In the past when the idea of commerce was newly introduced, personal fund is always concerned as the only way of financing business. With the development of world economic, financing strategies, which are regarded as two main categories being financing by equity and debt, have been becoming more diversified and global. One of the most common methods today is getting company’s name listed on stock exchanges, or in other words, selling company’s shares to public. Stock market concerned matters have been always hot topic to discuss over the decades, especially when it was opened globally. Besides stock market, joint venture has also created many public concerned stories. It always seems to be interesting seeing competitors shaking hands/ or how cooperation works thing out.
Among every industry, the joint ventures of technological corporations can be counted as most concerned because they are a signal of new technologies introduced. Technology creates many benefits to public, so its development is especially in people’s expectation.
Recently, the announcement of strategic tie-up with Microsoft of Nokia has started many rumours and arguments. Nokia used to be highly commanding market share in the handset business. Recalling its successful history, Nokia was “one of the most successful and well-recognised brands in Australia, leading the market with its mobile technology, enterprise products and services, and network infrastructure” and “in May 2007, Nokia announced that its Nokia 1100 handset, launched in 2003, was the best-selling mobile phone of all time at over 200 million units and the world's top-selling consumer electronics product”. However, over a year, Nokia’s share dropped moderately from 11.7 (1 April, 2010) to lowest point of nearly 6.5 (5 July, 2010) and about 6.7 (18 February, 2011). It is about 37% decline.
Share price movement of Nokia from 22 Feb, 2010 to 18 Feb, 2011
Nokia’s phones including old styles and new smart phone cannot defeat Android’s phones (Motorola, Samsung, Sony Ericssons…) and IPhone, especially when Apple launched IPhone 4. That would have been a serious problem if Nokia had not started something new. For this time, Nokia wants to be in real smartphone battle following neither Google’s Android nor Apple’s IPhone.
In primary thought, this joint venture is more important and brings more benefits/ profits to Nokia rather than it does to Microsoft. In order to help Nokia gain the market and develop its technologies, Microsoft will support “billions of dollars in the early years of their partnership” to Nokia as Mr Elop said in an interview. This U.S deal sounds really attractive and beneficial to the Finland company in this period. However, having Microsoft participation means that Nokia has to be ready to make some shifts. Accepting the deal, then, has resulted in the threat of loss of Finish jobs. It raises not only national economic concerns but also ethnic concerns. Moreover, people still cannot forget the consequences of the cooperation between IBM and Microsoft in early 1980s. Having the similar story, the partnership aimed at building an operating system for IBM’s computers. The deal helped Microsoft gain the market growth quickly, whereas IBM suffered huge loss of billions dollars and consequently dismantled the company in early 1990s (Mehta, 2010). The failure of IBM call Nokia’s full attention to consider carefully the terms of partnerships as well as suggest the Finland’s handset maker better creating secure platform so as not to say ‘regret’.
In brief, financing business by joint venture is, indeed, beneficial because the full/ or major parts of funds are raised immediately and the investments are copious (especially when seeking for international joint venture). It has lower costs of raising capitals (as for fund seeking firms) as well as provides instantaneous results (through immediate responses). Nonetheless, the problem it creates over the decades, which has not been solved yet, is biased gain of success and profits among partners. It mainly caused hesitation in deciding whether to deal or not.
Hi Thu Mai.. you seem to have used the terms "joint venture" and "strategic tie-up" (or, more commonly known as strategic partnership/alliance) in an interchangeable manner. Are these concepts actually similar or otherwise? What do you think?
ReplyDeleteAlso, not sure if one can achieve or even expect results to be "instantaneous" in a joint venture..
Thank you for your comment. It really suggested me read more about these three terms. Before your comment, I used them with intention to avoid repeating words solely.
ReplyDeleteIn some documents I found, they said that joint venture is parties' contractual agreement to complete specific tasks, while partnerships concern with profit and loss of long-term activities that partners undertake. Some others add that temporary partnerships can be considered as a kind of joint venture. So I understand that joint venture will stop when the tasks are fulfilled, whereas partnerships do not have to separate. As far as I understand, in the case of Nokia and Microsoft, the 'strategic tie-up' is more like joint venture.
About the use of "instantaneous", I only want to remark the point that in international market, it is easier for business to find huge resources /or capable investors. But I seem to express the idea in wrong way.