shifting power balance in sa-1(1)

7/29/2019 Shifting Power Balance in SA-1(1)

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Shifting Power Balance in

Strategic Alliances The case of Emerging Markets


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JVs are by their very nature opportunistic: organisations see an op

to gain an immediate, though perhaps temporary, competitive ad

through an alliance that gets them into a new business or extend

one. It follows that once that possibility is exhausted, the rationale

particular JV might vanish - but not for JVs per se.


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Motivations for Strategic Alliances in Emerging

Local Partner

Knowledge

Global Brand

Capital infusionRegulation

Potential market entry

Global/Foreign Part

Distribution

Local knowledge

Cost economiesRegulation

Building trust


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What is Power Balance?

Origin in world politics: English Foreign Policy to thwart attempts at unification of Eu

under a single monarch

Grand alliances with Ottoman Empire, Netherlands, Portuga

Distributed military capability - no super power - relatively w

nations protected

Cooperative strategy:

Control that individual alliance members have over the allian

Decision making and sharing benefits

Significant determinant of alliance success over the long term


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Power Balance in Strategic Alliances & JVs

Initial

Alliance

SustainablePower

Balance

Power shifttowards

globalpartner

PowerCollision

Power shifttowards

localpartner

Achievibalan

emerginchallengof differeculture,

objeASHWIN

ASIF ADERNST, A

VThe McKinse

Number 4


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Evolution of Strategic Alliances

NascentStrict RegulationLack of Market

Transparency

FrenziedDeregulation of

industryFlurry of activity

TurbulenceFurther

deregulationFamiliarity with

local market

MatureMarket

stabilizationDeveloped mark

scenario

Non equitytechnologylicensing

Distribution

arrangements

Investing intomany options

Compliancewith localownership

provisions

Restructuringand

dissolution ofalliances

Alliancestructuredriven byprimary

business logic


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Auto Sector | Maruti Suzuki | 1981

Ownership structure

Established by Actof Parliament withSMC Japan having26% initial share,with option toincrease to 40%exercised in 1987

Both partners willnominate acandidate for MD

Post liberalizationin 1991 SMC shareraised to 50% &54.2% withPrivatization & IPO

Objective

Develop small carfor high demandpersonal transportmarket

Better and efficientdesign option over

existing Padminiand Ambassadorcars

Development ofindustrialcapability of India

Import substitutionthe major objective

Covenants

Acceptance ofJapanesemanagementpractices

Post 1983 sawrelaxation oflicensing and

control ofmanufacturingoutput

Governmentpartnership meantfavorable tax, laborand tradelegislations

F

GoverintervBoardof Mrto indcomp

Fundi

growtpreferbut Gocanno

Confliterm odifferepartie


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Outcome Majority stake by SMC since 20

SMC exercised optionto raise stake to 40% in1987 and later to 50%

equal partnership

Equality froze decisionmaking like infusionof new capital and

operating objectives

Government divestedits share ; a portionwent public via IPO

Government gainedRs.2424 Crores on itsinitial investment ofRs.66 Crores , SMCgained full control

Initial

Alliance

SustainablePower

Balance

PowerCollision

Power shifttowards

localpartner


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Telecom Sector | Uninor | 2009

Ownership StructureTelenor Groupinjected Rs 61.35 Bn inUnitech wireless

Telenor majority stakeholder with 67.25%stake in UnitechWireless

Unitech group held32.75% of the stake

Objective

Unitech Group Businessdiversification, Increaserevenues and cash flows

Telenor Access toworlds second largest

telecom market

Covenants

Neither of thecompanies couldcommence any businessin India whichcompeted eitherdirectly or indirectlywith the business of thelicensee company

Fallou

SCs ru2G lice2008

TelenocompeUnitec

and brrelatedlicense

Telenoexit th


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Outcome Unitech Group exits the JV & Telegets a new partner to continue its operation

All Uninor assetstransferred to an newentity , controlled by

Telenor

Unitech absolved fromall claims by Telenorfor misrepresenting

facts and damages outof 2008 auction

Unitech group getsback to its real estate

business

Initial

Alliance

SustainablePower

Balance

PowerCollision

Power shifttowards

localpartner


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Education | Tata McGraw Hill | 1970

Objectives ofventure Majority share with

McGraw Hill group ofcompanies

Publishing, reprintingand marketing ofMcGraw Hill books inIndia

Change inEnvironment Publication business

Internet and digitalmedia changingindustry dynamicsand growth

Tata Given economytill 2006, decided torestructure itsportfolio and focus oncore businesses likeAuto and Steel

Outcome ofventure McGraw Hill sold

education division toPE fund Apollo group

Apollo backedMcGraw Hilleducation plans

acquisition tostrengthen digitalportfolio

Acquisition ofminority equity heldby Tata in 2013

Initial

Alliance

SustainablePower

Balance

PowerCollision

Power shifttowards

localpartner


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FMCG| P&GG | 1992

Ownership structure

P&G 51%, Godrej 49% in the JV,formed in year1993

CEO P&G IndiaHead, Chairman

MD, Godrej, heldno executivepowers

Single Godrejrepresentative in 11member P&Gmgmt. committee

Objective

Marketing andDistribution of arange of soapbrands belongingto both companies

Godrej facing

tough competitionfrom HUL andP&G, decliningmargins, excesscapacity

P&G had access toa substantialmarket

Covenants

Godrej soap brandslicensed to the JV

Sourcing fromGodrej till cap.Utilization

Godrej not allowedsubcontracting forany other firms

Payment on cost-plus basis

F Godre

being propeshare from 1

Manyto be d

Brandreversfocus

Godreunfille

P&G aGodreexpen


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Outcome Buyout by P&G in 1996

Godrej sold stake,P&GG became

fully ownedsubsidiary of P&G

Sales force andDistribution

network underP&GG control

Scouring brandssold to P&G

Soap brands backin Godrej

Initial

Alliance

SustainablePower

Balance

PowerCollision

Power shifttowards

localpartner


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Retail, F&B| Tata Starbucks Ltd.| 2012

OwnershipStructure

50:50 JV, Tata GlobalBeverages andStarbucks Corp.

Classified as Co-Marketing

CEO Tataemployee

Objective

Starbucks entryinto emergingmarkets, highergrowth rate,potential globalcoffee supplier

Tata Strengthenposition in globalmarket, retailexpertise

Agreements

Separate agreement:Tata Coffee tosupply roasted coffeeto JV

Plan to open 100stores by next year,22 in operation

InitialAlliance

SustainablePower

Balance

PowerCollision

Power shifttowards

localpartner


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F&B | Coca Cola Parle | 1993

Joint Venture BottlingInvestments

Bottlers of Parle Exports willcontinue to produce brands such

as Thums Up, Limca licensing itfrom the Coca Cola Company,which would further introduce

brands such as Coke and Sprite asand when appropriate

Joint venture initially capitalized

at $ 20 million with 50%ownership by Parle Exports and50% by wholly owned subsidiary

of the Coca Cola Company

$40 million paid to buy off brands

such as Thums Up, Limca etc

The alliance also envisaged amarketing services company

headed by Mr Ramesh Chauhan

Parle Exports would gain fromthe marketing expertise of theWorlds Number 1 soft drink

manufacturer while Coca Cola

would gain from the distributionnetwork of Indias number 1 soft

drink manufacturer

Entire buyout once RameshChauhan ceded control, PrakashChauhan required capital for hisother businesses which were not

faring so well

S

Power shifttowards

localpartner

S

Power shifttowards

localpartner


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Entertainment |Worldwide Media Pvt Ltd. | 2

Joint Venture between BBCWorldwide and Times of India

Group to publish magazines in India

It will facilitate the exchantitles, content and know-ho

Indian market

This JV marks a new beginningfor both media houses. Together,we will bring to our readers our

collective skills and aim tosuccessfully produce and marketmagazines that capture the pulse

and mood of readers

Vineet Jain, MD, BennCo Ltd, and chairmanMedia.

There will be significanthe Indian market over t

BBC has a long-establiIndia through BBC Wo

World, and the combirespected Times Group avery impressive and

Peter Phippen, MD, BBCMagazines, BBC WorldwideLtd, and a member of the boardof Worldwide Media


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Retail| Bharti Walmart | 2007

Ownership structure

The companies signeda 5050 JV for back-end supply chainmanagement andwholesale cash-and-carry operations

Both would jointlyoperate in areas of theIndian retail industrywhich were accessiblefor foreigninvestment, such aslogistics and cash-and-carry.

Objective

Wal-Mart got accessto Indian retailmarket, which wasvalued at US$320billion in 2006 andwas expected toexpand to US$637billion by 2015

Bharti would ownretail shops under theWal-Mart franchiseand compete withplayers likePantaloons, RPG andReliance

Covenants

Condition that if anystrategic or financialinvestor were to bebrought in then bothpartners will dilutestake equally

However, thispartnership is non-exclusive in nature,which meansWalmart can forgeother alliances inIndia

AlleDepIndProbefoperbran

Wain BthroSupthe desIndon Freta


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Enforcement Directorates probe into Walmart's investment in CedarSupport Service, is seen as the biggest hurdle for the JV. Without

getting a clean chit on the ED probe, it's tough for the Walmart-BhartiJV to proceed.

Bharti Retail is unlikely to go alone in the retail business, as it is notseen as its area of expertise.

Walmart, looking for other tie up with other firms such as Futuregroup for a deal as per the non-exclusive clause

The delay and faltering partnership mean Walmart may miss out onthe "first-mover" advantage in a country considered as the greatfrontier for global retailers

Bharti Wal-Mart posted an annual loss of Rs. 372.32 crores in 2012 ascompared to Rs. 277.91 crores in 2011

EDs Probe

Initi

Allia

SustainPow

Balan

PowCollis

Power shifttowards

localpartner


20/21


Honda agreed to provide tech. know-how to HHM and setting upmanufacturing facilities. This included the future R & D efforts.

The deep penetration network of hero largely benefited the JV.

Honda agreed for a lump sum fee of $500,000 & 4% royalty on SP.

Both Partners held 26% of the equity with other 26% sold to the publicand the rest held to financial institutions.

HHM had grownconsistently, earning

the title of the worldslargest motorcycle

manufacturer

Worlds largest two-wheeler manufacturer

with annual salesvolume of over 2

million motorcycles

Owns worlds biggestselling motorcycle

brand Hero HondaSplendor.

Depenetra

26.2

26

37.54

10.25

Investmen


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Honda entered the motorcycle market through HMSI.

At the same time, Honda allowed Hero to have a minority stake inHMSI, and allowed Hero to examine the motorcycles that HMSI would

release in the market.

Though Hero Honda launched several new products from time to time,it was reportedly reluctant to share its technology with Hero Honda,

though it had an agreement to do so.

As a result, Hero Honda was unable to bring out new bikes with bettertechnology while competitors came out with better versions, as

innovation was solely in the hands of Honda


In December 2010, both the companies decided to part ways in a phased manner because of unresolv

independent plans. Honda decided to sell its stake of 26% to the Munjal family and to exit from the ve

InAll

SustP

Ba

PCo

Power shifttowards

localpartner

shifting power balance in sa-1(1)

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