REV: AUGUST 5, 2008
DANIEL ISENBERG PAUL MARSHALL
To JV or Not To JV? That Is the Question (for XTech in China) On October 14, 2005, Reinhold Hesse, CEO of Extrusion Technology Inc. (XTech1) boarded the plane in Xiamen, China after a day of meetings with the Xiamen Foreign Investment Board. He thought about the upcoming meeting in Boston with XTech top management, including Jim Sharpe, owner of XTech and head of product management, as well as Jim’s wife, company treasurer Debby Stein-Sharpe, and three other executives. The only item on the agenda: Should Xtech set up oprations in China, and if so, how? The team would decide among four options. Hesse had promised to lay out the pros and cons of each and lead XTech to a decision. One option was to partner with Ideal Jacobs (IDJ) of New Jersey, XTech’s long-time supplier, which had just established a joint venture in Xiamen and had a Chinese general manager and spare factory space. IDJ expected some equity in a new joint venture (JV) between the two companies. A second JV option was to partner with Nextron, a 1000-person Taiwanese maker of housing parts for electronic equipment, with a plant 40 minutes from Shanghai. A third option was to partner with Southco, a 1200-person Philadelphia-based maker of connectors for electronic equipment, with four completely equipped plants in Shenzhen and Shanghai and a very strong commitment to doing business in China. A fourth option was to establish a wholly owned subsidiary (“WOFE” or wholly owned foreign enterprise, pronounced “wuh-fee”). Hesse was leaving Xiamen impressed and surprised by the apparent simplicity of the process that was described to him in clear English by the Foreign Investment Board. Finally, Hesse was also contemplating whether to delay Xtech’s China operation to some future time, to be decided on later.
1 For background please refer to the case “Jim Sharpe: Extrusion Technology, Inc. (Abridged),” by H. Kent Bowen and Barbara
Feinberg, HBS No. 603-084 (Boston: Harvard Business School Publishing, 2003). ____________________________________________________________
Senior Lecturer Daniel Isenberg and Professor Paul Marshall prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2007, 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
To JV or Not To JV? That Is the Question (for XTech in China)
Extrusion Technology Takes Shape
In 1987 37-year-old Jim Sharpe (HBS ‘76) acquired Extrusion Technology (later called XTech) following a 10-year career in industry. When acquired, Extrusion Technology manufactured a wide variety of customized extruded aluminum parts for New England-based industrial customers in markets ranging from construction to consumer durables. Sharpe restructured the ailing acquisition located outside of Boston, Massachusetts, and grew it from less than $4 million in revenues to over $30 million. (See Exhibit 1 for historical revenues and cash flows.) However, Sharpe was ambivalent about the growth because his and his wife’s personal goal was to create a business that would allow them to devote time for family and community affairs. Sharpe recalled: “We had become owned by the business, not the other way around. Even after 10 years, Debby was pulling all-nighters twice a month. I wanted to be able to walk my kids to...