Strategy : Launching a World Class Joint Venture

1. Launching a World-Class
Joint Venture
James Bamford, David Ernst, and David G. Fubini
11EX-013 : Bishnu Kumar
HBR, 2004

2. JVs and alliances can deliver
more shareholder value than an
M&A can, but getting them off
the ground can trip you up in
unpredictable ways.

3. Joint Venture
A joint venture is a business agreement in which parties agrees to
develop, for a finite time, a new entity and new assets by
contributing equity. They exercise control over the enterprise and
consequently share revenues, expenses and assets.
Basic traits of a Joint Venture:
 Specific Purpose
 Limited Time

4. Types of Joint Venture

5. Advantages of Joint Venture
Ideal for managing risk in uncertain market
Sharing the cost of large-scale capital
investments
Injecting newfound entrepreneurial spirit into
maturing businesses

6. Performance of Joint Venture
Wrong Strategy
Incompatible Partners
Inequitable or unrealistic deals
Weak Management

7. Joint Venture Challenges
• Parent companies may hold different strategic interest, which
Strategy may affect the nature and degree of integration
• Parents share control of the JV, which complicates the decision
Governance making
• Parents have separate reporting systems, processes and metrics
• Parents provide on-going services, staffing and resources to the JV
Economics • The JV’s performance is less transparent compared to parent’s
• Parents must manage the cultural differences, as well as conflicting
Organization incentives and career paths

8. Joint Venture Challenges
Resolving Strategic Conflicts Up Front
Develop a VC-quality business plan
Act quickly to manage inevitable setbacks

9. Joint Venture Challenges
Loose-Tight Governance Approach
The partners identify the venture’s most important governance
processes like setting strategy, allocating resources etc. and
designate the appropriate degree of parental involvement.

10. Joint Venture Challenges
Active roles of JV Board :
Capital
Allocation
Risk
Management
Performance
Management

11. Joint Venture Challenges
Independence of JV

12. Joint Venture Challenges
Managing the Interdependency
Dedicate resource
to resolve
interdependencies
up-front
Challenge and
limit
interdependencies

13. Keys to Successful Launch
• Align the parent’s interests around the JVs objectives up-front
Strategy • Specify first year goals for the JV
• Apply loose tight governance
Governance • Create clear protocols for decision making
• Specify the services that parents will provide, and its transfer pricing
Economics • Establish good risk and performance management system
• Secure commitment from key staffs. Especially from parent company
Organization • Create a compelling value proposition for JV employees

14. Building the Organization
• Independent
Organizational
• Dependent
Model
• Interdependent
Commitment from
parent company • Skill transfer from parent companies
staff
Make people join • Compelling Value Proposition
the team • Motivational Leader

15. Thank You !!!
“If you get launch right, the
rest almost takes care of
itself.”