MANAGEMENT
• Integration with global/regional
network
• Control
11
Capabilities fit
What is needed
to compete
effectively?
Given market
opportunities and
competitive
context:
What resources, assets
and competences are
needed
in our value chain
to compete effectively?
What does
the partner
bring?
What do we
bring?
What other
investments need
to be made?
What are our
What new investments
What are the
contributions to the
remain to be made
partner’s
joint venture?
in new resources,
contributions?
• Financial and human resource
assets, competences?
• Other resources
• Tangible and intangible
assets
• Competencies
What are the relative competitive strengths of partners ?
To what extent does the coming together of partners create a
robust business model?
• Complementarities
• Overlaps
• Gaps
12
Cultural fit
What are the differences
in business objectives?
Leaders
Corporate
cultural
differences
• Entrepreneurship
• Growth
•Short versus long term
Corporate
ownership
Corporate
history
What are the differences
in business concepts?
• Dominant logics
• Ways to compete
• Quality orientation
• Importance of technology
• Customer orientation
Experience
Industry
cultural
differences
International
cultural
differences
Industry
What are the differences
in managing business?
• Centralisation/decentralisation
• Bureaucracy
National
origin
What are the differences
in dealing with people?
Ethnical
origin
13
Organizational fit
Family conglomerate
in emerging countries
Western multinational
STRUCTURE
Multinational
matrix
Decentralized
Bureaucratic
Conglomerate
Centralized
Autocratic
SYSTEMS
Loose
Personalized
Quick
decision-making
Well-defined systems
and processes
Planning and control
PEOPLE MANAGEMENT
Paternalistic
Loyalty
Family orientation
Technocratic
Performance
Career Management
JV 10
14
Types of agreements in joint ventures
INITIAL:
• Memorandum of understanding
• Letter of intent
• Joint venture agreement and articles of association
• Business plan? (Feasibility)
• Technology agreement
• Marketing agreement
• Procurement contracts
• Management contract
• Staffing and organization
15
Negotiating
CONTRIBUTIONS
SCOPE
• Product mix
• Geography
(domestic/exports)
• Capacity
• Equity sharing
• Technology contributions
• Facilities
• Brand and goodwill
• Additional contracts
• Financing
VALUATION
• Assets
• Price and remuneration
of technology
• Shares
NEGOTIATION
MANAGEMENT
AND STAFFING
• Board
• Positions
• Decision-making
• Control
• Recruitment
• Careers
• Remuneration
CONFLICT
RESOLUTION
PROTECTION
• Technology
• Brand
• Territories
• New developments
JV 42
16
• Internal arbitration
• External arbitration
• Renewal
• Extinction
Implementing
Empirical evidence…
Survival rate: the joint venture decay
- Declining mutual benefit; divorce or reactivation
Death valley
Behavioural issues
- Lack of understanding
- Lack of communication
- “Positional” bargaining
- Lack of cultural sensitivity
Too much emphasis on structure and not enough on processes
17
The joint venture decay
MUTUAL
BENEFIT
TIME
18
Death Valley
low
high
Phase 5
Creation of a new
fused culture
based on cultural
synergies
Phase 1
First contact between
the different
cultures
• enthusiasm
• “honeymoon”
Phase 2
Emotional
stress,
pressure
for change
Morale,
optimism,
productivity
Friction for the
first time after fusion
• disillusionment
• looking for scapegoats
• self blame
Phase 3
Crisis
• confusion
• massive conflicts
• cultural antipathy
• refusal
high
Phase 4
Change of
mental patterns
• problem solving
• conflict
management
Taking on the challenge
low
Defusion, return to the
monoculture
JV 11
19
General recommendations
1. Selecting your partner
• Invest in a careful search
• Analysis of
- Multiple sources of information
- Check track record
- If possible engage in up-front business dealings
- Always (if possible) consider several alternatives
- Strategic fit
- Capabilities fit
- Cultural fit
- Organizational fit
is a “must”
• Due diligence in a joint venture is as important (if not more) than for acquisitions
• In emerging countries, partner analysis requires a good understanding of “business networks”
JV 115
20
2. Feasibility and negotiation
• Joint feasibility study has to be taken very seriously
Should lead to a joint business plan
• Business planning is a parallel process to the formal legal
and financial negotiations
• Operational people should be involved, and some “overlapping” is needed
between the negotiation team and the managerial team
JV 116
21
3. The Integration phase
• Careful selection of personnel appointed to the joint venture
- “Joint ventures are not a dumping ground for deviant managers”
- Cultural, relational and pedagogical skills are as important as
technical skills
• Integration teams in various operational fields
- Mixed teams
- Concrete agenda (clear objectives)
• Invest in training
JV 117
22
4. The issue of control
• Formal majority ownership is not a “guarantee” of control
• Control is actually experienced at the operational level
- It is important to be in charge of the key operational functions
which determine business success (e.g. quality management,
customer services)
• Control is closely linked to the ability to demonstrate its leadership, management, and
ability to educate and produce results (e.g. Shanghai Volkswagen, Otis China)
JV 118
23
5. Ending joint ventures
• Avoid “dramatic” endings
• Even in “tense” situations one should always look for a win-win
solution
• Use “third party” in case of conflicts
• Take over is in most cases the way to end
24
Trust in joint venture
• Demonstrate commitment to the joint venture
• Appoint competent and respectful managers and personnel
• Provide advance warning of your intention
• Keep communicating even in « tough » times
• Personalise the relationship
• In emerging countries coaching and training is seen as
trust
25

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