Successful Strategic Alliances & Joint

Ventures“ Joint Ventures and Alliances can deliver more shareholder value

than Mergers and Acquisitions can, but getting them off the ground can trip you up in unpredictable ways”

-Harvard Business Review

Strategic Alliance

A voluntary, formal arrangement between two or more parties to pool resources to achieve a common set of objectives that meet critical

needs while remaining independent entities.

involve exchange, sharing, or co-development of products, services, procedures, and processes

• Allowing each partner to concentrate on activities that best match their capabilities

• Learning from partners & developing competences that may be more widely exploited elsewhere

• Adequate suitability of the resources & competencies of an organization for it to survive

• Risk sharing reduces risk for both parties

• Significant differences between the objectives• Irreconcilable differences in business culture and

management styles• Opportunistic behavior by any participant• Loss of control over such important issues as

product quality, operating costs, employees, etc.

Joint Venture

A contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share in the profits and losses of

the enterprise

• Helps an organization to enter in to new markets or new product lines

• Access to increased resources and improved expertise & technology

• Helps to build credibility with a particular target market by choosing a well established and credible partner in that market

• Reduces risk due to loss & expense sharing

• Time consuming and difficult to set up• Differences in the cultures and management styles

of the organizations may lead to a lack of cooperation and coordination

• The individual partners may not treat the JV as an integral part of their business and may lead to lack of attention being given to the JV

Shared contribution of equity; Shared authority, control and responsibilities; Shared Revenues &

Losses; Shared Assets

Critical Success Factors• Partner’s strategic compatibility:

• Good communication, cooperation and coordination among partners

• Common goals and shared vision among partners• Dedication towards the success and long term

sustainability of the JV• Due diligence

• Proper sharing of profits and benefits among partners

• JV should work towards the benefit of all the partners

• Proper planning and research prior to the incorporation of the JV

• Trust between partners

Strategic Alliances & Joint Ventures

Factors hindering the success• Lack of understanding between the partners

• Lack of patience and motivation among partners

• Entry of a wholly owned subsidiary of a partner in the same business and market (E.g.. Hero Honda)

• Benefits lower than the expectations

• Operational Difficulties due to geographical location of the partners

• Differences and conflicts between partners on various issues.

• Incompatibility of the culture and management styles of the partner organizations.

Disney-HP Alliance

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Disney Background

• Established 1923• Founders: Walter Disney and Roy Disney• Disney bought audio oscillators from HP and created “Fantasia”• Disney Business segments:

Media Networks Parks and Resorts Studio Entertainment Consumer Products

HP Background

• Established 1939• Founders: Bill Hewlett and Dave Packard• First Product: audio oscillator• HP’s 3 main core areas:

The Personal System Group

The Imaging and Printing Group

The Technology Solutions Group

The Alliance

HP and Disney Alliance

• "The merging of Entertainment and technology products”

• Disney's interest in the technology, as more consumers enjoy 'entertainment PC' to read, listen and play

• HP 's interest in content creators and providers to build the stronger market.

An alliance with complementary skills can eliminate duplication of skills of the other partner and at the same time can increases the chance for successful partnership.

• In 1937 Disney become one of HP's first customer, when Walt Disney purchased a customized oscillator produced in the garage where HP was founded

• HP and Disney are celebrating 21 years as an official strategic alliance – HP being Disney's official technology partner

• An arrangement worth $50-60 million USD a year for HP• Their most well known cooperative project yet, is Mission:

SPACE - a simulator of a trip to Mars • Also created a headset that gives non-English speaking

guests translations of the stories that are part of the various rides and attractions at Disney World

Mission: Space

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• 10 years alliance agreement• Located in Walt Disney World Resort at Epcot theme park, Florida• Provide the environment of space trip• The sites also include the following activities: Mission: Space Pavilion Mission: Space Attraction Mission: Space Advanced Training Lab Mission: Space Cargo Bay

Strategic Fit

“The mission of The Walt Disney Company is to be one of the world's leading producers and providers of entertainment and information. Disney seeks to develop the most creative, innovative and profitable entertainment experiences and related products in the world.”

To check strategic fit1) Comparing mission statement of Disney to HP2) Can two companies strengthen up each other’s weakness in order to achieve the goal?

Stakeholders include employees, customers, owners, and executive managers

• First benefit increasing in market shares through co-branding

• Second benefit earned cost saving from the alliance by sharing resources

• Third benefit increase in productivity by:• increased production capacity and market

share• Improved product/service quality• improved communications and working

relationships

What’s in it for Stakeholders?Mission: Space

Alliance Structure

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Disney• Enhanced entertainment

experiences• Team of “Imagineers”

HP

• Development of new technologies

• $ 100 m. computer system

• Support what makes the Disney experience magical

NASA • Provide Scientific Info.

• The Innovation Dream Home• Technology from HP to Disney:

HP TouchSmart PC HP Blackbird 002 Desktop HP Pavilion HDX Entertainment Notebook HP SL4778N 47-inch MediaSmart TV HP MediaSmart Server EX475 HP MediaSmart Connect HP iPAQ510 Voice Messager

Future Direction

Key Success Factors

A win-win situation for both partners

Factors to success are:• HP gives opportunity to the Walt Disney to make their

dream come true concept success• Disney developed an easier access to their customers• Both enjoy revenue• Co-branding; created market power to the both of them• Add Value to both brands• Better image for their firms and stakeholders• Strengthen HP as the leader of the technological industry,

and reinforce of how the Walt Disney is the giant enterprise in the entertainment and media world

• Win-Win situation for both firms

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- Productivity Increases: increase their quality as well as the number of units being produced

- Partnering with the Experienced: share information on what they do best and then focus on their constraints and develop ideas

- Alliance also increases productivity by adding:

• Market intelligence

• Market forecast

• Improved product quality

• Improved working relationships

• Improved communication

• Improvement of products/services

Volvo-Eicher Joint Venture :VE Commercial Vehicles

About the Joint Venture

• Formed in 2008, as a 50:50 JV between the two companies

• Headquartered in New Delhi

• Comprises of five business verticals:• Eicher Trucks and Buses• Volvo Trucks India• Eicher Engineering Components• VE Powertrain• Eicher Engineering Solutions

• Employs over 11,000+ people as of date

Strategic Goals in forming the JV:

Eicher: to become a larger player and build a global presence in the commercial vehicle business

Volvo: to crack the small and medium-truck segment in India

Eicher - Background

• Established in 1948, to import tractors

• Started importing 6 tonne trucks from Japan in 1986

• In 1997, started developing its own truck – investing INR 25 crore and 6 years in the process

• Volvo was identified as a partner that could add muscle to the company’s efforts – the JV was successfully signed in 2008

Eicher recognized the growing demand for technologically advanced trucks and buses in the rapidly expanding Indian economy

While it was possible for the company to invest in R&D and go alone, it would take a lot of time and effort

Tata Motors and Ashok Leyland, its main competitors, were ahead in the race by leaps

There was also a risk of failure – which would have cost the company dearly

A need for a foreign partner that was established in the segment was therefore recognized – to bring more funds, system, and technology

How did Volvo gain?

Volvo had two main goals, in forming the JV:

1. Expand market share in India

2. Use manufacturing capability in India as a base to export to other developing nations

Volvo wanted to expand its commercial vehicle business the Indian market, but its trucks were deemed expensive in the geography. Its trucks, manufactured in Europe, were superior quality vehicles that unfortunately had little demand in developing nations.

To lower production costs, it needed to use a low cost manufacturing base existing in India – an opportunity perfectly provided by Eicher. Volvo selectively infused technology in the JV, to raise quality and maintain low costs.

VECV – Stakeholding and Control

• Volvo held a 45.6% share in the newly formed VECV; further, it acquired an 8.4% stake in Eicher (the company divested the stake by 2015) – pumping around INR 1082 crore in the venture

• Board structure: • Par Ostberg: Non-executive Chairman & Volvo nominated director• Bertil Thoren: Volvo nominated director• Joakim Hjerpe: Volvo nominated director• Siddhartha Lal: Managing Director & Eicher nominated director• Raul Rai: Eicher nominated director• Prateek Jalan: Eicher nominated director

Depicts a balanced power distribution in the Joint Venture initiative

What each bring to the table?

Eicher transferred its CV, components and engineering solutions businesses into VECV

• Leadership in LD / MD segments• Specialist skills and experience in developing low

cost, better performance products• Wide dealer network• After sales infrastructure for LD/MD• Cost effective operations

Eicher

Volvo demerged Volvo Truck India’s sales & distribution business from Volvo India Pvt Ltd.

• Global expertise• Leadership in product technology • Good infrastructure facilities• Well-defined processes & controls• Brand image and customer relationships

Volvo

Common Goal: “To be recognized as the industry leader driving modernization in commercial transportation in India and the developing world”

Strategic Goals

Seen as a leading CV

group in India

Recognized competitive advantages

"Best of both"

company culture

• Most innovative products• Comprehensive network• Proactive solution/service provider• Lean organization

• Best fuel economy• Reliable products • Superior service quality• Safety and comfort setting industry standards

• Culture incorporating best of Eicher values and Volvo Way

• Professionalism, honesty, people caring to attract best talents in industry

Objectives Wanted position in Operations – FY2015

External EnvironmentImplication VECV Strategy

Legacy investments of players less meaningful

VECV investing early in fully-built vehicles and higher emission norms

Right-load vehicles; potential to change value-proposition

Products highly suitable for right-load and mild over-load conditions

Higher speeds; increased mileage of vehicles/ year

Better and more reliable engines and driveline

Drivers will be more influential in purchase decision

Better comfort and features for drivers; plan to build brand with drivers off-product as well

Total cost of ownership approach to buying vehicles

Value-selling approach; premium products with better efficiency and turnaround time; world-class after-market and vehicle quality

Improved dependability of supplies required

Vehicle quality and after-market excellence

More modern trucks with right cost-structure and value

Developing innovative products that are closely aligned to emerging customer needs

Continued tightening of emissions and safety norms

Better enforcement of regulations on overloading

Better highways and increased road networks

Increasing difficulty in sourcing drivers

Professionalization of transportation/ logistics

End-use demands on logistics/ supply-chain

Market shifts faster towards ‘premium domestic’ segment

Tata Starbucks Joint Venture “We look forward to bringing the Starbucks Experience to customers in India by offering high quality arabica coffee, handcrafted beverages, locally relevant food, and legendary service.”

Tata Starbucks Ltd.

•Tata Global Beverages is a part of the global Tata Group. Tata Global Beverages is a global beverage business and the world’s second largest tea company

•Tata Coffee is a subsidiary of Tata Global Beverages. It is Asia’s largest coffee plantation company and the 3rd largest exporter of instant coffee in the country

•The Company produces more than 10,000 MT of shade grown Arabica and Robusta coffees at its 19 estates in South India and its two Instant Coffee manufacturing facilities have a combined installed capacity of 6000 metric tonnes

•Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting the highest-quality arabica coffee in the world

•Today, with more than 17,000 stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world

•Through their unwavering commitment to excellence and guiding principles, they bring the unique Starbucks Experience to life for every customer through every cup

About StarbucksAbout Tata Global Beverages and Tata Coffee

Trust and legacy of TATA combined with the iconic brand image of Starbucks

Tata Starbucks Ltd.

•The agreement will allow Tata coffee to provide roast coffee bean to Starbucks in India.

• Get opportunity to jointly invest in additional facility for export to other markets.

•Starbucks will help by providing new technologies for the promotion of responsible agronomy practices.

•A long term relationship will be formed with this Memorandum of Understanding with Starbucks.

•After this deal, Tata Coffee is poised to become Asia’s biggest publicly traded coffee grower

•To tap huge emerging market of India. India has a growing coffee retail market – replicate its success in China

•Help increase its profitability due to its declining market and over dependence on US market.

•To have access to the high quality Arabica coffee.

Objective of Starbucks CorporationObjective of Tata Coffee behind this Alliance

Tata Starbucks Ltd. is a 50:50 joint venture company, owned by Tata Global Beverages and Starbucks Corporation, that owns and operates Starbucks outlets in India. The outlets are branded Starbucks "A Tata Alliance". Starbucks, through an agreement with Tata Coffee, serves coffee that is 100% locally sourced and roasted.

Tata Starbucks Ltd.

•High Brand Visibility. (International popularity of the Starbucks brand.)

•Ethical and Environmental Practices.

• Marketing and positioning skills of Starbucks.

•Access to TATA's premium Robusta and Arabica coffees (Sourcing Agreement).

•Tata as a cultural fit for Starbucks will help in building core competencies of each other

•Image of luxury coffee outlets.

•High price of Starbucks coffee

•Coffee dominant business only

• Certain rigid standards and policies at outlets. (They apply the same business models and formulas, regardless of culture and values of the country they are operating in like no smoking policy, etc.)

WeaknessesStrengths

Previous Attempts by Starbucks• Kishore Biyani's Future Group three years ago - rejected by the Foreign Investment Promotion Board• Jubilant Foodworks

Tata Starbucks Ltd.

Tata-Starbucks Synergy

•The MoU will create avenues of collaboration for sourcing and roasting green coffee beans in Tata Coffee’s Coorg, India facility

•Tata and Starbucks will jointly explore the development of Starbucks retail stores in associated retail outlets and hotels

•In accordance with the MoU, the two companies will collaborate on the promotion of responsible agronomy practices, including training for local farmers, technicians - the two companies will also explore social projects to positively impact communities in coffee growing regions where Tata operates

•At a later phase, both Tata Coffee and Starbucks will consider jointly investing in additional facilities and roasting green coffee for export to other markets

•A partner like Starbucks would also help Tata Coffee tap the domestic market opportunity. Currently, almost 65% of Tata Coffee's sales come from its Eight O’clock Coffee Co. unit in the U.S

Tata Starbucks Ltd.

Tata-Starbucks Synergy

•Tata Coffee has rich expertise in the bean-to-cup value chain, with an unyielding focus on quality. It has won global accolades for its premium coffees - a dedicated supplier to cafes across the country and specialty roasters across the globe

• Starbucks Coffee Company is the premier roaster and retailer of specialty coffee in the world. Starbucks has a long association with India. For the last seven years, the company has been ethically sourcing coffee beans from India and contributing to several social programs in the country – Synergy in core values between the companies

•With the thousands of coffee farmers within the Tata ecosystem. India can be an important source for coffee in the domestic market, as well as across the many regions globally where Starbucks has operations

•Tata has a cultural fit with Starbucks which will help in building core competencies of each other - Tata has met all the stringent standards and conditions followed by Starbucks such as quality, soil, water, pest, waste and energy management, forest and biodiversity conservation to workers’ welfare, wages and benefits

Tata Starbucks Ltd.

Threats

•India is a tea-based culture - The Indian hot-beverage market is dominated by tea • Homegrown brands dominate the retail coffee market. Coffee Café Day (CCD) pioneered the concept of specialty coffee in India followed by Qwiky’s and Barista Coffee

•Lower per capita income in India. High price of coffee is felt as a barrier in the South and the North

•Other fast food chains like that of McDonalds, Dunkin Donuts, Burger King, etc., already have the infrastructure in place and are instead adding quality coffee to their menus to compete with Starbucks

•Rising prices of coffee are putting pressure on the profit margins of the company

Thank You