International Joint Ventures

• Motivations• Macro-structure• Cooperative Activities and Modes• Role of IJVs in International Strategy• Nora-Sakari as exemplar

International Joint Ventures

• Motivations – Complementarities vs. Size: – Market access– Risk / experience (lack of / superior)– Too small / resource pooling – Intense competition– Technology (lack of / superior)– Learning

Motivation: Size

Acme Inc.U.S.

Braunschweiger AGGermany

Motivation: Complementarities

Acme Inc.U.S.

Braunschweiger AGGermany

International Joint Ventures

• Range of Possible Cooperative activities:– R&D– Manufacturing– Marketing– Sourcing– Service

– Everything?

International Joint Ventures• Forms of agreement:

– Equity vs. arms-length contract/agreement

• Structure:– Ownership (50-50 … 51-49 … 90-10)– Contribution ($, technology, plant, marketing)– Strategic and operations roles & responsibilities

• Active vs. Passive• Value-chain scope

Cooperative Modes

• Independent– Act as two separate companies; no constraints

• Coordinated / Complementary– Act as two separate companies with established

operational, product, or geographic domains or constraints

• Joint– Act as single company

Independent R&D

Acme Inc.U.S.

Braunschweiger AGGermany

Independent R&DCoordinated Marketing

Acme Inc.U.S.

Braunschweiger AGGermany

NorthAmerica

EuropeanUnion

Independent R&DCoordinated Marketing

Joint ManufacturingAcme Inc.

U.S.Braunschweiger AG

Germany

NorthAmerica

EuropeanUnion

A-B Mfg. SA, Mexico

International Strategy:Managing Dual Pressures

Pre

ssur

es f

or G

loba

l Effi

cien

cy

Pressures for Local Responsiveness

High

Low

HighLow

MultidomesticStrategy

Multidomestic StrategyAcme’s Intended Strategy

Germany

Mexico

JapanEntry Mode Decisions• What Acme wants? • What can Acme achieve?

Acme Inc.U.S.

Multidomestic Strategy

Germany

Mexico

Malaysia

REMEMBER: IJV is also an entry mode

Acme Inc.U.S.

Who does marketing in these countries?

IJV in Multidomestic Strategy

Acme Inc.U.S.

Braunschweiger AGGermany

Cervesa SAMexico

Sashimi LTDJapan

Local JV partners can do marketing

Acme needs local JV partners to help it build its Multidomestic strategy

IJV in Global Strategy

Acme Inc.U.S.

Braunschweiger AGGermany

Cervesa SAMexico

Sashimi LTDJapan

IJV in Transnational Strategy

Acme Inc.U.S.

Braunschweiger AGGermany

Cervesa SAMexico

Sashimi LTDJapan

Nora-Sakari IJVTale of the Tape

Nora• Sales: $100 million• Employees: 3,081• Deal % of sales:

123%• Big Picture:

– Needs technology– Local knowledge– Government ties– Deal in hand– Seeks regional

expansion

Sakari• Sales: $4 billion• Employees: 29,000• Deal % of sales: 3%• Big Picture:

– Has Technology– Seeks regional presence– Lacks local knowledge– Has other options

Negotiation Issues

• Equity ownership• Technology transfer• Royalty payments• Expat salaries• Arbitration

Negotiation Issues

• Equity ownership• Technology transfer• Royalty payments• Expat salaries• Arbitration

How is each related to:• Entry mode decision• International strategy

implementation• Capabilities

Negotiation Issues

• Equity ownership• Technology transfer• Royalty payments• Expat salaries• Arbitration

• Creative alternatives??

How is each related to:• Entry mode decision• International strategy

implementation• Capabilities

e.g., Two JV’s• Long-run & short-run• Mfg. & mkt./distrib.

Big-Picture Issues

• What is Sakari’s overall international strategy? – What does it want?

• What is Nora’s overall international strategy?– What does it want?

• What role should the joint venture play in facilitating each company’s intended strategy?

Nora’s Technology Acquisition Strategy

20% of MalaysianTelecom Market

Indonesia

Thailand

Vietnam

Export MarketsNora Sakari

Technology Transfer

Sakari’s International Strategy

NorthAmerica

Malaysia

S.E. Asia

Finland

Sakari HQ E.U.

Expan

d to

New

Reg

ion

What ‘Actually’ Happened?• Equity: 60% Nora -- 40% Sakari, JV must

export ~ 40% of production• Technology: JV will assemble low-tech

SK33 switch for TMB contract, jointly develop new/high-tech switch for export

• Royalty: 3% of net sales• Components: 65% discount• Wages: Nora’s rates• Arbitration: Switzerland

Global New Product Launch Simulation• Read Manual

– Understand “back story”– Understand simulation roles– Your team’s preferences in role to play?

• Kick-off– Tomorrow

• 8:00 a.m. – Morning Cohort• 10:00 a.m. – Afternoon Cohort

• Simulation Communication Platform– Facebook Groups