Entry Mode Joint Venture & Strategic Alliance
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Larrieux Emma Ricaud Luc Metton Anna Emma Pangaut Erwann Moreaux David ENTRY MODE JOINT VENTURE & STRATEGIC ALLIANCE What is a joint venture ? A joint venture is an association of companies for the purpose of carrying out a joint project. Consequently, the two companies - or more - have the desire to collaborate in order to share their skills, knowledge. In this guide we are going to explain you why companies use joint venture. You will see that this entry mode is used outside of simple skill sharing. It exists three types of joint venture : - The horizontal joint venture : This joint venture regroup companies who has a same activities and similar sector of activity - The vertical joint venture : It’s cooperation between two companies who have a same sector of activities, but who haven’t the same job ( a producteur of partition with recording studio) - The conglomerate joint venture : There isn’t a relation face to a sector between the partner ( a label and provider of internet ) Why companies use Joint Venture ? ● Opportunity to leverage the distinct strengths of both partner organisations ● Cuts investment or funding costs versus developing commercial opportunities in house ● Partner skill set should be complementary, making the value of the JV greater than the sum of its parts, as well as ● providing quick and low cost access to expertise in an area where you are weak ● Reduces downside risk should partnership not deliver the expected/ hoped for returns ● Increased power over the activities and principles guiding the JV's operations and objectives compared to a ● minority interest investment ● Allows a deal to be done when funding might otherwise preclude it, since you can contribute things other than ● cash, such as assets, IP or know-how Some examples : We are going to illustre why companies use joint venture thanks to some concrete examples. 1 - To create something together by sharing their skills Two companies can collaborate to create an other companies and use a joint venture to do it. For example, Snecma (Safran Group) and General Electric was created a new company who is CFM international. General Motors create a new motors with the Safran product, that allow the more popularly motors in United State It is also the case for Google and the NASA, which decided to collaborate on Google Earth. - To enter in a country which has binding entry mode Carrefour and Guangzhou General Merchandise Group in China. We are going to show you some examples of advantages and disadvantages of joint venture throughout real businesses. - ADVANTAGES SKILLS DIVERSITY: Joint ventures can share and create a synergy of skills. But also in the joint venture its the opportunity for companies to have access to new technologies, skills.. With the example of Renault-Nissan-Infiniti-Mitsubishi, they share their best engines to equip the cars. The skills come also from diversity, for example with Renault and Nissan there is a cultural mix with the french and japanese culture which are completely different. They can take the best of both culture to succeed. But it was risky, for example Chrysler and Daimler did not manage to work together because they did not succeed to fit the american and german cultures. ACCESS TO NEW MARKET: Often, national governments prohibit foreign companies from selling certain products to their citizens so as not to disrupt local industry sales. However, some countries, such as China, allow foreign companies to enter their local markets through joint ventures with local companies. This allows the country to offer new products and services to its citizens, and to foreign companies to reach new markets. At the base Nissan was not on the same markets as Renault Nissan more asian and american markets compare to Renault on the european market. RISK DIVERSIFICATION: By joining their resources in a joint venture, the partners also share the risks. This makes the joint venture a rather wise choice for 2 particularly risky transactions, thus allowing companies to hedge against difficulties that might arise. When Renault Nissan decided to launch Infiniti in France a few years ago that was a huge investment and also risky. The two parts where sharing the skills, the investment and also the risk. - DISADVANTAGES SLOWER DECISION PROCESS: Joint ventures are often structured in such a way that all partners have a say in decision-making. This ensures that nothing is done that would be contrary to the will of one of the partners. Nevertheless, this requirement of consensus may mean that decision-making takes much more time than usual, since each problem must be negotiated until all parties agree. For example with the case of Renault Nissan, when last year they have decided to buy Mitsubishi it have been much more longer to decide and to convince each part to buy this new brand. SHARING REWARDS: The other side of the risk-sharing coin is that rewards must also be divided. In a joint venture where two parties have equal shares, each of the parties will be entitled to only half of the profits of the joint venture. This is a serious inconvenience for companies that believe they are able to make a successful transaction on their own. By this alliance Renault Nissan share the results and moreover part of the benefits which means that they financially really linked and its impossible for one of the two part to unfairly dominate the other. A good alliance is a fair deal even if one is more profitable than the other. If Nissan has survived its because Renault bought them before, but now we can observe that Nissan is really helping Renault. POSSIBILITY OF DISAGREEMENT: Each company has its own style, culture or philosophy of management. Unless all parties in a joint venture agree on both the company's goals and the structure of its leadership, the partnership can quickly get bogged down in the lack of cooperation, thus reducing his chances of success. As any alliance we can suppose that regularly disagreements happen in the Renault Nissan alliance. It looks obvious that a big japanese and french multinational are not always agree, because of the national and corporate cultural differences. PLUS ● scale savings ● expertise sharing ● complementary products ● complementary cultural aspects 3 ● access to new markets ● complementary markets ● reinforcement vs. competition ● limiting risks in case of failure MINUS ● risk of joint venture failure ○ company internal politics ○ cultural ○ company scale issues ● risk in case of decreasing market after joint venture creation 4 .