Strategies used in international joint venture in the

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Strategies Used in International Joint Venture in the Manufacturing Sector in Thailand BY: REENA GAIKWAD RUPALI

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Transcript of Strategies used in international joint venture in the

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Strategies Used in International Joint Venture in the Manufacturing Sector in

ThailandBY:REENA GAIKWADRUPALI

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TOPIC COVERS

• Joint Venture Companies in Thailand and their profiles

• Effect of Crisis on these companies• Various patterns of strategies employed by

international joint venture companies in Thailand

• Effects of strategies applied

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Research involves

• Findings of a research on three randomly selected IJVs of different type, size and nationality in the manufacturing sector of Thailand

• In-depth interviews with foreign and local managers were made to find out how the international joint venture companies in Thailand are adopting strategies to cope with the changing environment to gain competitive advantage

• It also aimed to gain insight into strategic management and change processes in contemporary joint venture companies in the manufacturing sector of Thailand

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Three companies studied

1. Urethane Elastomer Manufacturing Company

2. International Plastic Manufacturing Company

3. Polyester Yarn Manufacturing Company

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COMPANY PROFILESName of the Company The Urethane Elastomer Manufacturing Company

Year of Establishment 1996

Initial investment 5 million baht

Partnership Thai ownership 51% and Japanese ownership49%

Product High quality urethane elastomer products

Company managed by Day to day management is done by the Director and Managing Director (MD)

Number of employee 50

Facilities to the employee 1. Safety, social security, medical and health care are provided

2. Salaries are set a little higher than other companies.

Market Mainly local market with 90% of the product sold in Thailand and 10% exported to Singapore

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COMPANY PROFILES

• Picture of sales growth for The Urethane Elastomer Manufacturing Company is as follows:

Year-Sales• 2000-34.45 million baht • 2001-35.00 million baht• 2002-42.00 million baht

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COMPANY PROFILESName of the Company International Plastic Manufacturing Company

Year of Establishment 1995

Initial investment 4 million baht

Partnership Thai ownership 60% and Japanese ownership40%

Product Plastic injections

Company managed by Majority of Board of Director is Thai and decision making mainly depends upon Thai partner

Number of employee 90

Facilities to the employee 1. employees are motivated by the bonus which is 1.5 percent on monthly salary

2. Also the salary increase, ranging between (5-15) percent on the basic salary

Market The company targets local market and it mainly depends on four regular big Japanese motor companies

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COMPANY PROFILESName of the Company Polyester Yarn Manufacturing Company

Year of Establishment 1992

Initial investment

Partnership The ownership share of Thai and British partnersis 50-50% respectively

Product 100 percent polyester yarn

Company managed by The leader mostly makes decision based on the consensus of the employee concerned

Number of employee 750

Facilities to the employee 1. Cost of Living Allowance (COLA) allowance2. Transportation3. education for children until high school4. medical insurance

Market The company local market is 40 % and export is 60%.

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STRATEGIES EMPLOYED BY Urethane Elastomer Manufacturing Company

1. Management2. Forming the Joint Venture3. Market4. Product5. Host Environment Country

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MANEGMENT

1. Maintain local and foreign markets by participating in trade exhibitions and trade fairs in Thailand

2. Setting up a branch factory in Singapore. 3. Old customers are given special price treatment to maintain the

loyalty 4. Advertising in a Japanese newspaper to reach out Japanese

Customers5. Getting contact with the potential companies through

telephone calls using the business telephone directory6. Keeps the price of export products the same as local price so as

to not to make profit by taking advantage of the fluctuating foreign exchange rate

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Forming the Joint Venture

1. The Japanese partner chose Thailand, as it is comparatively better than other countries in the South East Asia Region.

2. Thai government encouraged for foreign investment, political stability & the prospect of a favorable market for the finished products.

3. Thai partner reasons include accessibility to transfer of technology, expectation to share the international and domestic reputation of the foreign partner.

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PRODUCT1. Products are designed to fulfill the needs of high-

tech machinery, industrial machinery and construction machinery

2. All the machineries and raw materials are imported from Japan and Europe

3. Quality control is strictly maintained, products are carefully checked before sending them off to customers

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HOST ENVIRONMENT COUNTRY

1. No political interference in Thailand and the investment environment is favorable for the JV

2. Though there cultural and social environment, there are differences between Japanese and Thais but Japanese consider customers as their meals provider and want to fulfill their wish and make them satisfied

3. Japanese experts give training to the higher position Thai staff

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STRATEGIES EMPLOYED BY International Plastic Manufacturing Company

1. Management2. Market3. Product4. Host Environment

Country

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MANAGEMENT

1. Cost control strategy during the crisis: Eliminating the Saturday work practice responding the low market demand. Due to this-a. 5-20% of cost on wages was savedb. Company revived and survived as gave more time to the workers to spend time with their families

2. Reduction of hierarchy levels and making the management team more compact by filtering only the key persons in the team. This is resulted in efficient decision-making and greatly reduces the cost of paying high salary.

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MARKET

1. Few competitors2. Company employed the quality

standardization in terms of customers’ requirement

3. Getting personal contact with the potential companies and through old customers

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PRODUCT

1. Imports raw material to achieve standardized specifications

2. Product is based on applying the technology that transfer from Japan which no competitor could afford to do.

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HOST ENVIRONMENT COUNTRY1. According to the law enacted by the Board of Investment:

a. it would be possible to transfer the technology locally only if the ownership is Thai 60 % and Foreign 40%

b. The expatriates should not be in the joint ventures business within five years

c. after five years establishment of the joint ventures, the foreigners should only in the position of management level.

However, none of the company followed the BOI agreement

2. The competitive advantage was applying the high technology from Japan

3. the company sends employees to the Japanese customers’ companies for taking training in a particular area.

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STRATEGIES EMPLOYED BY Polyester Yarn Manufacturing Company

1. Management2. Market3. Product4. Host Environment Country

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MANAGEMENT

1. Holds monthly shareholder meeting to review the present status of JV and make a plan for the future

2. Mostly recruits fresh graduate and gives them on the job training.

3. The employee are well informed and made to attend the related seminars around the world by sponsoring travel and living allowances

4. Even though the company provides the fringe benefits but there is still labor turnover especially at the operation level staffs that is about 15%- 20% per year.

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MARKET1. Focuses on high quality product2. Has got plans to produce yarns for more sophisticated and unique

products3. Company’s local partner is in textile business for more than 30

years and this is the advantage for the company4. Has privileges of having old and regular customers5. The advantage of the company is having the local partner with

knowledge about its local market and also having the foreign partner with grouping and network chains across the world.

6. Marketing plans are built on the yearly development between local and all export markets. Additionally, the yearly marketing plan is updated every three months predominantly derive on the realization of the environmental changes.

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PRODUCT

1. Has been using German technology for more than ten years

2. Maintains the quality testing department for its products

3. The barrier for the company is getting spare parts locally and it has to be imported and this sometimes causes the delays

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HOST ENVIRONMENT COUNTRY

1. Thailand is becoming a heart of business in Asia-Pacific region as:a. country is politically stable with minimum riskb. the government is very supportive and enacted concession policies such as the privileged tax-free policies for a particular imported machinesc. The government adjusts the tax between 5-10 percent based on the income ranges & the basic tax rates are relatively low.

2. The cost of production is also low in terms of electricity charges and the labor costs.

3. The reputation of the company being an international plays a significant role in Thailand

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Analysis of Strategies Used In the Three International Joint Venture Companies

Plus points:1. Early entry without any significant competition2. When two partners work together for a considerable length of

time it is natural that they absorb each other’s knowledge and culture consciously or unconsciously

3. Local market handled by strong advisory team and very informed local partner & Exports looked after by foreign partner is well networked with alliances and grouping thus making company right ahead of competitors making it to be in right position at the right time in the market

4. Best way to achieve best place in the market is by having unique and quality product

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Analysis of Strategies Used In the Three International Joint Venture Companies

Minus points:1. Thai habits of unwillingness to take immediate action when a customer

complains2. The demand for overtime pay whenever they have to work outside

official working hours3. The reluctance to share superior knowledge one has with the junior staff4. The problem is high labor turn when there is high demand in the market

and high capacity production is needed5. Local employees tend to move around from company to company when

there is the slight difference in their salary while the Japanese counterparts value more on having rapport, company norms and culture

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Strategies during crisis

• If the company doubt about the credibility of the customers, their credit sales were controlled and eventually terminated according to their performance

• Alternatively , the company had to offer the flexible interest period from 30 to 90 days to the customers

• the company tried to rely more on the export market by expanding more markets in Europe and US, as they were not much effect by the Asia crisis

• cost saving strategy of terminating work on Saturday so along with declining sales amount not only deducting the working days but also the amount of salary.

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Conclusion

In realizing the three companies strategies, the following can be evoked:

1. Willingness to learn and understand each others cultural and norms in handling human resource management

2. Knowing the time to change the target market during the crisis3. Enjoying the host government incentive 4. Influencing the market being an early entrant and having

alliances and grouping network in marketing5. Reduction of unnecessary hierarchy levels make the decision-

making efficient and 6. Save the cost during the crisis

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