WHY DO COMPANIES ADOPT A JOINT VENTURE STRATEGY? by Andrew Pearson UBS Unique Business Strategies T: 01280 844966 - E : [email protected] W : uniquebusinessstrategies.co.uk WHY DO COMPANIES ADOPT A JOINT VENTURE STRATEGY? Here follows a short and straightforward summary largely drawn from Harrigan 1. I hope it helps. Note any issue is double facing. Thus when you consider the issue ask the question “Do I see both advantage and disadvantage?” And “To what extent will a Joint Venture (JV) provide a Competitive Advantage (CA) to our company or to our competitors?” 1. THE BENEFITS (OR USE) OF JVS? Create internal strengths By sharing resources which can be leveraged for greater strength; vis costly technological innovations. b. By purchasing/acquiring exclusive and necessary resources and capabilities e.g. • sharing activities to achieve more efficiency ie co-production, co procurement • Getting access to promising technology i.e. robotics, genetic engineering, solar energy • Getting access to distribution networks, local markets, improved brands can increase sales force productivity • Exchanging technological, financial, marketing and managerial strengths. Building innovation. Improving managerial strengths. Information exchange • Getting access to capital where an idea requires funding a. Competitive uses a. b. c. d. e. f. Pioneer the development of a new industry through minimising capital investment? Force the pace of market development, seize initiative first to achieve CA with first mover advantages/rapid penetration Tame difficult customers with an amalgam of strengths Rationalise mature industries to consolidate industry structure, eliminate excess capacity Pre-empt suppliers/customers from entering Create new competitive capabilities faster, get access to markets/customers faster, stake out leadership positions faster in emerging markets Strategic uses a. b. c. 1 Implement changes in strategic position because JVs can strengthen a company’s existing position or help develop another? Leverage synergies between the skills/resources of the JV partners? Hold strategic positions in a company’s markets from which to develop? See Managing for JV success by Katherine Harrigan, Lexington Books UBS Unique Business Strategies T: 01280 844966 - E : [email protected] W : uniquebusinessstrategies.co.uk d. Help diversify into new risky markets? 2. ASSESSING THE SUCCESS OF JVs One way of determining the success of a JV is to ask the following questions: e. f. g. h. i. Did the JV strategy focus on a particular JV goals Did the company seek out the best partners first (vy important in pre-empting competitors entry Was it able to exploit economies of scale What is the position of the government on JVs, vis market share, profit dispersal and transfer Has the company been able to avoid problems in connection with any of the following; • Sovereignty conflicts, the objectives of host country partners may be different from the JV partner. Domestic partners may wish to import the best technology and brands into their markets but a company may wish to exploit advantages of low labour coasts • Loss of autonomy and control, one partner may wish to have more than the other. Poorly structured JVs encourage political behaviours viz planning, goals, timelines, operating styles and expectations. Partners may feel that they could lose competitive advantage, prevent effective JV development, limit co-ordination. The result could spiral costs • Loss of competitive advantage through strategic inflexibility; Did the managers manage to achieve their aims (access, synergies etc)? Did they exert just the right amount of control and make the right decisions? Did they appoint effective (the right) managers? • Some of these issues are connected to inexperience. Thus do the partners have experience in JV management? UBS Unique Business Strategies T: 01280 844966 - E : [email protected] W : uniquebusinessstrategies.co.uk