A FRAMEWORK TO BUILD JOINTVENTURES

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A FRAMEWORK TO BUILD JOINT-VENTURES
Marcos Fava Neves Matheus Alberto
Consoli Danny Pimentel Claro Décio Zylbersztajn
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Conceptual Introduction

• Strategic alliances between firms are a growing
  phenomena.
• Growing steam of research by strategy and
  organizational scholars causes and consequences
  of such partnerships (GULATI, 1998).
• Planning, implementation and overcoming the
  challenges (difficulties) inherent to joint
  ventures and alliances are still a possibility of
  conceptual improvement.

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The managerial problem that brings a research
problem

• growing attention in the agribusiness scenario
• I think we may join this other company because
  we will be able to explore good opportunities
  together...
• From where shall we start thinking or how do we
  analyse a project?...

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Research Question

• How can we explore different steams of research,
  trying to combine them into a possible framework
  to build / analyze potential joint ventures?

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Objectives and Methodology

• Propose a framework to build Joint Ventures and
  attempt to characterize it as a possible exercise
  which academicians and business practitioners can
  evaluate a joint venture option
• An essay was conducted on strategic alliances and
  topics on marketing channels, governance
  structures, transaction cost economics, marketing
  research and strategic management.
• To illustrate the proposed framework a case
  study was developed

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Literature Review

• Strategic Alliances
• Involves organizational arrangements between
  firms.
• Can be understood by looking at the sequence of
  events in alliances. (LORANGE ROSS BRONN,
  1992).
• Types of Joint Ventures - Bamford, Ernst and
  Fubini (2004)
• Consolidation JV- deep combination of existing
  business.
• Skill-transfer JV - transfer of some critical
  skills from one partner to the other.
• Coordination JV - leveraging the complementary
  capabilities of both partners.
• New-business JV - combining existing
  capabilities, not businesses, to create a new
  growth.

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Literature Review

• Core Competences
• Success comes from resources and a core
  competence to use and apply these resources in a
  better way (MAHONEY PANDIAN, 1992).
• The Resource Based View of the Firm highlight
  the uniqueness and some features of companies and
  suggests that the key for profitability is not
  make the same things that the others, but explore
  the differences. (COLLIS E MONTGOMERY, 1995
  WERNERFELT, 1984 MAHONEY, PANDIAN, 1992 STALK,
  EVANS, SHULMAN, 1992, GRANT, 2002).

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Literature Review

• Transaction Costs Economy
• Coase (1937) states that there are costs in
  using market mechanisms. The transaction costs
  are the costs affecting an exchange
• TCE studies also how partners in a transaction
  protect themselves from the risks associated with
  the exchange relations (KLEIN SHELANSKI, 1994).
  
• Transaction Dimensions (Frequency Uncertainty
  Asset specificity) helps to analyze governance
  structures (Williamson, 1985)

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A 7 Step Framework to Built Joint Ventures
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The Framework Step 1 General Market
Opportunities

• deep understanding about the history of the
  relationship between the candidates.
• CASE Aand B Companies
• Points to Discuss and Commit
• they want to do business for a long time
• cooperative culture
• patient with each others mistakes
• sense of loyalty
• similar goals, methods of operations, corporate
  cultures and decision-making processes.
• high management committed

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The Framework Step 1 History of the
Relationship

• CASE Aand B Companies
• Points to Discuss and Commit
• threat of unfriendly takeover
• share financial risks of the initiative
• investments of long term
• dedicate people and efforts to the alliance
• If other organization appears, they will try to
  use their offer as a benchmark and not substitute
  either A or B.
• something very valuable to be transferred from
  one to another
• insufficient resources to grow by its own
• both companies desire leadership in the market
• the relative urgency of this relationship

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The Framework Step 2 General Market
Opportunities

• CASE Aand B Companies Example
• Description of the network
• Clients need more assistance
• Final consumers and stores need a broader
  product line and services
• Home centers market need new products
• Urban infra-structure will grow
• The companies A and B market need products
  services offers together

• 527 million hectares for use in agriculture
  (61,6 of total country area)
• 52 million hectare have been used (10 of
  potential country area) for crops
• 180 million hectare used for pastures.
• Under the decision process, to offer financial
  solutions to consumers is a very important
  subject. For 50 of the distributors, this is the
  most important subject that blocks the growth of
  agricultural implements.

Source IBGE
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Companies Network
Tradings / Exportação
Novos Mercados
Atacado / Varejo

Produtores de Cana
Usinas Açúcar
Tradings / Exportação
Produtores de Laranja
Ind. Suco de Laranja
Tradings / Exportação
Fornecedores Internacionais
V
VR
Produtores de Café
Torrefador Brasil
A Brasil
Revendas (Emp. Proj)
A Global
Consumidor Final
Ind Alim Bebidas
Produtores de Frutas
Outros Canais
Fornecedores Nacionais
Tradings
Outras Indústrias
Produtores Hortifrutis
Varejo Self service
Tradings / Exportação
B Brasil
Cooperativa
Agroind.
Florestas e Jardins
Fornecedores
Produção em Estufa
Empresas Facilitadoras
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The Framework Step 3 Core Competences of each
Company
Source Authors
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Step 4 Objectives of each Participant
Source Authors
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Step 5 Analysis of Alternative Coordination
Forms
JVs Possible Advantages to Companies
Source Authors
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Step 5 Analysis of Alternative Coordination
Forms

• What are major advantages and risks of?
• Joint Ventures x Market Coordination
• Joint Ventures x Long term supply contracts
• Joint Ventures x partial acquisition
• Joint Ventures x Vertical Integration

Source Authors
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The Framework Step 6 Alliance Critical Success
Factors Evaluation and Relationship Management
Critical Success Factors for Company C (A and B
Joint Venture)
Source Elaborated by authors from the case and
Bower (1999), Besanko, Dranove and Shanley
(2000), Grant (2002), Harper (2002) and Barros
(2003).
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The Framework Step 6 Alliance Critical Success
Factors Evaluation and Relationship Management
Critical Success Factors for Company C (A and B
Joint Venture)
Source Elaborated by authors from the case and
Bower (1999), Besanko, Dranove and Shanley
(2000), Grant (2002), Harper (2002) and Barros
(2003).
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The Framework Step 6 Alliance Critical Success
Factors Evaluation and Relationship Management

• Development of a detailed strategic business
  plan, creating a road map that orchestrates the
  activities of all work groups, and intervening
  when the launch process veers off track.

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Theoretical Implications

• Strategic and marketing management are
  fundamental designing the JV
• Transaction cost economics is fundamental
  discussing the best governance option
• The organization behavior is then very important
  to run the new business in its new environment
  and on the understanding phase.

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Managerial Contributions and Implications

• In the search for competitive advantages,
  companies form joint ventures to better explore
  the competencies and to join efforts.
• The framework can help to guide firms in their
  decision making process along the joint venture
  formation.
• There are high costs in the phase of elaboration
  a contract, defining objectives and setting the
  necessary safeguards. This framework can help to
  reduce, adding more points to discussion.

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Limitations

• The framework has been successfully used just in
  two cases. (Crystalsev and this one)
• Each market has its particularities and
  therefore using this framework in other
  industries may require some adaptations.
• Next steps more applications (cases/projects)
  and theory contributions to improve sequence
  proposed to a more robust one.

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Thank you for your attention.
mfaneves_at_usp.br www.pensa.org.br
www.fearp.usp.br/fava