R&D Allocation in Joint Ventures.

Part
01
of one
Part
01

R&D Allocation in Joint Ventures.

We have found three detailed case studies detailing research and development costs allocated among companies in joint ventures. These case studies detail the monetary stakes between firms, but details on expenditures were not available. These case studies focused on companies in the technology, healthcare, and automotive industries. Each of these companies has a United States-based component, but are all internationally based corporations. Each of these case studies involves joint ventures of at least $50 million dollar stakes and agreements that were finalized within the last two years. A major limitation of the current research is that it focused on a two-year historical parameter. This made profits, earnings, and the performance of products that were produced difficult to quantify as most of these ventures are still in the development phase.

CASE STUDY #1

Glaxo-Smith Kline-Verily (Alphabet) Joint Venture

On August 1, 2016, Glaxo Smith Kline announced a joint venture with Verily (formerly Google Life Science) with the hopes of developing first-generation bio-electronic medicines for chronic diseases. This venture will receive $715 million in funding over the course of seven years. All companies have a stake in the outcome of this joint venture, Glaxo Smith Kline is offering monetary support to Verily who will be responsible for conducting most of the R&D to develop the product. The new company, Galvani Bio-electronics will be jointly owned, with Glaxo Smith Kline maintaining 55% ownership, and Verily maintaining 45% ownership. The new venture is seen as a new and exciting development of bio-engineering and bio-electronics, but this venture has long-term aspirations. The first generation of prototypes is not expected until at least a decade from now.

CASE STUDY #2

Sanofi-Verily Joint Venture

Verily (formerly Google Life Sciences) is joining forces with Sanofi, an innovator in pharmaceutical development, to develop new, bio-electronic solutions for diabetes care. This new joint venture will be named, Onduo, and will operate as a separate legal entity based in Cambridge, MA. Verily is fueling the new venture with an initial R&D investment of $500 million, while Sanofi's initial investment is $181 million. Verily is stated to have a 50% stake in Onduo, while Sanofi's stake is not readily available. Sanofi has already developed relationships with local and national health care systems to test future diabetes treatments which will help with the trails and future approval of new innovations. The first product is expected to be released in limited form in 2018.

CASE STUDY #3

GM-Honda Joint Venture

With their fingers on the pulse of the future, GM and Honda have decided to pursue the future of hydrogen fuel-cell technology together in a joint venture between the two auto giants. The joint venture will result in the establishment of the Fuel Cell System Manufacturing, LLC which will be based out of the existing GM battery pack assembly plant in Bardstown, MI.

Each company will invest a combined total of $85 million into the venture and will retain three seats on the board per their agreement. Honda has already begun testing the market with cars containing hydrogen fuel-cell technology. In December 2017, they reported higher than average sales indicating a market readiness for the new technology. The automaker is offering leases of the Clarity at an introductory price of $369 a month for 36 months with a $2,868 down payment. Honda also offers an allowance of 20,000 miles per year and up to $15,000 of hydrogen fuel. There is limited information available regarding the profitability of this new joint venture.

CASE STUDY #4

Ford-Pivotal Software Inc. Joint Venture

On May 6, 2016, car manufacturer Ford Motor Company entered into a joint venture agreement with Pivotal Software (a joint venture of EMC Corp. and VMWare Inc.). Ford Motor Company agreed to invest $182.2 million into Pivotal and expected to have a 6.6% stake in the San Francisco-based company. The Ford Motor Company has previously worked with Pivotal to create smart software for cars and trucks which has proven to be beneficial for both companies. The new venture aims to further develop smart-driver technology that also assists with driver-less and automated driving technology.

In addition to the development of new hands-free and driver connective technologies, this move further seeks to establish the Ford Motor Company as a major player in the future of automobile automation and driver-less technology. In addition to Ford, Pivotal has also received interest from the tech giant, Microsoft, and an initial venture capital investment of $258 million for development. This joint venture is fueled by a previous beneficial relationship between the two companies in producing industry leading smart car technology, this new joint venture will focus on emerging technology and may not have initial beneficial outcomes. The large amount of interest Pivotal has had from various industry leaders suggest that the stake Ford has gained from this venture may be financially fruitful for the company.

CONCLUSION

These case studies highlight US-based multi-million dollar joint ventures between established corporations and exciting emerging industry-specific companies. In each joint venture examined, stake in the newly established company or the smaller company is customary. Each one of these examples is relatively recent, within two years, and in being so newly established there is little information or data regarding outcomes or profitability/revenue. For a more in-depth outcome analysis, it may be necessary to include older examples of case studies or include broader inquiries of global businesses.
Sources
Sources