Page 119 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes Due to this advantages and disadvantages, trade-offs are inevitable when selecting an entry
mode.
!

Caution Firm, in a joint venture have limited access over subsidiaries.
self assessment

Fill in the blanks:
12. The simplest form of strategic alliance is a ………………. .
13. ………………. involves determining whether all parties have realistic objectives, forming
high calibre negotiating teams.
14. A ………………. is an entity formed between two or more parties to undertake economic
activity together.

15. ………………. is a tool used by companies for the purpose of expanding their operations
often aiming at an increase of their long term profitability.



Caselet the P & G – Godrej split
n late 1992, the American FMCG (Fast Moving Consumer Goods) giant, Procter &
Gamble (P & G) and a leading Indian business group, Godrej set up a marketing joint
Iventure, P&G – Godrej (PGG) in which P&G held a 51% stake and Godrej the remaining
49%. David Thomas, P&G’s country manager in India was appointed as CEO while Adi
Godrej, the head of the Indian company, became the chairman.
P&G paid Godrej roughly ` 50 crores to acquire its detergent brands, Trilo, Key and Ezee.
Godrej became the sole supplier to the joint venture on a cost plus basis. P&G, on its part,
gave a commitment that it would utilise Godrej’s soap making capacity of 80,000 tonnes
per annum. Godrej was allowed to complete its existing manufacturing contracts for two
other MNCs, Johnson & Johnson and Reckitt & Coleman, but could not take up any new
contracts. P&G, on its part, would not appoint any other supplier until Godrej’s soap
making capacity had been fully utilised. Godrej transferred 400 of its sales people to the
joint venture.
For both sides, the joint venture seemed to make a lot of sense. P&G got immediate access
to Godrej’s soap making facilities. It would have taken P&G at least a couple of years to
implement a greenfield project. Godrej also had expertise in vegetable oil technology for
making soaps. This expertise was useful in a country like India, where beef tallow could not
be used and soap manufacturers had to depend on vegetable oil such as palm oil and rice bran
oil. P&G also gained immediate access to a well connected distribution network consisting
of some two million outlets. Even though P&G had been around in India for sometime, its
Indian operations were essentially those of the erstwhile Richardson Hindustan, which
dealt primarily in pharmaceutical products such as Vicks. The non-pharma distribution
network of Godrej, acted as a fine complement to P&G’s existing pharma network. Godrej,
on the other hand, was struggling with unutilised capacity. Godrej also hoped to pick
up useful knowledge from P&G, in areas such as manufacturing, brand management
and surfactant technology. In short, it looked as though the joint venture had created a

win-win situation, with tremendous learning opportunities, for both partners.
Contd...

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