Partnership Formation and Strategy Flashcards
What do firms need to consider when deciding to business in EMs?
- Where to enter - trends, opportunities, market seeking, cost savings, constraints, voids
- How to enter; exporting, subcontracting, licensing, franchising, WOS, JV
What are partnerships in emerging markets?
Two or more firms jointly pursue mutual interest though sharing resources and capabilities
- Cooperative e.g exporting
- Transfer related e.g franchising
- Equity e.g 5050 JV
Why and how are joint ventures/partnerships common in EMs?
Common due to uncertainty, don’t want too much resource commitment.
220 JVs worth $12.1 bullion in 2011. China is home to the most
Why do MNEs do partnerships in EMs?
- Complementary resources and capabilities e.g 2012 Starbucks and Tata in India
- Avoid or circumvent local restrictions on foreign ownership e.g LCRs
- Improved local acceptance
- Knowledge acquisition
- Competition mitigation
- Risk reduction
Where are there no caps on Indian FDI?
Automatic route:
- AutomobiLe
- Airports, railways
- B2B e-commerce
- Pharmaceuticals
- Hospitals
Where are there caps on Indian FDI?
Gov route:
- Terrestrial broadcasting (26%)
- Newspapers (26%)
- Security agencies (49%)
- Multi brand retailing (51%) e.g Tesco and Asda can only own 51% - have to JV the rest, Ikea sells all its own brand so doesn’t need a JV
How are FDI restrictions structured in China?
Encouraged (allowed) - waste water treatment, construction design
Restricted (tight control)
Telecommunications (49-50%), higher education
Prohibited - books, magazines, newspapers, broadcasting
What changes are occurring in Chinese FDI restriction?
Currently requires automobile firms to enter into JVs with local firms (cap at 50% since 1994) will be abolished by 2022
How do partnerships improve local acceptance?
- Reduces exploitative perception
- Helps deal with liability of foreignness - disadvantage due to non-native status, complaints against Shell in Nigeria
How can the right partner be found in EMs?
1) Search for attractive partners, identify against criteria: strategic/organisational attributes
2) Selecting a preferred partner, ascertain the quality and intentions of partner
3) Attract the preferred partner, negotiation
What are the strategic attributes of the right partner?
- Market position
- Market competence
- Networks
- Firm age and previous firm exprience
How is market position a strategic attribute?
- Market/industry leadership
- Market share, bargaining power with government
- Influence on industry restrictions
How is market competence a strategic attribute?
- Distribution channels
- Promotional skills
- Local knowledge
- Technical competence - technology and know-how, important in manufacturing industry
How are networks strategic attributes?
- Built on trust, can be costly/unstable/unreliable
- Utilising connections of partner
- Relationships with local business community and gov authorities
- E.g Chinese gov gave Kodak exclusive market access blocking foreign competitors until 2002
How is firm age and experience a strategic attribute?
- Greater local experience = greater depth of networks
- Longevity good for reputation and brand image
- Previous partnership experience reduces culture clash, mistrust, sensitivity towards international competitiveness
What are the organisational attributes?
- Structure and governance
- Ownership type
- Financial attributes
How is structure and governance an organisational attribute?
- Established procedures, annual reports, board of direction (experts vs family)
- Compliance of domestic and international legislation - tax, anti-corruption, labour abuse, work safety
How is ownership type an organisational attribute?
- State owned - access to scarce capital and info, better relationship, favourable treatment, regulatory leniency
- Private - strategic agility, responds quicker to opportiunities
- Family owned e.g Tata - greater market logic, want growth and good reputation, prone to crisis due to poor governance
What are partnership challenges?
- Double parenting: time/disagreements
- Dominant parenting: over controlling
- Limited control: prominent in EMs, LCRs, division of management
- Culture clashes: regiona capital in EMs, stereotypes
- Opportunism: give-take relationship, expropriation of technological know-how
What is an example of opportunism?
The Pizza Company was until 2001 a franchise for Pizza Hut, went into Thailand and franchised Pizza Hut brand, broke away in 2001 to become a competition to PH
What are the possible outcomes of partnerships in EMs?
Sustainable power balance: successful for both
Powers shift to global partner: global partner acquires, may succeed or fail
Power collision: alliance short-lived, lose-lose
Power shift to local partner: local partner may acquire, may succeed or fail
What is the success rate of JVs and what incites opportunism?
61% failure rate when JV ownership is 50-50
The fear of being bought out often incites opportunism or defensiveness
What are the 4Cs for creating a successful partnership in EMs?
Complementary skills: fill gaps
Compatible goals: EM wanting international experience vs MNE wanting market access, efficiency, localisation
Cooperative cultures - mutual understanding imperative
Commensurable risk -take caution when sharing knowledge
What factors should be considered in expatriate section?
Situational: HQ preferences, host/subsidiary preferences, language
Individual: technical ability and expertise, cross-cultural adaptability, spouse and family preferences
What is the rate of expatriate failure and how is it measured?
50% failure rate in EMs
- Premature return
- Unmet business objectives
- Unfulfilled career development objectives
What is culture shock?
Psychological process affecting people working abroad e.g homesickness, irritability, confusion, aggravation, depression
What are the stages of culture shock/overcoming culture shock?
1) Thrilling experience
2) Downward slide
- ———
3) Recovery begins
4) Embrace local customs
What are some areas where EM culture can cause shocks for expatriates?
- Working pace
- Unprofessional practices - crime and safety
- Different customs and religions
- Decision making: particularism vs universalism, participation vs authority
- Relationships - nepotism (granting jobs to relatives) vs trust
- Leadership (competence vs age)
- Deals and transactions verbal vs written
- Deadlines and timing - indicative or firm
What is reverse culture shock?
Experienced by people returning to their country of origin due to the company/country/expatriate having changed
What are the repatriation challenges?
- Career anxiety - a job when you get back?
- Work adjustment - subsidiary smaller than HQ
- Loss of status and pay; premiums gone such as maids
- Difficult for spouse and children
What are the adjustment strategies in terms of culture shock?
- Repatriation agreement: outlines return job and duration of expatriation
- Senior executive sponsorship - monitoring performance and ensuring availability of position
- Maintain on-going communication
