BUSINESS INSIGHT Alliances
Emerging Markets Targeted Joint-Ventures
Number of Deals 200 150 100 50 0
’03
’05
’07
’09
’11
Source: Dealogic
opened to new entrants bringing global brands or technology. Yet in spite of the rise in popularity of joint ventures between emerging-market and global companies, and their apparent win-win character, there remain many drawbacks to such alliances. Given the substantial differences in scale, company cultures (including governance), and strategic interests, they are often harder to pull off. This is especially true given that most global companies are considerably larger than their emerging-market partners.
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ee from Whirlpool says although the US company entered China in 1994, it went through a number of unsuccessful partnerships with local companies before it finally found the right ones. In addition to Suning, which handles distribution, the company has a manufacturing joint venture in China with Hisense Kelon
Electrical Holdings. “Joint ventures between emerging-market and Western companies present their own risks and challenges,” says McNicholl of Linklaters. “Ultimately, joint ventures that fail do so because the commercial interests of the two parties are no longer aligned. “The advantage of finding a local partner is to mitigate the local country risks,” he continues. “But at the same time companies and markets evolve. All is fine if neither companies are competing against one another, but it gets more complicated, for example, when the local partner starts applying know-how from their jointventure partner companies and starts making products that compete directly against them.” Something of the sort appeared to have been the case with Danone, the French food group. In 2009, the company quit its joint venture with Hangzhou Wahaha, China’s leading drinks group, following more than two years of legal battles. Danone and Wahaha used their joint venture, created in 1996, to develop many of China’s top drinks brands; up until the dispute it was seen as one of the most successful in China. But the relationship soured in 2007 after Danone accused Wahaha and Zong Qinghou, the Chinese company’s founder, of setting up a lucrative parallel operation that bottled and sold the same drinks as the joint venture did.
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Minding the gap: Strategic partnerships mean that Western brands are present in China both online and on the shelves.
aking sure that the commercial interests of both parties are continuously aligned is a constant balancing act. As an example, take Paul Smith’s re-entry into China. Spencer Leung, a UBS analyst, points out that fashion joint ventures often run into trouble for lack of advertising spending. “Foreign brands like to venture into China with the help of a local partner, but the two sides often disagree on who should bear the cost of promoting the brand,” he told the Financial Times. “Given the short-term nature of most joint ventures in China, local partners hesitate to put their own money into advertising a brand owned by someone else. As a result, brands don’t get advertised enough in a market where they are not familiar to consumers, and they fail.” And as companies in emerging markets get bigger and more confident, they are increasingly likely to want to set their own rules for alliances with Western partners, including doing the picking and choosing themselves. That was the message of an announcement last year by Wahaha in China. The drinks group said it was now looking for a wide range of international partnerships in areas ranging from product sourcing to green manufacturing methods in a bid to diversify its sales revenue and deal with quality problems in the national supply chain. Pan Kwan Yuk is an emerging-markets reporter for the Financial Times, based in New York City.
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