Preview

Joint Ventures a Tool for Growth During an Economic Downturn

Good Essays
Open Document
Open Document
5724 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Joint Ventures a Tool for Growth During an Economic Downturn
Joint Ventures
A tool for growth during an economic downturn
2009

© 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,

You May Also Find These Documents Helpful

  • Powerful Essays

    Joint Venture Failures

    • 2328 Words
    • 10 Pages

    A joint venture is a contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking (InvestorWords, 2008). Some of the most significant benefits gained from joint venturing include, a reduced risk of both companies resulting from capital and resource sharing, the opportunity to increase sales, and enhance technological capabilities through research and development underwritten by one party (INC, 2009). Joint ventures also provide a mode for entering foreign markets because the partnering companies join complementary skills and knowhow with local firms (Qiu, 1984). Companies often jump into joint venture agreements blinded by these benefits and often fail to research the risks involved in joint ventures (Park, 1996). Research has shown that half of all companies that enter into a joint venture fail, and only forty four percent of joint ventures that remain operational report meeting profit expectations (Rod, 2009). To limit these risks a company considering entering into a joint venture should look at case studies of failed joint ventures which have similar circumstances as the joint venture the company is currently considering (Lyles, 1987). There are common patterns to joint venture failures (INC, 2009). The first pattern happens when the joint venture partner’s ownership and strategy of the joint venture, doesn’t represent their risk and contribution to the joint venture (Chalos, 2002). Another pattern in joint venture failure happens when companies enter into joint venture agreements without a good knowledge of the market they are entering into. This causes a lot of unforeseen risks in the joint venture project. Finally, another pattern of joint venture failure happens when companies neglect to higher skilled, experienced employees to oversee the joint venture. Because of the lack of skill and experience very large mistakes are often made in joint ventures (Lyles, 1987).…

    • 2328 Words
    • 10 Pages
    Powerful Essays
  • Good Essays

    In managing an organization effectively there are critical partnerships and alliances that a new manager must maintain in that organization. Companies are increasingly looking at strategic partnerships, alliances and joint ventures as avenues to enter new markets, establish new business offerings, across new distribution channels or pursue new areas of growth (Schwartz, 1999). Corporate alliances can help mitigate risks of new initiatives and they can also leverage skills and resources provided by others. Strategic partnerships may take a variety of forms and may involve product/service development, sales, marketing and delivery. These strategic partnerships can become significant competitive differentiators by increasing times to market in developing product/services, accessing new clients in current or new geographies and improving internal operations. In this simulation, I first used the input of upper level management before making a decision and combining their input with my ideas to make a logical decision that will help the company expand.…

    • 767 Words
    • 3 Pages
    Good Essays
  • Best Essays

    In the contemporary society, many multinational enterprises would like to use joint venture as their favorite entry mode due to its unique advantages, such as: directly access to the local partner’s knowledge, sharing development costs and risks. Meanwhile, it is important to figure out the factors that will cause failure of joint venture. Generally, 3 major factors: culture difference, poor leadership and insufficient planning which are all fatal to the operation of joint venture. Cultural differences have direct influences on international joint venture performance through management practice and organizational learning; poor leadership will result in a bad business integration and even wasting the preciously initial injection funds; insufficient planning may trouble company in the long term. For example: high financial risk and poor financial condition. In addition, this report correlates the theory with a famous case of failed joint venture--- TCL & Alcatel, to prove the validity of theory that referred in this report. And moreover, give some suggestions for TCL to break off the dilemma…

    • 2405 Words
    • 10 Pages
    Best Essays
  • Powerful Essays

    Blue Ridge Spain

    • 1587 Words
    • 7 Pages

    1. What are the expertise strengths and unique resources that each partner brought to the joint venture?…

    • 1587 Words
    • 7 Pages
    Powerful Essays
  • Powerful Essays

    * Buckley, P. J., Glaister, K. W. and Husan, R. (2002). “International joint ventures: Partnering skills and cross-cultural issues”. Long Range Planning, Vol. 35, pp.113-134.…

    • 6668 Words
    • 27 Pages
    Powerful Essays
  • Good Essays

    Leading Change Paper

    • 8294 Words
    • 34 Pages

    In managing an organization effectively there are critical partnerships and alliances that a new manager must maintain in that organization. Companies are increasingly looking at strategic partnerships, alliances and joint ventures as avenues to enter new markets, establish new business offerings, across new distribution channels or pursue new areas of growth (Schwartz, 1999). Corporate alliances can help mitigate risks of new initiatives and they can also leverage skills and resources provided by others. Strategic partnerships may take a variety of forms and may involve product/service development, sales, marketing and delivery. These strategic partnerships can become significant competitive differentiators by increasing times to market in developing product/services, accessing new clients in current or new geographies and improving internal operations. In this simulation, I first used the input of upper level management before making a decision and combining their input with my ideas to make a logical decision that will help the company expand.…

    • 8294 Words
    • 34 Pages
    Good Essays
  • Good Essays

    Disadvantages of Boycott

    • 652 Words
    • 3 Pages

    * The objectives of the venture are not 100 per cent clear and communicated to everyone involved.…

    • 652 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    M. E. Sharpe Beamish, P. W. and Lupton, N. C. 2009. Managing Joint Ventures. Academy of Management…

    • 1312 Words
    • 16 Pages
    Powerful Essays
  • Powerful Essays

    B.) The advantage for Joint Ventures that by partnering with a foreign and local partner I immediately share the risk, pool resources, and responsibilities. My risk is less. However the disadvantage is that if I don’t find a partner that shares the interest and goals I can end up loosing company secrets like GM, “Not long ago GM executives noticed that a new car from a fast growing local competitor partially owned by GM’s Chinese joint venture partner, looked very similar to one of its models. Gm Claimed its design was copied.”p.111 Management and Globalization.…

    • 816 Words
    • 4 Pages
    Powerful Essays
  • Powerful Essays

    Through the analysis of the case study on the joint venture of the France based company Alcatel and the U.S. based company Lucent Technologies, issues of cross-cultural management, the weakness and strength of an international joint venture, including the rights and wrongs of the particular case study will be discussed. As Shenkar (2001)said in an article, establishing a measure gauging the “distance” between cultures has understandably presented an even greater challenge. At the end, recommendations will be provided for future companies seeking joint ventures.…

    • 1831 Words
    • 8 Pages
    Powerful Essays
  • Satisfactory Essays

    Rdh Case Study

    • 342 Words
    • 2 Pages

    Wilkinson, T. J., Thomas, A. R., & Hawes, J. M. (2009) Managing Relationships With Chinese Joint Venture Partners. Journal Of Global Marketing, 22(2), 109-120. doi:10.1080/08911760902765908…

    • 342 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    This Research Paper explores the intricacies of technology, training and education as related to economic development. We will examine the usage of technology to generate economic development and growth and look at how technology can and has impacted our education, training and development both in Jamaica and the Caribbean region.…

    • 7925 Words
    • 32 Pages
    Powerful Essays
  • Good Essays

    We agree that partnerships require much communication, coordination, and risk sharing; just like in simple collaborative school or office project where members are expected to work for a common goal, be in sync with one another, lastly, be prepared in any possible outcome or consequence. Small collaboration or partnerships as we have mentioned cause big tolls, thus what more for partnerships among giant companies? Therefore, partnerships should be…

    • 813 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    Body Shop Expansion To China

    • 5412 Words
    • 17 Pages

    Gocmen, T., 2004. Re-examining the Risk and Return Effect of Joint Ventures: New Empirical Evidence. [pdf] Available at: http://economics.ca/2004/papers/0211.pdf [Accessed 19 Aug 2013]…

    • 5412 Words
    • 17 Pages
    Powerful Essays
  • Best Essays

    Joint Ventures

    • 1482 Words
    • 6 Pages

    A joint venture is a mechanism for combining complementary assets owned by separate firms. These assets can be tangible, such as machinery and equipment, or intangible, such as technological know-how, production or marketing skills, brand names, and market-specific information. In an equity joint venture the partner firms transfer all or part of their assets to a legally independent entity and share the profits from the venture. Contractual arrangements that do not involve shared equity control are sometimes referred to as non-equity joint ventures; examples include licensing and management contracts, as well as supply and distribution agreements. Shared ownership and contractual arrangements are also frequently grouped together under the term “alliances”. In what follows the focus will be on equity joint ventures, specifically international joint ventures involving partners from different countries. From a world economy perspective there are at least two reasons for examining international joint ventures. First, international joint ventures represent a form of foreign direct investment (FDI). Multinational enterprises often have to decide whether to wholly own a foreign affiliate or to share equity control with a local partner. This decision is a key element of the foreign investment strategy. Second, the ownership structure of a foreign-investment project affects host country welfare. A direct effect comes from the sharing of profits between the multinational and the local firm. Indirect effects arise because ownership influences investors’ incentives to commit resources to the project, such as capital and technology. Some host countries impose local ownership requirements that limit the equity stake foreign investors can take in local companies. This raises the question of what the economic effects of such requirements are. Probably the most comprehensive data on international joint ventures come from the U.S.…

    • 1482 Words
    • 6 Pages
    Best Essays

Related Topics