market entry strategies part 1
TRANSCRIPT
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Singapore Airlines And Tata Sons To Establish New Airline In India “We have always been a strong believer in the growth potential of India’s aviation sector and are excited about the opportunity to
partner Tata Sons in contributing to the future expansion of the market.”CEO, Mr Goh Choon Phong
19 September 2013 (Joint Release with Tata Sons) - Singapore Airlines and Tata Sons have signed a Memorandumof Understanding and applied for Foreign Investment Promotion Board (FIPB) approval to establish a new airline in India that will help further stimulate demand for air travel.
Subject to FIPB and other regulatory approvals, the airline will be based in New Delhi and will operate under the full-service model. Tata Sons will own 51% and Singapore Airlines will own 49%.
The initial Board will have three members, two nominated by Tata Sons and one nominated by Singapore Airlines. The Chairman will be Mr Prasad Menon, nominated by Tata Sons.
“We have always been a strong believer in the growth potential of India’s aviation sector and are excited about the opportunity to partner Tata Sons in contributing to the future expansion of the market,” said Singapore Airlines CEO, Mr Goh Choon Phong.
“Tata Sons is one of the most established and respected names in India. With the recent liberalisation, the time is right to jointly
bring consumers a fresh new option for full-service air travel. We are confident the joint venture airline will help to stimulate market demand and provide economic benefits to India.”
Added the Chairman of the proposed joint venture, Mr Menon: “It is Tata Sons’ evaluation that civil aviation in India offers sustainable growth potential. We now have the opportunity to launch a world-class full-service airline in India. We are delighted that we are partnering in this endeavour with the world renowned Singapore Airlines.”
Joint Venture
• Partnership at corporate level • International JV : Partners are from different
countries. – TATA SONS – India – SINGAPORE AIRLINES – Singapore.
Environment
Government Policies • Indian Partner : 51% , Foreign Partner : 49% . • Entry Norms are restricted in India .• FIPB Approvals required Market Potential• Air Traffic Passengers are growing @12.5%• Indian consumers have more disposable Income now • Good Airport Network developed by the
Government .
JVs may be set up with strategic investors• in the process of entering into a new market • initially provide the foreign participant local infrastructure
and guidance but with a view to integrate the operations of the JV into the main company in the future.
• In this situation, the foreign participant may choose to acquire the local participant’s interest once the venture is up and running.
• This can be highly beneficial to both parties as the foreign party is able to establish itself in the local market while the local party gets a liquid exit
• JV to Provide Products & Services to the market .
• JV for technical Assistance – Singapore Airlines , Taj Catering for Food.
• JV to reduce High level of Investment risk : USD 100 million invested as start up capital.
Leveraging Resources• Access to labor, capital and technological resources to achieve
‘economies of scale.’ • Today, business commitments are far too large to be executed
by a single company. • Cross-border business projects are all the more demanding
and the best solution is to either outright acquire or share them by entering into a JV.
• Co-operation is a great way of reducing research and manufacturing costs while limiting exposure.
Exploiting Capabilities and Expertise• Parties to a JV may have complementary skills or capabilities .• parties may have experience in different industries which it is
hoped will produce synergistic benefits. The basic tenet of a JV is the sharing of capabilities and expertise
Sharing Liabilities• A JV also offers parties an opportunity to jointly manage the risks
associated with new ventures. • Through a JV they can limit their individual exposure by sharing the
liabilities. • When the liabilities and risks are shared the pressure on each individual
partner is correspondingly reduced. Market Access • JVs are the most efficient mode of gaining better market access.• Companies utilize JV agreements to expand their business into other
geographies, consumer segments and product markets. • In the case of a cross-border JV, the involvement of a locally-based party
may be necessary or desirable in countries where it is difficult for a foreign company to penetrate the market or where the local law limits the ownership structure by foreigners.
• a regulatory necessity for commencing business and making investments.
Flexible Business Diversification• JVs offer many flexible business diversification opportunities to the
partners• A JV may be set up, as a prelude to a full merger or only for part of the
business. • offers a creative way for companies to enter into non-core businesses
while maintaining an easy exit option.• Companies can also resort to JVs as a method to gradually separate a
business from the rest of the organization and eventually, sell it off.
The other side of a Joint Venture
Hero Honda Motors Ltd. (Hero Honda)This case is about the split between the Hero Group and Honda Motor Company. Hero
Honda Motors Ltd. (Hero Honda), a joint venture between Hero Cycles of India and Honda of Japan, came into existence in 1984 as a motorcycle and scooter manufacturer in India. In 2001, Hero Honda became the largest two wheeler manufacturing company in India with over a million units produced as well as the 'World's number one' company in terms of the unit volume sales for the calendar year. The technology for manufacturing the bikes was provided by Honda whereas Hero was strong in its distribution and service network spread across the country
In August 1999, Honda Motor Company announced the setting up of Honda Motorcycle and Scooter India (HMSI) for making scooters and later motorcycles as well. After this, the stock of Hero Honda fell by 30%. Subsequently, HMSI started producing motorcycles, competing directly with Hero Honda. Hero felt that its ambition to go international was being hampered by the joint venture. Both the companies decided to end the joint venture and signed their parting agreement on December 16, 2010. With the split, the erstwhile partners became competitors. Both the companies have several opportunities ahead of them and are likely to face challenges to gain and consolidate their position in the Indian two wheeler market.
Strategic Alliance
Strategic Alliance
• Wide Definition. Alliance may be in areas of Production , distribution, marketing and R&D
• SA may be due to mergers , Acquisition , JV or Licensing agreements.
• JV is natural SA where as SA may not be a JV. • SA doesn’t require a separate legal entity . • SA is more contractual based agreements –
Entities cooperate with each other to leverage resources
Assignment • Read about the Jet Etihad Deal and Discuss.
Play Jet Etihad Video
DIRECT FOREIGN INVESTMENT
Acquisition
• Reasons for Acquisitions – Product Diversification or enhancement – Acquisition of Expertise – technology , marketing ,
management
Case Study – Tata & JLR 2008
Brownfield Acquisition
Jaguar: an overview• Founded in Blackpool as Swallow Sidecar company• 1975 - Nationalized in due to financial difficulties• 1984 - Floated off as a separate co in the stock
market• 1990 - Taken over by Ford
Land Rover • 1948: Land Rover is designed by the Rover Car co• 1994: Rover Group is taken over by BMW• 2000: Sold to Ford for $2.75 billion
Why was Ford selling?
• The US auto major put the two marquees on the market in 2007 after posting losses of $12.6billion in 2006 - the heaviest in its 103-year history
• Jaguar was not able to provide any profit for ford because of the high manufacturing costs provided in the United Kingdom.
• The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007.
• Ford was combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar was so intertwined.
Why Tata wanted to acquire JLR?
• Long term strategic commitment to automotive sector.• Opportunity to participate in two fast growing auto
segments.• Increased business diversity across markets and
products.• Jaguar offered a range of “performance/luxury” vehicles
to broaden the brand portfolio.• Benefits from component sourcing, design services and
low cost engineering Finally in 2008 they Paid $2.1 Billion to Ford.
For what Tata motors paid
3 modern plants in UK2 advance design and engineering center26 national sell companiesIntellectual property: free license to share
technology with FordSupport from ford motor credit: Ford motor
credit will continue to support the sale of Jaguar and Land rover for next 12 months
Post merger
• Following Cost Rationalisation initiatives were taken to improve cash flows:
1.Single shifts and down time at all three UK assembly plants.
2. Supplier payment terms extended from 45 to 60 days in line with industry standard.
3.Receivables reduced by £133 million from 38 to 27 days.4. Inventory reduced by £217m between June 2008 and
March 2009 from 70 to 50 days .
5] Labor actions – - Voluntary retirement to 600 employees.
- Agency staff reduced by 800.-Offered leaves to 300 workers of Bromwhich and solihull plant.-Additional 450 job cuts including 300 managers.
6] Agreement with Unions to implement pay freeze and longer working hours
(equivalent to approximately 20% reduction in labor costs.)
7] Engineering and capital spending efficiencies.
8] Fixed marketing and selling costs reduced in line with sales volume.
9] Reduction in all other non-personnel related overhead costs.
Tata Motors in Myanmar GreenField Acquisition
• Tata Motors had signed a turnkey contract with then Myanmar Automobile & Diesel Industries Limited (MADI), an enterprise under the Government of Myanmar's Ministry of Industry, for setting up a heavy truck assembly plant, at Magwe, in central Myanmar, funded by a US$ 20 million Line of Credit from the Government of India. With a highly flexible chassis & frame assembly line, along with cab manufacturing, paint shop and trimming set-up, the plant has a capacity of producing 1,000 vehicles per annum initially and has the flexibility of augmenting up to 5,000 per year.
• Tata Motors along with its partner Apex Greatest Industrial Co. Ltd. (AGI) has recently launched its first fully integrated 3-S Commercial Vehicle Dealership in Yangon, Myanmar. The new dealership serves as a model dealership for all future setups in Myanmar. The new dealership offers Sales, Service and Spare Parts facilities for its full range of Commercial Vehicles.
• Tata Motors along with AGI is working on to expand the network of sales & after sales service beyond Yangon.
Acquisitions Have Color - Green & Brown
• Brownfield investments - a foreign acquisition– Acquisition is generally viewed as replacement of
domestic ownership. It is perceived as exploitation & Blow to national pride.
• Greenfield investments - a foreign start-up– Gov welcome FDI in new project: Green Field as it
generates Jobs , Revenue etc
• International Acquisition are depend on Value of currency. It either reduces or increases the cost of Acquisition – Eg. Hoechst – Germany it bid for $2.7 Billion for Marion Merrell Dow
Inc. It saved $250 Million as dollar became weaker. • IA are complex , expensive & Risky.
– Find a suitable company – Determination of fair price– Acquisition Debt– Merging 2 management teams – Language & Cultural Difference– Employee Resentment – Geographical distance