Title: Emerging Market Alliances: Must They Be Win-Lose?
Abstract: Marry in haste, repent at leisure Both sides, global and local, need to understand how power could shift Managing partner differences Global companies are looking to emerging markets for growth. Companies in emerging markets are looking for ways into the burgeoning global economy. Alliances can seem the obvious solution for both sides. For global companies, limitations on foreign ownership make an alliance the only route into some markets. In other markets, alliances provide an appealing way to accelerate entry and reduce the risks and costs of going it alone. The US company Aetna Insurance, for example, recently announced a joint venture with Sul America Seguros, Brazil's largest insurance company. Aetna is reportedly investing $300 million, with a possible $90 million more to follow, for a 49 percent stake in the joint venture. The aim of the Brazilian-based alliance is to accelerate growth and introduce new products in health, life, and personal insurance and pensions. Aetna contributes expertise in products, information technology, and servicing, while Sul America brings local knowledge, an extensive distribution network and sales system, and its leading market position. Companies in emerging markets can find the idea of an alliance equally attractive. For those in a position of strength, it can be a powerful vehicle for growth, or a way to leverage low-cost manufacturing or a unique distribution network. Samsung of Korea has used several hundred technology licensing arrangements and joint ventures as vehicles to build a world-class electronics company (Exhibit 1). Of almost 100 new businesses it set up between 1953 and 1995, a quarter were initiated via joint ventures. For other local companies in emerging markets, alliances may appear to be the only way - short of selling the company outright - to survive once the home market has opened to new entrants bringing global brands or technology. Given this pattern of mutual benefit, it is not surprising that alliances account for at least half of market entries into Latin America, Asia, and Eastern Europe [ILLUSTRATION FOR EXHIBIT 2 OMITTED]). Some are successful. Nintendo and JVC both have alliances with Gradiente, Brazil's leading electronics company, to manufacture and/or market products under their own brand names as well as under the Gradiente brand. The alliances have helped Nintendo and JVC build volume rapidly in an important market, while Gradiente has become a profitable company with revenues of over $1 billion and its own skills, market position, and manufacturing capacity. Yet the popularity of alliances between emerging market and global companies, and their apparent win-win character, can mask their difficulty. They are hard to pull off and often highly unstable - much more so than alliances between companies from similar economic and cultural backgrounds. Many have failed to meet expectations or have required extensive restructuring. Indeed, in recent years, numerous high-profile joint ventures in Asia and Latin America have been dissolved, restructured, or bought out by one of the partners. Why are joint ventures in emerging markets proving so difficult? The answer lies in the fact that multinationals and companies in emerging markets must overcome formidable differences if they are to develop successful alliances. First, most global companies are considerably larger than their emerging market partners, and possess deeper pockets and, often, broader capabilities. This makes it hard to find equal, complementary pairings a balance that is the hallmark of successful and enduring alliances. Our research indicates that among alliances undertaken in India, the global company typically has 30 times the revenue of its local partner. One case makes the implications clear. A multibillion-dollar worldwide leader in the consumer non-durables industry and a $70 million Indian company enjoyed a successful joint venture that trebled its market share in four years and became the third-largest competitor in its industry. …
Publication Year: 1997
Publication Date: 1997-09-22
Language: en
Type: article
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Cited By Count: 16
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