Comparing the success of two joint ventures in the ready to drink tea market: implications for alliance management theory.

Summary

Joint ventures are a very popular type of alliance and can offer a lot of advantages. Yet they can be a hand full to manage and many joint ventures fail to properly achieve their objectives. Since Unilever and PepsiCo agreed to help me on this final paper, I was in a unique position to thoroughly scrutinize their joint venture, called PLI, which manufactures and sells Lipton Ice Tea. The reason why this was such an instructive experience is because there is another almost identical joint venture, called BPW, which started out very similarly but has known a lot more difficulties than PLI. BPW manufactures and sells Nestea and is a joint venture of Nestlé and The Coca-Cola Company. By doing a comparative case study on these two joint ventures I was able to uncover which factors are truly important for joint ventures to succeed. The central research question of this thesis is as follows:

"What are the critical factors driving the success of the Unilever and PepsiCo joint venture, PLI, and what are the main reasons behind the collapse of the Nestlé and The Coca-Cola Company joint venture, BPW?"

The sub research questions of this thesis are:

1. What exactly is a joint venture, and what are the advantages it has to offer within a company's strategic objectives?

2. Which factors are crucial to the success of a joint venture?

3. What are the critical factors driving the success of the Unilever and PepsiCo joint venture, PLI?

4. What are the main reasons behind the collapse of the Nestlé and The Coca-Cola Company joint venture, BPW?

5. Implications for alliance management theory?

Conclusions

Several interesting conclusions can be made based on the literature review and the interviews. The answer to the first sub research question shows that there isn't a clear definition of what exactly a joint venture is. Apart from the variability of joint ventures definitions, the different interpretations of success can also make the study of alliances a hassle. An important distinction in this respect can be made between objective and subjective measure of alliance performance.

Following items are seen as critically important in the literature during each phase of the alliance life cycle. During the formation phase it is important that the strategy behind the alliance is clearly defined and well thought out. Apart from the strategy it is of utmost importance to position the alliance in the respective parent companies. During the design phase, it is advised to analyse the different scenarios and contingencies that can occur and to establish the mechanisms to handle these. Appropriate governance structures and systems and decision-making protocols need to be set up in this phase in order to avoid future conflicts. During the last phase of the alliance life cycle, the postformation phase, the joint venture is managed on an on-going basis to realize value for the parent companies. In this phase it is absolutely important to have open, effective and clear communication channels within the joint venture but also between the parent companies. Being open and honest is a critical driver in building trust, which is key in establishing a successful long-term relationship.

By doing an in-depth case study, I have tried to obtain an answer to the central research question of this final paper. It appears that the relative success and failure of the joint ventures is attributable to several similar items. One of the most important of these factors is relative joint venture importance. Since Lipton is one of the top 5 brands within both parent companies, the best resources and attention is given to that brand. Since Lipton Ice Tea became the second best selling beverage in the world, this propensity has only enforced itself even further. In contrast, Nestea is not a very important brand for either parent company. As a result there is a lot less attention devoted to the JV and a lot less resources are at its disposal.

The success of PLI is mainly attributable to the following factors. PLI was the first to arrive in many markets and was therefore able to exploit the first mover advantage in the majority of them. Lipton also had great brand equity and this aided Unilever in finding a formidable soft drinks and complementary partner such as PepsiCo. They provided a strong global supply chain, but fortunately their supply chain was not so strong in the sense that there was a lot of tension in the system. As a result Lipton Ice Tea got the attention and focus it needed to thrive within that system.

The downscaling of BPW is mainly attributable to the following items. The parent companies lacked the commitment to keep providing the resources and attention the brand needed to thrive. This was largely attributable to the fact that Nestea was a relatively unimportant brand to them. Seeing as The Coca-Cola Company's core business is beverages, this is where they needed most growth. Their partner, Nestlé, provided the Nestea brand to the joint venture and Coca-Cola basically did the remainder of the work. Because they were doing most of the hard work, they were questioning the fifty-fifty profit split as an appropriate payoff. Another factor is that Coca-Cola probably sees joint ventures as an option to acquire and realized after a while that Nestlé was never going to let a Nes-brand go. This lowered their commitment to the joint venture even further. The fact that both parent companies were allowed to, and did, buy other tea companies as direct competitors to their joint venture, certainly didn't help this commitment either.

The key to making a successful joint venture is to make it feel as if it not a joint venture. It needs to be an independent organization with the power to operate autonomously and the ability to leverage the strengths of the parent companies. The joint venture needs to have common objectives, the best resources at its disposal and be positioned in both parent organisations.