SQA by Simonhey

Summary Qualitative and CPG Assignments

Category: Task

The Design and Management of International Joint Ventures: Task 16

International joint venture: a company that is owned by two or more firms of different nationality.

  • formed from a greenfield basis or result of merging existing divisions of established companies
  • Purpose: pooling resources and coordinating efforts to achieve better results that neither could obtain alone.

→ move from being a way to enter foreign markets to being a substantial part of corporate strategy

  • Strategic alliances vary in their level of interaction

Equity Joint Venture: alliance form requiring the greatest level of interaction, cooperation and investment.

→ popularity of alliances has continued despite their reputation for being difficult to manage – failures do exist.

→ But: there is far greater alliance experience and insight to draw from today.

Association of Strategic Alliance Professionals (ASAP): provides support and  forum for sharing alliance best practices to help companies improve their alliance management capabilities.

Why Companies create International Joint Ventures

→ Four basic purposes with different concerns and different partners to look for:

1. Strengthening the Existing business

→ existing market, existing products

  • Achieving economies of scale:
    • Regarding raw material and component supply, R&D, marketing, distribution
    • Very small entrepreneurial firms rather participate in a network than in an equity joint venture: reduces costs, increases potential of foreign market entry. Network has loose structure and often quite easy to entry as limited investment is needed (often self-financing through fees)

Raw Material and Component Supply:

  • obtaining raw materials or jointly manufacture components to reduce costs

Potential problems:

→ Jointly production and changing is slow: every partner needs to agree

→ Transfer pricing: Issue when joint ventures supply their parents.

  • low transfer price: whichever parent buys most products obtains most benefit
  • higher transfer price: economic benefits will flow according to the parent’s proportions to their share holdings in the venture

Research and Development

  • Saving time and money by collaborating scientists and coming up with results that alone would have been impossible.
  • Critical: how far collaboration should extend: partners are competitors! Joint effort should focus on “precompetitive” basic research and not on product development work

Two ways:

  1. Coordinating efforts and sharing costs ( each company does research on different way for a common objective; results are shared in meetings and partners are fully informed on new insights )
  2. Set up a jointly owned company ( Provided with own staff, budget and physical location)

Marketing and Distribution

→ collaboration often stops at joint marketing: Antitrust, Intrinsic desire to maintain separate brand identities and increae own market share

→ butsome also want economies in marketing and distribution:  hoping for wider market coverage at a lower cost. (similar to cooperative marketing agreements but without managerial complications of joint venture)

Trade-Off: loss of direct control over sales, slower decision making, possible loss of direct contact to customer.

Divisional Mergers

  • combining “too small” operations (often doing poorly) with those of a competitor
  • allows a graceful exit from a business in which it is no longer interested.
  • Acquire needed technology and know-how in the Core Business:

Traditionally: acquire new technology by license agreements or developing them in-house (takes too long)

Power of joint venture: solving the same problems; opportunity to learn new techniques 

  • Reducing Financial Risk of Projects

àsome projects are too big or too risky to tackle alone à share risk

  • examples: oil companies, aircraft industry
  • Drawback: you train potential competitors, but this is better than risking that competitors hook up with other competitors against you

→ Keep your friends close, but your competitors even closer.

→ Eliminating potential competitors 

2. Taking Products to Foreign Markets

Existing products, new markets

Believing that domestic products will be successful in foreign markets. Choose:

  • produce at home and export à unlikely to lead to market penetration
  • license technology to local firms à no adequate financial return
  • establish wholly owned subsidiaries à too slow
  • form joint ventures with local partners à most attractive compromise
    • reducing risk associated with new market entry – look for partners with a good feel for the local market
    • objective: hold major investments until market uncertainty is reduced

Following Customers to Foreign Markets

  • many Japanese auto suppliers have followed Toyota, Honda etc as they set up plants in the USA.
  • Some joint ventures are established to satisfy legal requirements in order to permit a firm in to follow its customers abroad.

Investing in “Markets of the Future”

  • taking an early position in what they see as emerging markets; potential source of low-cost raw materials and labor
  • Problem: unfamiliarity with local culture
  • Solution, often imposed by local government: creation of joint ventures with local partners that can deal with local bureaucracy

3. Bringing Foreign Products to Local Markets

New Products, existing markets

  • For local company, joint venture is an attractive way to bring foreign products to its existing market
    • Better utilization of existing plants or distribution channels
    • Protection against threatening new technologies
    • New growth
  • Financial rewards for local partner is different from foreign partner:
    • Foreign partner captures total profit of shipping products in hard currency.
    • Foreign partners receive a technology fee
    • Foreign partners pay a withholding tax on dividends remitted to them from the venture

Result: local partners are often far more concerned with bottom line earnings; foreign partner often happier to keep the venture as simply a marketing or assembly operation. But benefits can come back to a parent from a powerful joint venture.

4. Using Joint Ventures for Diversification

New products, new markets

  • most acquisitions of unrelated business do not succeed.
  • Joint venture: choose partner who will help you learn the business you are unfamiliar with
  • Go beyond knowledge transfer to include transformation and harvesting

Requirements for International Joint Venture Success

Checklist a manager should consider then establishing an international joint venture

Testing the Strategic Logic

As joint ventures require a great deal of management attention, managers must satisfy themselves that there is not a simpler way than an equity alliance to get what they need.

→ also need to consider the time period in which they need help à not to get stuck with joint venture when help not needed anymore

Is the added potential payoff high enough to each partner to compensate for the increased coordination/communication costs?

→ Determine whether congruent measures of performance exist:

  • Need to make explicit all the primary performance objectives of partners
  • Implicit measures are a source of misunderstanding
  • Ensure that explicit versus implicit measures of each partner are consistent.
  • Inter-partner and Intra-partner issue (internal managers should act from common platform too)

Bertrand Oligopoly: Task 15

There are two firms without capacity constraints in the market for diving eyeglasses in Atlantis. Customers in this market consider the products of these firms to be homogeneous. As it happens, the production cost for each eyeglass is independent of the number of produced eyeglasses, the same for both firms, and given by $15. Buyers prefer to buy from the firm that charges the lowest price. In case of equal prices, buyers flip a fair coin to decide where to buy. Does this scenario constitute a game? What is the market price in Atlantis? How many Nash equilibria are there? Does the outcome differ from that in a Cournot Duopoly?

For experts only: If you are up to a challenge, consider a market analogously to the one described but with three identical firms. How many Nash equilibria exist? Characterize all of them, including the prevailing market price!

Learning Goals:

-Is it a game? Why?

-What are the Nash equilibria?

-How many are there?

-What is the difference between a Cournot vs Bertrand oligopoly

First an explanation about the difference between the Cournot and Bertrand oligopoly

Cournot oligopoly:

-Cournot competition is an economic model used to describe an industry structure in which companies compete on the amount of output they will produce, which they decide on independently of each other and at the same time. It is named after Antoine Augustin Cournot (1801–1877) who was inspired by observing competition in a spring water duopoly.

It has the following features:

-There is more than one firm and all firms produce a homogeneous product, i.e. there is no product differentiation;

-Firms do not cooperate, i.e. there is no collusion;

-Firms have market power, i.e. each firm’s output decision affects the good’s price;

-The number of firms is fixed;

-Firms compete in quantities, and choose quantities simultaneously;

-The firms are economically rational and act strategically, usually seeking to maximize profit given their competitors’ decisions.

Bertrand oligopoly:

Bertrand competition is a model of competition used in economics, named after Joseph Louis François Bertrand (1822–1900). It describes interactions among firms (sellers) that set prices and their customers (buyers) that choose quantities at the prices set. The model was formulated in 1883 by Bertrand in a review of Antoine Augustin Cournot’s book in which Cournot had put forward the Cournot model.Cournot argued that when firms choose quantities, the equilibrium outcome involves firms pricing above marginal cost and hence the competitive price. In his review, Bertrand argued that if firms chose prices rather than quantities, then the competitive outcome would occur with price equal to marginal cost.

The Difference between Bertrand and Cournot:

Bertrand is a model that competes on price while Cournot is model that competes on quantities (sales volume).


Bertrand competitions a Model were firms compete on price, which naturally triggers the incentive to undercut competition by lowering price, thereby depleting profit until the product is selling at zero economic profit. This effectively is the pure-strategy Nash equilibrium.

Nash learning goals:

Why is the competitive price a Nash equilibrium in the Bertrand model? First, if both firms set the competitive price with price equal to marginal cost (unit cost), neither firm will earn any profits. However, if one firm sets price equal to marginal cost, then if the other firm raises its price above unit cost, then it will earn nothing, since all consumers will buy from the firm still setting the competitive price (recall that it is willing to meet unlimited demand at price equals unit cost even though it earns no profit). No other price is an equilibrium. If both firms set the same price above unit cost and share the market, then each firm has an incentive to undercut the other by an arbitrarily small amount and capture the whole market and almost double its profits. So there can be no equilibrium with both firms setting the same price above marginal cost. Also, there can be no equilibrium with firms setting different prices. The firms setting the higher price will earn nothing (the lower priced firm serves all of the customers). Hence the higher priced firm will want to lower its price to undercut the lower-priced firm. Hence the only equilibrium in the Bertrand model occurs when both firms set price equal to unit cost (the competitive price).

Research on International Standardisation & Adaption: Task 13

  • international firms face challenge of finding optimal balance between standardising & adapting their marketing across national borders in order to be successful
  • 330 articles with titles including 1) “adaption synonyms” 2) standardisation/adaption across border


Studies 1: aim to describe how (1a) and/or why (1b) firms standardise/adapt in certain way → investigate strategic decisions made by managers concerning degree of international marketing standardisation/adaption based on situational factors that influence decisions

Studies 2: attempt providing recommendations regarding standardisation/adaption (2a) and/or to normative-theoretically ground recommendations → identify performance-enhancing fits between firm’s strategy of standardisation/adaption & specific situations

  • concept of fit can be modelled in 6 ways: moderation, mediation, profile deviation, matching, covariation, gestalts


  • 274 of 330 (83%) give recommendations on how to standardise/adapt to enhance performance, but only 32 of those draw on concept of situation-strategy fit → findings are fragmentary, some extent even contradictory and very heterogeneous
  • articles of recommendation built on 3 assumptions: 1) strategy’s performance outcome is situationally independent 2) markets are completely efficient & all strategies that can be observed in practice must have proved successful in past 3) managers always consider performance-relevant situational factors accurately (are rationally unbounded)
  • articles that theoretically ground recommendations (17 of 330): use eg humor theory, theory of profit maximisation, theory of friction, stakeholder theory  not “helpful” anyways as they do not integrate concept of situation-strategy fit


  • none of existing articles integrates both concept of fit & normative theory for systematically & comprehensively deriving performance-enhancing strategies of s/a in given situations

→ overcoming weakness of existing literature with normative-theoretical framework

  • framework will focus on international product strategy (international standardisation/adaption of product name, features, design, quality, packaging), not on marketing strategy & processes


  • specific strategy of international s/a can be regarded as enhancing foreign profit, if two requirements are fulfilled:

1) leads to increase in profit if potential increase in total cost associated with strategy is smaller than possible increase in revenue or vice versa

2) leads to increase in profit if allows for relative increase in quantity of products sold that is larger than a possible relative decrease in profit margin or vice versa


Proposition 1: fit between a high cross-national homogeneity of demand for specific product and a high degree of international product standardisation enhances foreign product profit

markets with low culture difference, supranational laws, as for similar products

Proposition 2: fit between high potential for cross-national economies of scale for specific product and high degree of international product standardisation enhances foreign product profit

Proposition 3: fit between high cost of modification of a specific product and high degree of international product standardisation enhances foreign product profit

→ given the constant level of quantity produced, higher degree of standardisation can reduce cost = if modification is costly, adaption isn’t the wise choice

Proposition 4: fit between high foreign price elasticity of demand for specific product and high degree of international product standardisation enhances foreign product profit

firms should attempt to offer products at low prices abroad to increase revenue & profit, lower prices call for lower costs = realised most easily with standardisation

Proposition 5: the perceptual errors of firm’s managers with regard to the relevant situation of firm negatively moderate the product-profit enhancing effects of the situation-strategy fits

Proposition 6: the quality of execution with regard to pursued strategy of international product s/a positively moderates the product-profit enhancing effects of the situation-strategy fits

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