WEBVTT Kind: captions Language: en 00:00:14.160 --> 00:00:21.760 Hi, good morning, welcome back. So, we will have the uh next session and where we have left 00:00:21.760 --> 00:00:28.000 uh in the previous session about the export and indirect export.So, let me just summarize what are 00:00:28.000 --> 00:00:34.160 the pros and cons of the export. So, the export, what are the pros? The free from investment 00:00:34.160 --> 00:00:39.520 related restriction in foreign market because, and the economic and lesser resource requirement. As 00:00:39.520 --> 00:00:43.840 you know, you do not need really the resource, you do not have any direct operation there, 00:00:43.840 --> 00:00:48.480 you do not have any direct presence there, you do not have any direct sales people there. 00:00:48.480 --> 00:00:51.360 So, that is, that is an very big advantage for you. 00:00:52.480 --> 00:00:59.040 And then you are the, you you also by doing some amount of exporting for few years, you can learn 00:00:59.040 --> 00:01:03.840 about that market. How is the market? What are the customer choice? What is the customer's view 00:01:03.840 --> 00:01:09.840 about your product? All those intelligence you can learn. These are the advantages. The disadvantage 00:01:09.840 --> 00:01:15.840 is that, that tariff and non-tariff barriers. So, this we will learn. So, what is tariff 00:01:15.840 --> 00:01:23.280 barrier and what is anti-tariff barrier? So, say a country like India is under the SAARC country. 00:01:23.280 --> 00:01:30.240 So, we (ad) we have a different tariff for selling a goods, customs duty. So, if India sells a 00:01:30.240 --> 00:01:38.000 product to the Bangladesh market, they will have a different customs duty due to the SAARC agreement 00:01:38.000 --> 00:01:44.160 whether similar product, if other country apart from the SAARC country sells to Bangladesh, might 00:01:44.160 --> 00:01:50.080 have to pay more duty. Okay. So, we will detail discuss what is tariff and non-tariff barriers, 00:01:50.080 --> 00:01:56.160 time being, so just tariff you understand. A cluster of countries form a tariff or and then 00:01:56.160 --> 00:02:02.880 they enjoy some benefits of duty structure and free movement of the goods, like European Union. 00:02:02.880 --> 00:02:07.600 In European Union, you can produce goods in any of the country in European Union and freely move 00:02:07.600 --> 00:02:13.840 that goods in any country within European Union and there is no taxation for that, free movement. 00:02:14.480 --> 00:02:20.480 Whereas, if from India you want to sell to European Union, you have to pay a customs duty 00:02:20.480 --> 00:02:25.520 to a, to sell in that country and that customs, that the country will charge a customs duty 00:02:25.520 --> 00:02:30.000 based on the product uh code and all those things. We will come to that later. 00:02:30.000 --> 00:02:33.040 So, tariff and (nan-ta) non-tariff barrier might affect you. 00:02:33.040 --> 00:02:37.280 So, you may have this, some advantage and maybe sometimes 00:02:37.280 --> 00:02:43.200 uh the, ba the country joins with another tab block and then you might have a uh issue. 00:02:44.240 --> 00:02:49.040 Conflict with supply chain partners, conflict with intermediaries, your distributor; conflict might 00:02:49.040 --> 00:02:55.600 start, distributor might ask for more discounts, more more ad more marketing promotion expenses, 00:02:55.600 --> 00:02:59.600 all those thing might ask and you have no other control, you have to accept that; 00:02:59.600 --> 00:03:04.160 in that case, your profitability goes down. So, these are the disadvantages. 00:03:04.160 --> 00:03:09.520 And complexity in supply chain, because you are selling to a distributor, distributor 00:03:09.520 --> 00:03:14.480 is finally selling to a (custom) consumer or a customer in in this country which is in a 00:03:14.480 --> 00:03:19.760 different location in that country. So, there is a supply chain logistics issues are also there. So, 00:03:19.760 --> 00:03:25.760 these cannot, these can be for the food products, there can be a huge supply chain issue there, 00:03:25.760 --> 00:03:28.640 because you know, the some of the food products, there is a shelf life 00:03:28.640 --> 00:03:33.760 of the (pro) food items, so, that supply chain complexity comes into the picture. 00:03:33.760 --> 00:03:39.760 Then also uh there are uh several issues, some some of the products might be shipped, 00:03:39.760 --> 00:03:46.000 might be transferred in a refrigerated condition; so, that also the huge supply complexity there in 00:03:46.000 --> 00:03:53.200 the supply chain. So, these are the issues on that.Then comes the second one is the 00:03:53.200 --> 00:03:59.200 licensing. So, export and indirect export we have discussed, this second one is the licensing. So, 00:03:59.200 --> 00:04:05.440 what do we do that? So, you have a co, you sign a, you find out a company in a foreign market, 00:04:05.440 --> 00:04:11.520 international market, whom you give the license to either manufacture or sell your product. 00:04:11.520 --> 00:04:16.800 So, you have a license. So, typically, this is used in the manufacturing production. So, the 00:04:16.800 --> 00:04:23.200 licensor is the company, you, who is a domestic company and licensee is the foreign company 00:04:23.200 --> 00:04:28.240 who will produce the goods in their country, in the, manufacture the goods in their country. 00:04:28.240 --> 00:04:36.320 So, as a licensor, you grant the licensee to use your brand name, trademark, technology, patent 00:04:36.320 --> 00:04:41.920 and any other form of intellectual property. So, you allow them to use your brand and say; 00:04:41.920 --> 00:04:48.560 so, if my brand say X, X brand, I allow the ca foreign company to manufacture the product 00:04:48.560 --> 00:04:53.360 and sell it in the same X brand in that country; so, is an licensing agreement. 00:04:54.560 --> 00:05:01.200 So, see, licensee manufacturers manufactures the product and are utilizing the licensor technology 00:05:01.200 --> 00:05:06.000 brand name. So, you give the entire technology to them and they will manufacture based on your 00:05:06.000 --> 00:05:11.520 technology. Okay. And the agreement involves a financial consideration, that is a royalty. 00:05:11.520 --> 00:05:16.800 That means, every product they sell, they are supposed to pay you a certain amount of royalty, 00:05:16.800 --> 00:05:21.760 say 5 percent or royalty or 10 percent royalty to be paid to you. So, the the 00:05:21.760 --> 00:05:27.440 foreign company whom you give the license; say you have manufactured this pen and this 00:05:27.440 --> 00:05:34.480 pen you have some unique manufacturing uh the technology here and you want to 00:05:34.480 --> 00:05:40.240 give this technology to a another country, another manufacturer whom you will give the 00:05:40.240 --> 00:05:46.320 entire technology to manufacture this pen and they will manufacture as per 00:05:46.320 --> 00:05:52.880 your patent and they will follow the intellectual property guidelines and they will use it as your 00:05:52.880 --> 00:05:58.640 brand pen, whatever their pen's brand, they will use that brand and market it in their country. 00:05:58.640 --> 00:06:03.520 So, that is typically how this happens, how this situation happens. 00:06:04.080 --> 00:06:08.160 And this agreement is a royalty, so, you do not are, you are no way, 00:06:08.160 --> 00:06:13.600 you are no way involved in selling the product, you are no way involved in the production process, 00:06:13.600 --> 00:06:20.240 you are no way involved into the supply chain in that country, you have no way involved into the 00:06:20.240 --> 00:06:24.880 marketing of the products, you have only given the license to them. Say we manufacture, 00:06:24.880 --> 00:06:33.840 suppose I am a company, we manufacture gearbox for a car or we manufacture the steering for the car, 00:06:34.560 --> 00:06:39.120 and we give this technology to another foreign country and they, 00:06:39.120 --> 00:06:45.040 and give the technology to them to manufacture the gearbox in their country as per our design. 00:06:45.040 --> 00:06:51.840 Now, after making the gearbox, they might sell it to 10 different car manufacturers in that country 00:06:51.840 --> 00:06:56.640 or to 1 manufacturer in the country, it is up to them; you have no, you have nothing to do 00:06:56.640 --> 00:07:00.800 with the marketing of the product or the distribution of the product; you have 00:07:00.800 --> 00:07:07.200 nothing to do, no promotion; everything is done by the licensee. So, licensor means the company 00:07:07.200 --> 00:07:14.640 who gives, who is, who owns the product and licensee is the company who takes the 00:07:14.640 --> 00:07:20.560 product to manufacture in that country and to produce and then sell it in that country. Clear? 00:07:20.560 --> 00:07:27.440 And in that, they are sa they have to pay you the royalty for that.Pros and Cons: 00:07:27.440 --> 00:07:34.720 So, the pros is, licensee saves money and effort using the existing technology. Technology may be 00:07:34.720 --> 00:07:40.800 well established and renowned, hence, benefits of the licensee in gaining the market. Licensor gets 00:07:40.800 --> 00:07:47.360 paid for every product sold and manufactured by the licensee. So, the every single product I sell, 00:07:47.360 --> 00:07:51.920 I will get money sitting in India, because it is, they will have to give me the rosalty. 00:07:51.920 --> 00:07:57.840 If they sell 100 units, they have to pay me on 100 units whatever the percentage agreed as per 00:07:57.840 --> 00:08:02.000 the legal agreement, they have to pay me that 5 percent or 10 percent whatever is the royalty fee. 00:08:03.600 --> 00:08:11.360 Licensee may provide market intelligence to licensor. So, that is, it is a big, 00:08:11.360 --> 00:08:17.680 the word is may is very loaded, they might give you the information about the market that the 00:08:17.680 --> 00:08:22.320 product is good or there is some feedback about the product, product needs some improvement or 00:08:22.320 --> 00:08:27.520 product is doing extremely good, there should be some new product extension, all the market, 00:08:27.520 --> 00:08:32.640 or the competitor, some new competitor has come, he has come with a new product to that market, 00:08:32.640 --> 00:08:38.160 and then that how you handle that and and they will continuously give you the 00:08:38.160 --> 00:08:42.800 marketing intelligence, the market insights of that market to the licensor. 00:08:43.680 --> 00:08:49.680 And licensor steer clear trade barriers and restrictions foreign investment. Clear? So, 00:08:49.680 --> 00:08:53.280 you are you are not making really any foreign investment there. What 00:08:53.280 --> 00:08:59.440 are the disadvantage? The disadvantage is that license here may have undue negotiation power. 00:09:00.240 --> 00:09:03.840 In that case, they might ask for a very high royalty fee, 00:09:03.840 --> 00:09:09.280 okay, very high royalty fee. Limited market opportunities, non-exclusive license may 00:09:09.280 --> 00:09:14.480 be problem for licensee. If you are giving non-exclusive, that means, apart from that, no, it 00:09:14.480 --> 00:09:20.400 is the, there can be 4 different manufacturers can manufacture that, then there may be a problem. 00:09:21.440 --> 00:09:28.000 Lot of times a foreign companies give manufacturing licenses under non-exclusive basis, 00:09:28.000 --> 00:09:32.080 that I will not give to only 1 single company, instead of that, I might give it to the 4 00:09:32.080 --> 00:09:37.440 different companies. So, that is the non-exclusive license that might be a problem for the licensee. 00:09:38.640 --> 00:09:41.280 Possibility of the future competition from the licensee, 00:09:41.280 --> 00:09:45.680 that is very important because you know, the licensee in by doing this your job, 00:09:45.680 --> 00:09:50.480 producing your job, he gains the entire, gets the entire information about the product, 00:09:50.480 --> 00:09:56.960 technology, everything and he has full grabs grip on the product manufacturing. 00:09:56.960 --> 00:10:03.440 Then, tomorrow he might start manufacturing the product and sell the product in his brand 00:10:03.440 --> 00:10:09.440 name and then not pay you the royalty. So, this is a huge risk, because the company, 00:10:09.440 --> 00:10:14.640 the licensee might start producing the product and sell it in a different name in the market and 00:10:14.640 --> 00:10:19.680 they do not give you any royalty, okay, then you lose the money. So, that is the big pitfall here. 00:10:20.960 --> 00:10:24.720 Potential conflict of interest may be there. There can be potential 00:10:24.720 --> 00:10:29.600 conflict of interest can be there and this, there can be several reasons of conflict. 00:10:29.600 --> 00:10:34.800 So, that can be between these 2 countries. So, this is the most uh the, about the pros 00:10:34.800 --> 00:10:43.680 and cons of the licensing agreement.Then comes the franchisee. So, in this franchisee, so, 00:10:43.680 --> 00:10:48.720 franchising is basically a contractual agreement. Understand very clearly the difference between 00:10:48.720 --> 00:10:54.080 licensing and franchising. Franchising is a contractual agreement between the 2 parties, 00:10:54.080 --> 00:10:59.920 namely the franchisor and franchisee; just like licensor and licensee is a 00:10:59.920 --> 00:11:06.720 franchisor and franchisee. Franchisee operates a business under the name of a franchisor. Okay. 00:11:06.720 --> 00:11:14.640 So, that means, if I am a franchisee of KFC or Domino's, I have to use the KFC's 00:11:15.200 --> 00:11:21.520 business, I have to use their KFC's brand and logo and I have to operate 00:11:21.520 --> 00:11:31.680 as per the structure and the design of KFC stalls or the uh food joints; I have to follow that.Here, 00:11:32.960 --> 00:11:38.880 these advantages is that you have a low financial risk because 00:11:38.880 --> 00:11:44.400 the company who is, has taken your franchisee in the foreign market has to pay you a very 00:11:44.400 --> 00:11:53.360 high a franchisee fee for that but has to strictly follow your production as well as 00:11:53.360 --> 00:11:58.640 your, the complete quality as well as your supply chain, everything they have to follow. 00:11:58.640 --> 00:12:04.640 Suppose the KFC chain in India and suppose the chain in India is somewhere 00:12:05.440 --> 00:12:12.480 in Midnapore district, say in Kolaghat, there is a KFC chain there, they have to strictly follow 00:12:13.040 --> 00:12:19.520 the complete guidelines of product sourcing and the branding and also the (manu), the 00:12:19.520 --> 00:12:24.000 process of food preparation process, packaging, everything, inventory 00:12:24.000 --> 00:12:30.720 management as per the KFC's parent company in United States. Okay. So, they have to follow 00:12:30.720 --> 00:12:36.320 all the parameters, all the guidelines of KFC; same thing for McDonald's or same thing. 00:12:36.320 --> 00:12:44.480 So, they just cannot sell any other product there. So, in a KFC st uh uhm food joint, I will not able 00:12:44.480 --> 00:12:50.560 to sell a dosa there, I have to sell the products which is KFC's products. So, in franchisee, this 00:12:50.560 --> 00:12:58.160 is the biggest control you have in a foreign uh country. That means, the franchisee has to follow 00:12:58.800 --> 00:13:05.840 your complete guidelines and they have to go into that market and following your guidelines 00:13:05.840 --> 00:13:13.120 and they cannot deviate from any of your guidelines. Tariff barriers: You can avoid 00:13:13.120 --> 00:13:19.600 the tariff barriers because the company there and they are absolutely uh; you are not exporting to 00:13:19.600 --> 00:13:24.080 that country, the country is, the there they are locally sourcing the products but (manu), 00:13:24.080 --> 00:13:29.280 there our final product and the brand name everything is used your company's name. 00:13:29.840 --> 00:13:36.480 Low market potential cost: So, that is there. Disadvantage: Costly independence between 00:13:36.480 --> 00:13:42.480 franchisee and franchisor. Franchisor may have a huge and dominating. So, franchisor here in 00:13:42.480 --> 00:13:48.560 this case, they might be huge company like KFC, McDonald's and they will dictate their terms and 00:13:48.560 --> 00:13:55.040 their fees are very, very high, very, very high fees you have to pay. So, the uh say I do not 00:13:55.040 --> 00:14:00.480 know exactly the amount of fees charged by these companies, but typically the franchisor charge 00:14:00.480 --> 00:14:06.240 a fee of 40 percent, 45 percent, 50 percent of their charges cost, uh 50 percent of this 00:14:06.240 --> 00:14:13.600 uh resale value they will charge as their cost, as their franchisee fee; and so, this is there. 00:14:13.600 --> 00:14:20.480 And in case of franchisee, the profit de disadvantage is there. As a franchisee, you have 00:14:20.480 --> 00:14:25.680 a very limited profit because the major profit is taken by the franchisor. So, as a franchisee, you 00:14:25.680 --> 00:14:35.600 have a very, very limited profit, but still it is an another good way to enter into the market.Then 00:14:35.600 --> 00:14:41.760 comes the third way of entry which is known as the; so, the joint ventures 00:14:41.760 --> 00:14:49.200 are the international joint ventures and joint ventures involves 2 party jointly setting up 00:14:49.200 --> 00:14:54.080 and they operating business. So, that means, why we do joint ventures? Why we do? 00:14:54.080 --> 00:15:00.960 The reason behind is that, I, we as a domestic company, I do not have much knowledge about the 00:15:00.960 --> 00:15:06.400 foreign market, foreign country. I do not have and I need and then I do not have, I do not want 00:15:06.400 --> 00:15:12.720 to invest huge amount in that market. I want to go through a partner there who will invest 00:15:14.080 --> 00:15:17.840 along with me and we will have jointly make an investment so that 00:15:17.840 --> 00:15:22.000 you minimise your risk. Suppose the product is not successful or you are 00:15:22.000 --> 00:15:26.240 not able to enter the market or there is a delay in the project and all those things, 00:15:26.240 --> 00:15:31.360 the entire cost burden should not come to you, so you select a another partner there. 00:15:31.360 --> 00:15:36.000 Why I select a partner there? Because the partner in that country has got knowledge 00:15:36.000 --> 00:15:41.200 and market intelligence about that country. He knows ins and outs about that market; How the; 00:15:41.200 --> 00:15:45.520 what is the size of the market? All market intelligence data is available with the partner. 00:15:46.240 --> 00:15:50.960 in I am a foreign company; I do not have that much of access to the market intelligence of 00:15:50.960 --> 00:15:58.720 that country. So, what I do? I will go with a joint venture in that uh market, I will go as 00:15:58.720 --> 00:16:04.000 a joint venture, I will sign an joint venture agreement; that means, and then we will jointly 00:16:04.000 --> 00:16:11.680 have a company formation and that company will produce, manufacture and sell it in that market. 00:16:12.320 --> 00:16:16.880 So, one firm is generally native to the foreign market, however the other 00:16:16.880 --> 00:16:23.120 is from the foreign market. So, typically, one firm will be the native from that country and 00:16:23.120 --> 00:16:28.080 another is from the foreign market. Foreign firm brings the technology, get experience of 00:16:28.080 --> 00:16:33.520 the native firm in operating in domestic market. What is the experience? Experience in the market 00:16:33.520 --> 00:16:38.960 intelligence, distribution, sales, everything they have the experience of the domestic company. So, 00:16:38.960 --> 00:16:45.520 that is the biggest advantage. So, I will give you here an example of Xerox and Fuji. 00:16:46.080 --> 00:16:49.840 So, Xerox Corporation and Fuji Corporation of Japan formed a joint venture 00:16:50.480 --> 00:16:56.240 in; and Xerox entered to the Japanese market and also allowing Fuji to enter the photocopying 00:16:56.240 --> 00:17:01.840 sector. So, that is the biggest advantage for this type of a joint ventures. In India we do 00:17:01.840 --> 00:17:08.480 have several joint ventures and you must have heard the joint ventures of several companies like 00:17:09.760 --> 00:17:14.560 the joint ventures between Mahindra and Ford, you have heard the joint ventures of Hero Honda, 00:17:14.560 --> 00:17:17.120 you have heard the joint ventures of TVS Suzuki, 00:17:17.120 --> 00:17:21.440 you have heard about the joint ventures of Bajaj uh with Kawasaki. 00:17:21.440 --> 00:17:28.400 So, there are several joint venture companies in; even in financial sectors, say the max life uh 00:17:28.400 --> 00:17:35.840 insurance here or maybe ICICI Prudential, all these companies have got a huge joint ventures 00:17:35.840 --> 00:17:42.240 in our country. So, and then, in initial days, typical joint ventures were the very successful 00:17:42.240 --> 00:17:46.800 joint ventures where the, like Hero Honda joint venture was successfully and this was for more 00:17:46.800 --> 00:17:53.280 than 26 years, it was very, very successful joint venture in the country. I, as far as I know that, 00:17:53.280 --> 00:17:57.760 that is the most successful joint venture but currently both the companies have 00:17:57.760 --> 00:18:01.040 came out of that joint venture and they have started their own operation. 00:18:01.040 --> 00:18:04.640 Hero is having their own direct op own operation and then Honda is 00:18:04.640 --> 00:18:07.760 having their own operation and they are competing at the marketplace. 00:18:08.320 --> 00:18:15.680 So, successful joint ventures in India and why joint ventures? Joint ventures 00:18:15.680 --> 00:18:23.920 uh,uh before I will discuss about the pros and cons of the joint ventures. So, first, what are 00:18:23.920 --> 00:18:29.440 the advantages of a joint venture? Mutual benefit of technology and local market handling explain 00:18:29.440 --> 00:18:35.200 experience. So, I have somebody there, a local company who knows ins and outs about the market. 00:18:35.200 --> 00:18:40.080 So, I do not have knowledge. So, I am taking the service of that company. And also they are 00:18:40.080 --> 00:18:44.560 making an investment, so, jointly we are making an investment. And collective sourcing required 00:18:44.560 --> 00:18:49.360 in the financial capital which is the most important. The financial capital is shared 00:18:49.360 --> 00:18:55.440 collectively between the 2 companies. What are the disadvantage? Disadvantages are conflict 00:18:55.440 --> 00:19:01.520 due to cross product offerings when one of the firms are operating independently as well. 00:19:02.240 --> 00:19:05.120 One party may be very dominating over the other. 00:19:06.400 --> 00:19:12.480 Top management philosophy and styles may create conflict. So, these are the various reasons. 00:19:13.280 --> 00:19:19.760 So, the if we if we look at the, if we look at the uh various uh failures 00:19:19.760 --> 00:19:26.320 of these joint ventures, why these joint ventures; I will strongly uh request you to study; 00:19:26.320 --> 00:19:32.560 I have given there, couple of uhm RT, the reference there. I should uh 00:19:32.560 --> 00:19:36.720 tell you to study the Times of India news article on Hero Honda separation; 00:19:36.720 --> 00:19:43.120 I have given the link there. So, that is a newspaper uh sa ma (publi) reading on that. 00:19:43.120 --> 00:19:47.680 You can read why it has gone out and what are the issues there, Hero Honda separation, 00:19:47.680 --> 00:19:54.560 and you can have some information on that. So, the main failure of these are basically the 00:19:54.560 --> 00:20:01.040 cultural difference. So, what is happening? The cultural and ideological differences stop the list 00:20:01.040 --> 00:20:07.280 in evaluating the joint ventures partner. Most companies do not perform a proper compatibility 00:20:07.280 --> 00:20:13.520 and interrogation analysis. So, 2 different cultures; see, imagine Indian managers and the 00:20:13.520 --> 00:20:20.240 Japanese manager, the 2 people are coming and then managing the company in the foreign marketplace. 00:20:20.240 --> 00:20:26.400 So, there is a, neither this is a, neither make their thorough evaluation of corporate 00:20:26.400 --> 00:20:30.240 culture and management style. So, there is 2 different corporate culture; one different 00:20:30.240 --> 00:20:34.720 corporate culture of a Japanese company, one different corporate culture of the Indian company. 00:20:34.720 --> 00:20:41.520 As a result, they fail to find a way behind their difference, which makes the joint ventures 00:20:41.520 --> 00:20:47.440 mostly unstable. Poor leadership, that is also another very classic example. 00:20:47.440 --> 00:20:53.040 Poor or unclear leaders is another top reason for joint ventures failure. 00:20:53.600 --> 00:20:59.920 Too often, joint ventures partner insists on sharing a project leadership role. When the 00:20:59.920 --> 00:21:07.360 parties disagree, a standoff occurs. And if the parties do not agree from the very beginning, 00:21:07.360 --> 00:21:13.760 who will have the day to day operational control of the project and how the fundamental decision 00:21:13.760 --> 00:21:19.920 will be made, the joint ventures bound to fail. So, leadership is also another very crucial thing 00:21:19.920 --> 00:21:28.800 if poor leadership might also reason to the fail. Third one is the insufficient planning. That 00:21:28.800 --> 00:21:34.720 means, insufficient planning is also one of the most prevalent reasons for failed joint ventures. 00:21:35.440 --> 00:21:41.920 Too often, a joint venture plan consists of nothing more than a segment of each party's 00:21:42.560 --> 00:21:49.040 intended contribution to the project and their respective share of profit; this seldom works. So, 00:21:49.040 --> 00:21:58.400 that is a problem in joint ventures. So, if the parties wish their joint venture to succeed, 00:21:58.400 --> 00:22:05.840 they should agree to a comprehensive written plan upfront. And this plan should be include 00:22:05.840 --> 00:22:12.320 provisions for future contributions, logistical issues, governance of the governance of the joint 00:22:12.320 --> 00:22:19.520 ventures, dispute resolution, ownership of jointly developed assets including intellectual property. 00:22:19.520 --> 00:22:25.200 That is a very, very crucial thing about the intellectual property. And then the term of 00:22:25.200 --> 00:22:29.680 termination of the joint ventures including the provisions of winding up the business. 00:22:30.320 --> 00:22:36.480 So, one of the professors of one of the management institutes in India has done this study and he he 00:22:36.480 --> 00:22:42.720 says that more than 50 to 55 percent of the joint ventures in this country has failed. I do not 00:22:42.720 --> 00:22:47.680 have ma information on the statistical information on that, but I am referring one of the professors. 00:22:47.680 --> 00:22:52.480 In one of the discussions, he has mentioned that this is the way joint ventures 00:22:52.480 --> 00:22:57.200 have failed in this country. I do not have the data, but there are successful joint 00:22:57.200 --> 00:23:02.400 ventures and there are also various unsuccessful joint ventures in the country. So, be careful 00:23:02.400 --> 00:23:08.320 on these joint ventures. We do have a very successful joint ventures of Maruti Suzuki, 00:23:08.320 --> 00:23:16.720 which is a very, very successful joint ventures. And now the uh Suju uh the another very successful 00:23:16.720 --> 00:23:22.320 joint venture was initially the Hero Honda was an very, very successful joint venture. 00:23:22.320 --> 00:23:30.800 It is one, it continued for 26 years, then the uh Air Vistara, Vistara Airlines having a joint 00:23:30.800 --> 00:23:35.520 venture with Singapore Airlines; uh there, that is a joint venture is still continuing. 00:23:36.880 --> 00:23:40.880 Mahindra and Ford had a joint venture; unfortunately that did not continue. 00:23:40.880 --> 00:23:45.360 Mahindra and Renault had a French ma car company. Renault had a joint venture; 00:23:45.360 --> 00:23:51.520 unfortunately that did not continue. Tata had a joint venture with Fiat uh motors, Fiat 00:23:51.520 --> 00:23:57.440 uh Chrysler. They had a FCA with Fiat Chrysler. They have an agreement but that did not work. 00:23:57.440 --> 00:24:02.240 So, there are several examples of, good examples or the successful examples on long 00:24:02.240 --> 00:24:07.920 term continuation example. TVS Suzuki is one of the one. Another successful is definitely 00:24:07.920 --> 00:24:14.960 Bajaj with Kawasaki is still continuing and very, very successful uh joint venture. So, you can see 00:24:14.960 --> 00:24:20.800 a good amount of companies who are very, very successful. You can also see the companies in 00:24:20.800 --> 00:24:25.040 the joint ventures who are not successful. So, both these situations are there.Then 00:24:29.280 --> 00:24:33.920 the last one is the one acquisition of the existing operations. 00:24:33.920 --> 00:24:40.880 So, instead of starting a business, you acquire a company in a foreign i, foreign country. You you 00:24:40.880 --> 00:24:47.040 go and you acquire a company. Suppose a company is very large operation in that country and 00:24:47.600 --> 00:24:51.920 you go and acquire the country, acquire sorry, acquire the; extremely sorry; 00:24:51.920 --> 00:24:59.120 acquire the company there in that country. So, just like an example, Facebook acquired WhatsApp, 00:24:59.120 --> 00:25:03.600 Walmart acquired Flipkart; this way you can acquire. So, Flipkart, what was having? 00:25:03.600 --> 00:25:11.200 They have an entire supply chain logistics, they have entire digital marketing, e e e-marketing, 00:25:11.200 --> 00:25:14.240 everything they had in the marketplace they had. 00:25:15.600 --> 00:25:24.080 Now, Walmart acquired that and and got that entire knowledge and entire expertise with them. So, 00:25:24.080 --> 00:25:28.800 that is the biggest advantage of acquisition. What is the benefit? 00:25:28.800 --> 00:25:33.680 Benefit is acquirer will get a running business. So, there is no stop of business. You can, 00:25:33.680 --> 00:25:41.200 you can acquire and you can continue. It typically happens in typically like in equipments, 00:25:41.200 --> 00:25:48.000 where or in the various products where you need a license to go into, enter into that market. 00:25:48.000 --> 00:25:53.920 There is a period where you have to wait to get that license, so that even if you start 00:25:53.920 --> 00:25:59.520 an operation, you cannot (produ), you cannot start marketing the product till you have the 00:25:59.520 --> 00:26:04.800 regulatory approval from that country to market that product in that country. Okay. Typically, 00:26:04.800 --> 00:26:10.000 like in my case, like my healthcare medical equipments, we cannot go and sell the medical 00:26:10.000 --> 00:26:14.160 equipment in a country without the regulatory approvals of the country. That means I have to 00:26:14.160 --> 00:26:20.000 have a, I I have to, um if I have to start an manufacturing there, I have to wait. 00:26:20.000 --> 00:26:24.880 The once a product is ready, I have to give it to the regulatory bodies to regulate, 00:26:24.880 --> 00:26:30.320 to uh go through their regulatory approval process. Once they approve, then only I can go and 00:26:30.320 --> 00:26:35.520 market that product in that country; but in this type of an acquisition, the easiest part is that 00:26:36.160 --> 00:26:40.800 the local company whom we are acquiring, the companies we are according, they already have 00:26:40.800 --> 00:26:45.120 the license for the product. So, you do not have to really bother and everything is continued; 00:26:45.120 --> 00:26:49.520 you can start doing the (bus) business next day onwards after the acquisition. 00:26:49.520 --> 00:26:54.240 So, it is an ongoing business. So, that is the biggest advantage in the running business. 00:26:54.240 --> 00:27:00.560 This saves lot of time in strategic management goes well. Limitation may involve huge capital, 00:27:00.560 --> 00:27:06.080 because you know, you have to acquire a company, it requires huge capital for you. May be difficult 00:27:06.080 --> 00:27:11.360 and cost ineffective if major modification is required. So, that is also very cost effective, 00:27:11.360 --> 00:27:17.680 because the company is already manufacturing a product. So, in that case, it is a, 00:27:17.680 --> 00:27:23.280 you have to change the design and then you have to change the entire production process. 00:27:23.840 --> 00:27:28.880 It is a huge cost for them. So, these are the limitations for this. 00:27:30.960 --> 00:27:37.440 Okay.And the last one is the establishing a new foreign subsidiary. So, acquiring a business in 00:27:37.440 --> 00:27:42.800 a foreign country may require huge physical uh uh capital investment. Moreover, operations of 00:27:42.800 --> 00:27:49.280 the existing firm may need modifications due to above two hurdles. A firm may consider setting 00:27:49.280 --> 00:27:53.920 up a new subsidiary in the foreign market rather than acquiring a running business. So, 00:27:53.920 --> 00:28:00.720 you start a new subsidiary there. That means, you establish a new legal entity in that market. 00:28:00.720 --> 00:28:05.280 Setting subsidiary may involve long gestation period. That is the limitation. That means, 00:28:05.840 --> 00:28:11.040 subsidiary, when you set it up a subsidiary, it requires various regulatory and legal approvals 00:28:11.040 --> 00:28:19.200 to start in a new sale subsidiary there; so, it is a long gestation period there. Okay. So, uh 00:28:19.200 --> 00:28:26.560 that is all uh about the various modes of entry. To summarise, indirect export, direct export 00:28:26.560 --> 00:28:31.600 and then we have discussed about the licensing, we have discussed about the franchising, 00:28:31.600 --> 00:28:39.040 then we have discussed about the uh what is called uh your uh uh joint ventures. 00:28:39.040 --> 00:28:46.800 Then we also discussed about the entry modes of uh starting a, acquiring a company in that 00:28:46.800 --> 00:28:52.320 foreign uh country and also establishing a new sales subsidiary. So, these are the 00:28:52.320 --> 00:28:59.680 5 or 6 ways you can enter into a foreign market. The minimum, the lowest one is an indirect export, 00:28:59.680 --> 00:29:06.160 export, licensing, franchising; and then, after franchising, you can start an 00:29:06.160 --> 00:29:12.800 uh joint venture there, acquisition of, acquiring another company there or (subs) 00:29:12.800 --> 00:29:17.280 or establishing a new foreign subsidiary. Okay. That is all in this section. Then we 00:29:17.280 --> 00:29:23.120 will discuss the international theories in the next session. Right. Thank you. Thanks a lot.