Forming International Strategic Alliances - Boston · PDF fileForming International Strategic Alliances ... Tata Motors benefits from Marcopolo’ s extensive capabilities in overall

Forming International Strategic Alliances

Kim Richards | Adrine Hampartzoumian | Loyola George

AD 655 International Business, Economics, and Cultures

Professor Jung Wan Lee

April 17, 2013

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Forming International Strategic Alliances 2

1. Introduction

In order to be competitive, companies are going global to reach a larger customer base and gain

market share. This move comes with high risk for those entering into a foreign market where a

product might not be as easily accepted as it is in the home country. To keep competitive but

minimize risk, a company may choose to engage in an international strategic alliance with a

company that already resides in the foreign market. By doing so, inexperience with local

business practices and cultural differences can be supplemented by a more knowledgeable party.

To enter into an alliance, companies generally chose partners that have corresponding

capabilities so that they are able to utilize each other’s strengths to gain a competitive edge.

Companies may do so in order to grow their business and enter new markets at a lower risk.

These alliances can come in many forms such as marketing, manufacturing, logistical and

technological. To enter into a joint venture, experience is found to be vital. Experience with

collaborating between firms is said to not only help the companies in the creation of contracts

and resource protection but also provides companies with the ability to maximize the value of

said venture (Kumar, 2010). Joint ventures between multinational companies have recently

become widely popular in international business (Shin, Park, & Ingram, 2012). Strategic

alliances that are seamlessly executed have the ability to increase the overall competitiveness and

operational strength of both parties.

To explore the concept of strategic alliances further, this paper focuses on the rapidly

growing market of India, which is currently attracting many companies to set up business. India

houses over one billion people and it has been estimated that the country is destined to become

the largest economy in the world (Hume, 2012). Companies hoping to make a name in the global


market cannot ignore this trend. Through the use of carefully executed international strategic

alliances, companies will be able to be strongly established by the time India’s economy reaches

the top.

We will examine three cases of companies fighting to become top competitors in India.

These are Tata Motors & Marcopolo, Tata Global Beverages & Starbucks and Dunkin’ Donuts

& Jubliant FoodWorks Ltd. Through each case, the benefits of forming strategic alliances as well

as the driving force behind the alliances will be reviewed. Finally, how each company uses the

strategic alliance to exploit its competitive advantage will be studied.

We pose the following research questions to help study this information.

1. What is the motivation for the alliance formation?

2. What benefit does each company gain by forming a strategic alliance?

3. How does each company use the strategic alliance to exploit its competitive

advantage?

The answers to these questions are intended to provide further insight to the current

international activity occurring among companies joining together through strategic alliances.

Our studies will help identify what factors influence the selection of partners for strategic

alliances and how these alliances will work to make the companies gain a competitive edge when

entering into India.

2. Literature Review

Tseng and Lee (2010) examined 830 Taiwanese manufacturing firms, which have foreign direct

investments abroad whose foreign ownership choices are easily influenced by host


environmental conditions. They learned that when choosing to engage in a joint venture, the

strength of market linking capability greatly influences the decision because it can help firms

quickly understand a new market and connect to it (Tseng and Lee, 2010). This study pertains to

emerging countries and can be extrapolated to the conditions in India. Market linking capability

refers to the ability to create and retain close bonds with customers and major channel members

like suppliers, distributers and partners. It is an important competency for building an

organization able to learn, perceive, and react to changing market conditions ahead of its

competitors.

However, market linking capability should be considered simultaneously with the host

environmental factors such as market turbulence, regulatory unpredictability, and cultural

distance. Instability in the host country of the joint venture can cause the partnership to be

deemed ultimately unsuccessful (Nielson, 2007). Since this paper focuses on countries who are

creating a partnership in India, both companies must be wary of this factor. The country is

predicted to be reaching economic stability but this may take an extended period of time, during

which it may negatively impact the success rate of the companies. Tseng and Lee (2010)

hypothesize that the higher any of the three aforementioned host environmental factors, the more

likely multinational firms will prefer joint ventures. However, if a firm has strong market linking

capability, even in the case of high presence of any of the three environmental factors, they

hypothesize that the firm is more likely to choose wholly owned subsidiaries.

A firm that does choose to engage in an alliance may do so for many reasons. Nielsen

(2007) highlights them as mainly being for financial gain, added company knowledge, strategic

positioning and international credibility. Forming alliances is considered beneficial because of

the acquired knowledge, new skills, and the overall experience that can be used in company’s


future international business decisions (Nielsen, 2007). A study by Kumar (2010) concluded that

on average, joint ventures add to each partner’s resources and value is created when two

companies contribute strong resources (Kumar, 2010). By forming strategic alliances, if the

appropriate partners are selected, companies end up with complimentary resources and

capabilities which bring benefits like lower manufacturing costs, reduction of production times,

improved marketing techniques, economies of scale, and increased efficiency (McCutchen,

Swamidass, & Teng, 2008).

But, when choosing to do so, Kumar (2010) notes that a venture within the same business

field as the two participating companies results in markedly more success than ventures formed

in a new business environment. This is reasonable as companies who are already engaging in one

particular type of business will have built up industry knowledge. If they try to endeavor into a

new field, they are taking a gamble on whether they have the ability to be competitive within that

market or not.

According to Medcof (1997) one of the most important reasons for alliance failures is

poor selection of partners. This makes the collaboration not only difficult but can end up costing

a great amount of resources for the companies (Medcof, 1997). Many strategic alliances fail due

to mismanagement and partner conflicts stemming from corporate culture differences and

management’s lack of clear understanding regarding such differences. Further, even if partners

are generally in sync, poor information sharing and unclear rules on how decisions should be

made in the joint venture operations can cause failure (Shin, Park, & Ingram, 2012). Companies

participating in an alliance must have similar objectives, be ready to share the risks and trust

each other. In essence, a successful alliance is much like a successful relationship, cooperation

and a willingness to put in time to grow the relationship is the key for a successful outcome.


Nielsen (2007) provides further insight to international strategic alliances by furnishing a

way to predict whether a particular alliance will be successful or not based on seventy joint

ventures of Danish firms with international companies. He determines that while many postulate

experience in strategic alliances is necessary in order for one to be successful, there is in actual

no correlation between experience and success (Nielson, 2007). Even so, management

experience with alliances will determine the overall success of day to day activities (Nielson,

2007). Therefore, this demonstrates a need for companies to bring to the partnership intangible

resources such as management knowledge to ensure the venture is able to run smoothly.

In some cases, even if an alliance proves to be successful, it may terminate because at

least one of the partners has achieved its strategic objectives and decided to leave the partnership.

McCutchen et al. (2008) highlights this concept noting that this termination may not be negative

and is just the nature of alliances. However, some termination may be a product of business

failure and this can reflect negatively on the company’s reputation and have an adverse impact

on the creation of future partnerships (McCutchen et al., 2008).

3. Methods

3.1. Case #1: Tata Motors & Marcopolo

Background

Tata Motors

Formed in 1945, Tata Motors has revenues of 8.8 billion dollars, is listed on both the

major Indian stock exchanges and the New York Stock Exchange, and ranked the world's 20th


largest automaker (Tata Motor, Company profile). In 2009, it produced the world's cheapest car,

the $2,500 Nano and acquired the British Jaguar Land Rover (JLR) brands from Ford Motors a

year earlier (Tata Motor, Company profile). Tata Motors has consistently been rated one of

India's most trusted companies, one of the most socially responsible and the most responsive to

national needs (The Economic Times, 2012).

Tata is successfully carrying cost leadership strategy that involves winning market share

by appealing to cost-conscious or price-sensitive customers in a tough business environment.

This is achieved by having the lowest prices in the target market segment (Tata Motors, 67th

Annual Report 2011-2012). Its competitors are trying to follow in its footsteps as Tata Motors

strives to continue to implement cost reduction initiatives in a difficult environment with the

increasingly volatile prices of commodities the company uses (Tata Motors, 67th

Annual Report

2011-2012).

Marcopolo

Marcopolo began in Caxias do Sul, Brazil in 1949. The company is considered to be a

world leader in bus and bus body production (Asham, 2013). The bus product line that the

company manufactures consists of various models which include coach, urban, micro-buses, and

mini-buses (Asham, 2013). The company has factories in Brazil, Portugal, Argentina, Mexico,

Colombia and South Africa, and also transfers technology to China. Marcopolo is listed on the

Brazilian stock exchange (Marcopolo S.A.).

Marcopolo is hailed as being an innovative company. It is popular in public transit and

has lean manufacturing practices which allow it to be more competitive through production

efficiency and cost savings (Asham, 2013). The buses are very popular in Latin America but the

company has the capacity to sell its product globally (Asham, 2013).


What is the motivation for alliance formation?

Marcopolo’s motivation to form an alliance with Tata Motors was based on the fact that

the company has advanced technological capabilities when compared to Marcopolo and a more

advanced expertise in the area of chasses and aggregates (Financial Express, 2006). Conversely,

Tata Motors benefits from Marcopolo’ s extensive capabilities in overall process, design and bus

bodybuilding systems (Financial Express, 2006). With the combined strengths of both

companies, the joint venture is estimated to have to ability to produce approximately 7,000 buses

and coaches a year (Financial Express, 2006). Together, the companies also have the abilities to

partake in rising market opportunities as bus rapid transit systems become more popular (The

Financial Express, 2006).

Further motivations for the joint venture lay in the future strategic geographical goals of

both companies. Tata Motors resides in India, which is an up-and-coming market while

Marcopolo manufactures in parts of South America, Mexico and South Africa (The Financial

Express, 2006). Demand for buses is projected to increase in India due to the changing

governance of the country where a focus is being made to develop the infrastructure by building

roads, especially to connect rural areas with major cities (Kamath, 2011). The current rate of

growth is projected to be 14-18% per year (Kamath, 2011). To encourage travel on the newly

built infrastructure, the low cost transportation buses provide an economical alternative to

railways (Kamanth, 2011). The buses will be able to cater to the tourism market which is

expected to expand as the country’s economy continues to grow and people have a higher

disposable income (Republica, 2012). Together, the companies can strengthen operations in


India and if successful, possibly expand operations across different countries in the future as they

foresee a growing demand in the markets.

What benefit does each company gain by forming a strategic alliance?

With an investment of approximately $50,000,000, Tata Motors joined with Brazil's

Marcopolo with the goal of creating an assembly plant in India that would be able to produce

fully built buses and coaches (Financial Express, 2006). The joint venture was structured so that

Tata Motors had a 51% majority ownership (Financial Express, 2006).

Tata Motors gains the benefit of better market access to countries outside of India,

primarily in South America, where Marcopolo has already established plants. The company

plans to not only partner with the company to provide buses to India; it will also sell chassis to

Marcopolo for global bus sales to expand its overall customer reach (Business Standard, 2006).

Though the majority ownership is held by Tata Motors, Marcopolo is achieving sizable cost

savings through sourcing its chassis through Tata Motors for its standard and luxury buses

internationally (Business Standard, 2006). The cost savings amount to an estimated 20-30%

(Business Standard, 2006).

Both companies also benefit from the sharing of the unique industry specialization

knowledge that each company has built. Thus far, this has allowed them to create two new

commercial value buses that boast increased reliability, safety features and higher mileage then

industry competitors (Automotive World, 2013). This is due to the assimilation of the Marcopolo

body building knowledge that has allowed Tata Motors to change its bus body design in India to

be more lightweight and durable (Automotive Word, 2013). As a result, Marcopolo is able to

reach a market in India that was not previously attainable by the company on its own.


How does each company use its strategic alliance to exploit its competitive advantage?

Both companies are leaders in their segments and have a strong global presence. Tata

Motors is India’s largest automobile company and is the leader in commercial vehicles,

positioned as the fourth largest truck and bus manufacturer (Tata Motor, Company profile).

Marcopolo is the leading bus bodies’ manufacturer in Brazil and also exports its products in

more than 60 countries (Marcopolo S.A.). The growth of the joint venture between Tata Motors

and Marcopolo over the last five years is achieved because as top competitors they both already

have a mutual understanding of the consumer’s needs and together they have an increased ability

to design and introduce new innovative products which fulfill the market demand (Tata Motors,

Collaborations). Further, Marcopolo currently has a competitive advantage in the mass

production technology of buses (Business Standard, 2006). Through this strategic alliance, both

companies would be able to utilize this competitive advantage to quickly roll out their new

product lines.

3.2. Case #2: Starbucks and Tata Global Beverages

Background

Starbucks

Founded in 1971, Starbucks Corporation is an international coffee and coffeehouse chain

based in Seattle, Washington. The company is the largest roaster and retailer of specialty coffee

in the world, with 18,066 stores in 60 countries as of fiscal year ending September 29, 2012

(Starbucks Corporation, 2012). Starbucks purchases and roasts high-quality whole bean coffees


and sells them, along with drip-brewed coffee, espresso-based drinks and tea beverages and a

variety of fresh food items, through company-operated retail stores. Starbucks stores also sell

non-food items such as espresso machines, coffee brewers, mugs, thermoses, plastic drink

containers, and coasters. They also sell coffee and tea products and license their trademarks

through licensed retail stores. Many of the company's products are seasonal or specific to the

area of the store’s location. Starbucks-brand ice cream and coffee are also distributed at grocery

stores (Starbucks Corporation, 2012).

Tata Global Beverages and Tata Coffee

Tata Global Beverages is a part of the global Tata Group. Tata Global Beverages is a

global beverage business and the world’s second largest tea company. The company focuses on

‘good for you’ beverages and has a number of innovative regional and global beverage brands,

including Tata Tea, Tetley, Himalayan natural mineral water and Eight O’ Clock Coffee

(Starbucks Newsroom, 2012). Tata Coffee is a subsidiary of Tata Global Beverages. Tata Coffee

is Asia's largest coffee plantation company and the second largest exporter of instant coffee in

the country (Starbucks Newsroom, 2012). It exports green coffee to countries in Europe, Asia,

Middle East and North America. Tata Coffee's commitment to the people and the environment is

demonstrated by its farms triple certification: Utz, Rainforest Alliance and SA8000 (Starbucks

Newsroom, 2012).


In its rapid international expansion Starbucks faces many challenges. The company

normally uses joint ventures or acquisitions of various local companies to enter new markets,

which allows it to gain cultural understanding and an ability to respond to the diverse needs in


different countries. Starbucks realizes the need to create new products for varying geographic

areas because of existing cultural tastes. However, despite the differences between cultures,

Starbucks aims to remain consistent in marketing high quality coffee to people with higher

incomes for whom the quality of the products and service is more important than the price itself.

Howard Schultz Chairman, President and CEO, Starbucks had stated that India is one of

the most dynamic markets in the world with a diverse culture and tremendous potential

(Starbucks, Financial Release, 2011). The company views this as the right time for expansion to

the Indian market because of the growth the country is experiencing as well as because of the

emerging middle class. With its industrialization India is becoming more open to western coffee

culture and its population’s disposable incomes are increasing (Murphy, 2011). This provides

great opportunity for Starbucks to gain larger market share. The decision for this alliance has

been influenced positively by the relationship the two companies had in the past. They have been

in business together since 2004 as Tata is one of Starbucks’ many global suppliers (Pham, 2013).

For the last seven years, Starbucks has been ethically sourcing coffee beans from India and

contributing to several social programs in the country (Pham, 2013).


Starbucks is taking a very long-term approach in India and is moving slowly for now.

Despite its economic growth, India remains a developing country with substandard infrastructure

(Allison, 2013). However, Starbucks is confident that the company needs to position itself in the

Indian market and has been preparing for this methodically for more than five years (Pham,

2013).

Tata Starbucks Ltd. sells its products at a lower price than in any other neighboring

countries in South-East Asia. It can afford to do that because of the local sourcing arrangement


with Tata Coffee. India is the only country where Starbucks will not need to import coffee beans

for its local stores (Pham, 2013). This reduces operating costs locally and helps in lowering

product prices. In India, price sensitivity is far higher than it is in other countries. One of

Starbucks’ major weaknesses is the high prices of its products compared to the prices of rivals

such as Dunkin’ Donuts and McDonald’s. The joint venture with Tata plays crucial role for

lowering the prices in the local market. Another objective of the joint venture is to benefit from

Tata’s rich expertise in the bean-to-cup value chain, with an unyielding focus on quality

(Starbucks, Financial Release, 2011). Tata’s input in tailoring the menu and coffee blends to

local tastes is very important for the success of the joint venture in India.

Starbucks certainly has learned from the difficulties Wal-Mart has experienced in their

entry in India during the past three years. Dozens of permits and licenses are required from

various agencies, making developing and operating stores in India complicated even for locals.

To obtain them, many businesses claim they need to pay bribes (Bahree, 2013). Having in Tata

Global Beverages a partner with a vast experience in this uncertain environment is a great

advantage.

From Tata Coffee’s prospective, this deal enables its entry in coffee retail outlet business,

which is a new phase for the company. The partnership with a company with such a high brand

recognition and valuable experience as Starbucks will give them the opportunity to revolutionize

the Indian coffee retail industry.

How does each company use the strategic alliance to exploit its competitive advantage?

Both companies are industry leaders and the partnership will allow them utilize each

other’s resources to enhance their core competencies. Tata Coffee is the largest integrated coffee


plantation company in the world. Indian coffee has a unique historic flavor since India is the only

country that grows all of its coffee under shade. Tata Coffee is one of the biggest suppliers of

Arabica coffee beans, which are predominantly consumed by coffee markets. The joint venture

will give Tata Coffee the opportunity to provide roast coffee bean to Starbucks not only in India

but also to jointly invest in additional facilities for export to other markets. Starbucks provides

new technology for promotion of responsible agronomy practices, including training for local

farmers, technicians and agronomists to improve coffee-growing skills (Starbucks News, 2012).

Tata Global Beverages has deep experience in running food supplies. In addition to that, its

understanding of the local consumer, especially when it comes to food, will allow Tata to help

with this part of the business.

Starbucks’ reputation, its ideals and sense of responsibility are big part of the reason it

has built such a strong brand loyalty through the years. They are its advantage over competitors

like McDonalds and Dunkin’ Donuts which provide cheaper coffee on the go, which is totally

different from the coffee house experience Starbucks is known for. The joint venture with Tata

Global Beverages is a great opportunity for Starbucks to enter the highly complicated Indian

market. With Tata’s help it will be able to get access to great real estate, gain understanding of

local consumer and overcome infrastructure issues.

3.3. Case #3: Dunkin’ Donuts and Jubliant FoodWorks Inc.

Background

Dunkin’ Donuts


Dunkin’ Donuts was established in 1950 in Quincy, MA. After only five years,

entrepreneur Bill Rosenberg began franchising the outfit. Today Dunkin’ Brands runs the

operations, franchising the company in 32 countries outside of the US which comprises a total of

3,068 restaurants (“Company Snapshot”, 2011). The company has a comprehensive product line

and in recent years has begun to focus more marketing efforts on its coffee products. The

company serves approximately 30 cups of coffee to customers every second (“Did You Know”,

2011). In addition to coffee, store locations offer a variety of hot beverages, iced/frozen

beverages, bakery items, breakfast and lunch sandwiches and more.

Globally, the main target market of Dunkin’ Donuts is made of individuals ages 10 to 45

(Trefis Team, 2011). This customer profile can be described as busy individuals who are

interested in “portable foods” (Manchester & DeFrancesco, 2012). They also have come to

expect food to be of a higher quality and at a low price point (Manchester, et al, 2012).

Behaviorally, they are regular, average people who are not driven by status and considered to be

down to earth (Cohen, 2010). They have coffee multiple times a day as routine and need coffee

as a pick-me-up (Cohen, 2010).

Jubliant FoodWorks Ltd.

Jubliant FoodWorks Limited began operations in 1996 by opening its first Domino’s

pizza store location. Besides its recent partnership with Dunkin’ Donuts, the company primarily

partners with Domino’s Pizza and has sole rights to open the restaurant chain in India,

Bangladesh, Sri Lanka and Nepal. It currently owns and operates 552 Domino’s pizza locations

(“Food”, 2013). The company is a division of Jubilant Bhartia Group, which specializes in

creating partnerships with different companies around the world in industries such as food,

services, automotive and retail. For both Dominos and Dunkin’ Donuts, Jubliant FoodWorks is a


master franchisee which grants the company exclusive rights to develop both brands in India. In

India, the company currently has a 70% share of the pizza home delivery segment and a 65%

market share in the organized pizza market (“Food”, 2013). Dunkin’ Donuts in India is branded

as Dunkin’ Donuts & More to appeal the market, which is not traditionally made up of donut

eaters (Stankati, 2012).


Dunkin’ Donuts is motivated to form a strategic alliance with Jubliant FoodWorks due to

the rapidly growing economy of India, which is currently the second most populated country in

the world (McInnis, 2011). This changing economy is resulting in individuals having more

disposable income and will give the population an increasing ability to use this money to

purchase prepared food and beverage items (Bhagat, 2011). The fast food market is currently

valued at $13 million dollars and is estimated to be growing at a rate of 25-30% annually (Groth,

2012). Entering the economy now will allow the Dunkin’ Donuts franchise to grow with the

country as it goes through these changes and establish a market following.

Besides the changing make up of the country, in India as well as other international

countries, coffee drinking is becoming very trendy among youth and within the past couple of

years, consumption has been growing at a fast rate (Hetzel, 2011). The upward trend can be

partially attributed to students traveling overseas for studies and becoming engaged in coffee

culture as they develop a taste for coffee (Hetzel, 2011). When students return from studying

abraod, they want to enjoy coffee in their home country as well (Hetzel, 2011). What’s more,

India’s population is primarily on the younger side with a mean age of 28 (Harjani, 2012). This


is an opportunity for the Dunkin’ Donuts brand to create lifelong customers and engage in a

cultural movement.

By partnering with Jubliant FoodWorks, which is already well established across India,

the company will be able to quickly expand its brand throughout the country. Jubliant

FoodWorks has a strong reputation in the quick service industry and has infrastructure already

developed across India through its extensive Domino’s pizza venture. Jubliant FoodWorks is

also financially, very healthy having 142% sales growth in the past two fiscal years and

worldwide, the quickest expanding Domino’s pizza chain (“Food”, 2013).

Jubliant FoodWorks is motivated to join with Dunkin’ Donuts due to its innovation in the

food sector. Dunkin’ is not afraid to tailor its menu to meet the needs of different regions around

the world. Nation’s Restaurant News acknowledged the company’s success in this realm by

honoring the Executive Chef & Vice President of Global Product Innovation with the 2012

MenuMasters Innovator of the Year Award (Manchester & DeFrancesco, 2012). The culinary

team for Dunkin’ Donuts travels to different countries to study and taste local fare to come up

with new donut and sandwich creations (Manchester et. al, 2012). Further, Dunkin’ Donuts is

flexible in the types of venues needed for its locations, they can vary from 100 sq.ft. to 1500

sq.ft., this will allow for quick expansion as the company does not have to invest in a large space

in order to open each location (Bhagat, 2011).


By forming a strategic alliance, Dunkin’ Donuts is able to mitigate risk by not providing

all of the resources to open stores in India. This is why Dunkin’ Donuts has been able to quickly


expand into many markets since its brand is franchised by other owners. The partner company is

in charge of setting up all operations and providing the needed capital to quickly expand.

Jubliant FoodWorks will be able to utilize the well-known, strong brand image of Dunkin’

Donuts in order to launch the business quickly into India. According to the Brand Keys

Customer Loyalty Engagement Index, Dunkin’ Donuts has been ranked number one for the past

seven years in the category of coffee and it was also ranked number one for packaged coffee

loyalty in 2013 (King, 2013). Jubliant FoodWorks will be responsible for all initial investments

of setting up the Dunkin’ Donuts & More locations in India, but it does not have to split profits

with Dunkin’ Donuts, it is only required to pay franchise fees which can be very lucrative if the

plan is as successful as anticipated. Further, the company will benefit from the expertise

provided by Dunkin’ Donuts while they work together to make a menu for the new locations and

assist with marketing efforts (McInnis, 2011).

How does each company use its strategic alliance to exploit its competitive advantage?

Dunkin’ Donuts competitive advantage lies in its strong brand name. Already in 32

countries outside of the United States, the company has been able to franchise its operations for

the past 58 years. The company offers the required support and guidance for the alliance to be

successful.

Jubliant FoodWorks currently works in the quick service industry with its exclusive

Dominos agreement in India. The company has experience with the intended target market and

currently has a supply chain infrastructure set up in India through its master franchisee

relationship with Dominos. Further, the company has strong operational capabilities with a

network of over 700 vendors (“Food”, 2013). This will allow the company to utilize the already


strong distribution channel to quickly expand Dunkin’ Donuts locations as it is planned that 100

locations will be opened in the next 5-6 years (Bhagat, 2011). Pairing both companies along the

same distribution channel will also provide increased efficiency and the benefits of economies of

scale. With Dunkin’ Donuts, the company will be able to expand and diversify its current

business portfolio which now only consists of Dominos store locations.

4. Results and Findings

Through the examination of the three cases, many common factors are found to be prevalent in

the formation of joint ventures. The next section compares and contrasts the ventures in order to

gain greater insight on the nature of international joint ventures.

All three cases involved entry into India with one of the partners being hailed from India.

This commonality displays how the companies entering into international business are mitigating

the risk of the new venture by joining with a company that is already well versed in the foreign

market. Each found a partner that is also in the same industry. According to Pehrsson (2006),

business relatedness is key to creating and sustaining a competitive advantage when engaging in

a joint venture. When looking at the case studies, each firm is a major player within its home

country within a particular industry. When joined together, each firm is able to share related

knowledge on products and markets (Pehrsson, 2006). Joining together two strong firms, which

are in the same industry, will allow for each firm to draw on one another’s strengths to escalate

the joint venture to the next level.

Further, each joint venture offers opportunity for future growth within not only India, but

in the surrounding region depending on the success of the initial project. This concept is


highlighted by Hsieh who notes that the alliances which are typically considered to be the most

effective are created with the intention of not simply completing one project but with the ability

to blossom into a series of potential projects which add value to both companies (as cited in

Elmuti et al., 2001, p. 214). By joining with a strong company that is already well connected in

the India, each case shows the potential for future growth. In each agreement, the companies are

strategically looking forward as to what steps the alliance will take within the short and long

term. Each company has carefully chosen a partner that complements its current strategy and

shares its vision of expansion in the future. By establishing this connection before the partnership

even begins, the companies are setting themselves up for a successful venture.

When examining the drivers for joint ventures, the goal of risk mitigation is also present.

In the case of Dunkin’ Donuts and Jubliant FoodWorks Ltd., Jubliant FoodWorks is assuming a

large financial risk as a master franchisee but has the benefit of large payouts as long as the deal

is successful. Dunkin’ Donuts risks loosing brand equity if its stores are not run up to standards

or the company fails to become a staple in the Indian market.

For Starbucks and Tata Global Beverages, Tata is already playing a role in Starbucks as

one of its global suppliers. As a result, the joint venture in India is of lower risk for failure

because they have already established a longstanding partnership with one another. Further,

being able to source coffee directly from India through Tata allows Starbucks to lower costs.

There is an even split of ownership between Starbucks and Tata Global Beverages. In the case of

Tata Motors and Brazil’s Marcopolo, each company shares comparable risk with 51% and 49%

share in the company, respectively. Tata Motors made the substantial initial investment to grow

the partnership but the company stands to gain significant cost savings in the future.


Hypothetically, if all joint ventures fail, Dunkin’ Donuts will bare a minimal financial burden in

comparison to the remaining companies due to its franchise agreement.

A view of each company’s current competitive advantages also demonstrates how an

international strategic alliance can strengthen a company’s portfolio and make it a dangerous

competitor. The competitive advantage for Tata Motors comes with its cost leadership strategies

that have made it a market leader. This coupled with the operational excellence practiced at

Marcopolo will allow the companies to operate a strong joint venture in India, will strengthen

their core market and add value to the current manufacturing capabilities.

In terms of Starbucks and Tata Beverages, joining along the supply chain allows for the

companies to create a competitive advantage through increased visibility. According to Barratt &

Okie (2007), “distinctive visibility” within the supply chain communication lines which results

in both parties having access to information that is useful and of a high quality can create a

lasting competitive advantage among firms that is difficult to emulate, especially across an

international supply chain. To be successful and reach this extent of visibility, time is required to

build trust among both parties to share important business information, meaningful interactions

among parties must exist and there must be a commitment by both parties involved to make

mutually beneficial information readily available each other along the supply chain (Barratt et

al., 2007). Trust has already been built among the companies through previous interactions on

the supply chain. Through the joint venture, the companies will be able to build on this

relationship to move towards the creation of a competitive advantage.

The joint venture between Dunkin’ Donuts and Jubliant FoodWorks also involves the

supply chain but in a different manner. Jubliant FoodWorks has established a strong distribution

channel through its role as the master franchisee for Dominos which will allow for the supplies


needed for Dunkin’ Donuts stores to be sourced along the channel. The economies of scale

created through this will allow the company to realize similar cost savings to that of Starbucks

who is sourcing within the country and will allow Dunkin’ Donuts to quickly and efficiently

expand throughout different regions of India.

5. Discussions and Conclusions

In the era of globalization and falling international barriers, it is becoming increasingly appealing

for companies to expand to foreign markets. Undoubtedly, multinational firms face a much more

complex environment when they do business in countries other than their home country. The

decision for doing business in a foreign country and choosing the mode of entry should be based

on a trade-off between risk and return and a firm is expected to make choices that offer the

highest risk-adjusted return on their investment. However, as our cases have shown, these

decisions are of enormous complexity with various economic, political, geographic, and cultural

dimensions.

Entering joint ventures helps the parent companies in the cases we studied by providing

each of them with resources, distribution channels, manufacturing capabilities, capital

equipment, knowledge, expertise, brand reputation, or intellectual property. The partnerships

enable them to gain competitive advantage through access to their partner’s resources, including

markets, technologies, capital and people. It allows each partner to concentrate on activities that

best match their capabilities and strengths. The success of strategic alliances depends heavily on

effectively matching the capabilities of the participating organizations and achieving the full

commitment of each partner in the alliance.


The research questions and the cases we studied helped us to identify three important

factors for selecting partners for strategic alliance. They are partner complementarity,

commitment and compatibility. In the cases we studied, the companies seeking to enter the

Indian market seem to have carefully considered and assessed these factors and selected

compatible partners. Starbucks CEO Howard Shultz was asked in an interview in India why it

took the company so long to go to India compared to China where it opened its first store in

1998. He responded that the company was ready long time ago but did not have the right partner

(Krishna, 2012). “Once we met the people from Tata, we realized overnight that the assets were

so complementary between Tata and Starbucks that together we could co-author a very unique

strategy - bring Starbucks in India and over a time build a very substantial significant business

together,” Howard Shultz said (Krishna, 2012).

The literature review and the cases we studied demonstrated that strategic alliances can

be an effective way for a company to enter the highly complex Indian market. Once the right

partnership is created, it is important for the partners to manage carefully their joint ventures, to

have detailed expectations, requirement, and expected benefits. The rate of failure of joint

ventures is high because of tactical errors made by their management. In the cases of Tata

Starbucks Limited and Dunkin’ Donuts’ alliance with Jubliant FoodWorks the brand reputations

of Starbucks and Dunkin’ Donuts should be preserved and the management needs to pay close

attention to this aspect. Although both companies have highly localized menus that are tailored

to Indian consumers, they should strive to preserve their core brand value and reputation for

quality products and services.

Multinational firms face complex decisions and numerous alternatives when they deal

with international expansion. These decisions should be made after extensive research and


assessment of every different factor that may impact their future enterprise. In today’s rapidly

changing environment, building and reconfiguring internal and external competencies is critical

for multinational companies. Subjected to aggressive global competition and constant

technological changes they need to be able to quickly adapt to the changes and be innovative in

order to be successful in their expansion to new markets.

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