A tool for growth during an economic downturn
© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member ﬁrms of the KPMG network are afﬁliated.
02 Joint Ventures
Our focus on joint ventures
Life is tough for businesses with expansion plans. The high leverage, liquidity and low funding costs that fueled growth may have stopped, but activist investors are still demanding increased shareholder value. Meanwhile, investors such as private equity and sovereign wealth funds (SWFs) are eager to take advantage of falling asset prices. Do joint ventures1 offer an opportunity for expansion in these tough times? KPMG believes that they can. Joint venture activity has been increasing over the past few years and shows every sign of continuing on an upswing, potentially a big one. We believe that the downturn and lack of credit will be a primary driver for this. Access to specific capabilities and intellectual property, getting closer to the customer and winning contracts in new markets are other key drivers. We also think that SWFs and private equity can play an important role as potential partners and sources of finance. KPMG has been watching this rise in joint venture activity with keen interest. Following the production of in- depth case studies into several large multinational alliances, KPMG commissioned the Globalization and Strategy Research Center at IESE Business School in Spain to explore joint ventures in greater depth. The IESE were asked to conduct an extended study – a thought leadership project surveying key factors behind joint ventures. IESE surveyed over 100 CEOs, CFOs and 1
senior executives across major industry sectors throughout the world about their joint venture experiences during the last five years. (See p15 for more details.) The results reveal some fascinating insights, including key factors that contribute to successful joint ventures, and pitfalls to avoid. In an increasingly complex and uncertain environment, companies are further challenged to compete and cooperate across various parts of the value chain. The findings, presented in this document, help support our views on using joint ventures as a tool for growth during these turbulent times. Our sincere thanks go to all participants in this study. Your experience has provided invaluable ideas on making joint ventures a success in the current economic climate.
Our focus on joint ventures What we discovered What’s their motivation? Facing the challenge Secrets of success Taking care of business Eye on the future A helping hand About the survey 2 3 4 6 8 10 12 14 15
KPMG’s Corporate Finance Practice
Doug McPhee Head of EMA Valuation Services Dr Carsten Heckemüller Senior Manager KPMG Corporate Finance, KPMG in Japan
IESE Business School
Professor Africa Ariño Strategic Management Department Professor Pinar Ozcan Strategic Management Department
The term ‘joint venture’ is used in this document to mean any type of inter-firm partnership/ alliance/ joint venture, including contractual joint ventures, equity joint ventures, cross share holdings, and so on.
© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
COVEr IMAGE: MIChAEl BlAnn/GETTy IMAGES
Joint Ventures 03
What we discovered
Joint ventures are on the rise What’s their motivation?
transparent about the value of contributions, equity and cash top-up expectations, as well as the ownership of intellectual property created and customers won by the partnership. This can help to create a setting from which all parties can benefit.
The majority of respondents – regardless of their satisfaction with their joint venture experience – expressed a positive view of their company’s future joint venture activity. And 50 percent of...