International Joint Ventures
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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 AG
Germany
Motivation: Complementarities
Acme Inc.
U.S.
Braunschweiger AG
Germany
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 AG
Germany
Independent R&D
Coordinated Marketing
Acme Inc.
U.S.
North
America
Braunschweiger AG
Germany
European
Union
Independent R&D
Coordinated Marketing
Joint Manufacturing
Acme Inc.
U.S.
Braunschweiger AG
Germany
North
America
European
Union
A-B Mfg. SA, Mexico
Pressures for Global Efficiency
International Strategy:
Managing Dual Pressures
High
Multidomestic
Strategy
Low
Low
High
Pressures for Local Responsiveness
Multidomestic Strategy
Acme’s Intended Strategy
Germany
Acme Inc.
U.S.
Mexico
Entry Mode Decisions
• What Acme wants?
• What can Acme achieve?
Japan
Multidomestic Strategy
Who does marketing in these countries?
Germany
Acme Inc.
U.S.
Mexico
Malaysia
REMEMBER: IJV is also an entry mode
IJV in Multidomestic Strategy
Local JV partners can do marketing
Acme Inc.
U.S.
Braunschweiger AG
Germany
Cervesa SA
Mexico
Sashimi LTD
Japan
Acme needs local JV partners to help it build its Multidomestic strategy
IJV in Global Strategy
Acme Inc.
U.S.
Braunschweiger AG
Germany
Cervesa SA
Mexico
Sashimi LTD
Japan
IJV in Transnational Strategy
Acme Inc.
U.S.
Braunschweiger AG
Germany
Cervesa SA
Mexico
Sashimi LTD
Japan
Nora-Sakari IJV
Tale of the Tape
Nora
Sakari
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Sales: $100 million
Employees: 3,081
Deal % of sales: 123%
Big Picture:
– Needs technology
– Local knowledge
– Government ties
– Deal in hand
– Seeks regional
expansion
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
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Equity ownership
Technology transfer
Royalty payments
Expat salaries
Arbitration
Negotiation Issues
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Equity ownership
Technology transfer
Royalty payments
Expat salaries
Arbitration
How is each related to:
• Entry mode decision
• International strategy
implementation
• Capabilities
Negotiation Issues
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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 Malaysian
Telecom Market
Export Markets
Indonesia
Thailand
Vietnam
Nora
Sakari
Technology
Transfer
Sakari’s International Strategy
Sakari HQ
North
America
S.E. Asia
Malaysia
Finland
E.U.
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
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