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CASE STUDY ANALYSIS
“JOINT VENTURE OF CONTINENTAL CABLE VISION AND FINTELCO”
Joint Venture of Continental Cablevision and Fintelco
ABSTRACT
The report has discussed the “The joint venture of Continental Cablevision and Fintelco”. The objective of this report is to explore and analyze all aspects of this case.
The report also evaluates and reflects innovative facts and situations involved in joint ventures.
Several evidences have been used to support the topic.
It presents key concepts that are practical and useful.
INTRODUCTION
The report is based on an analysis of a case i.e., “Joint venture of Continental Cablevision and Fintelco” .The main objective of this report is to analyze the reasons behind this joint venture and different aspects related to it.
The purpose of this report is to understand the risks and opportunities in an international joint venture. It has discussed the four relevant questions based on facts and figures of the case study.
Traditionally, we were working on the assumption that once a company achieved a certain level of quality, it was successful and needed no further improvements and changes. It was just like passing a certification exam or just like reducing the number of defects to a certain level.
But now in today’s market scenario we have to be updated in all aspects and there should be a continuous quality and system improvement by different joint ventures and mergers and acquisitions.
Research methods
Online research data from different web sites, different articles, and theoretical studies from different books. The methodology which had been used was collecting data from both primary and secondary sources. Primary sources were the personal interaction with the experts and secondary was the information collected from websites.
INTRODUCTION TO THE CASE
Continental Cablevision is a leader in the industry of cable division and is renowned for its enlightened community relations practices and its commitment to customer service. Consequently, the company has enjoyed greater success than most cable providers when negotiating for new franchises.
This kind of notion of paying to receive television signals over coaxial cable predates cable-exclusive programming by more than 25 years. In the early 1950s, when it was first proposed as a business cable television, it was intended to provide clear reception of distant signals to subscribers in remote areas. At that point of time, only large cities had a full range of television programming from the three major networks, while some cities also had an independent or educational broadcast system. By using large antennae mounted on tall towers, they were able to fledgling cable companies which could pick up signals from these cities and bring television to vast unserved rural areas. In much areas of suburban and rural America without adequate television service, the industry was built for growth.
Fintelco is an Argentina based company which was formed in 1980, by Samuel Liberman. Argentina is the second largest country in Latin America in terms of both population and area. It is one of the most important television and cable markets in Latin America.
On Nov. 3, 1994, BUENOS AIRES (BUSINESS WIRES), Continental Cablevision Inc., the third largest U.S. cable TV company agreed to acquire a 50 percent equity interest in Fintelco, S.A., the holding company for Video Cable Communication, S.A. (“VCC”). Fintelco is Argentina’s largest cable system operator.
VCC and other cable companies owned by Fintelco currently serving around 550,000 cable subscribers in Buenos Aires, Cordoba, Rosario and other Argentine cities. VCC is also operating “Cablin,” a popular children’s cable TV network that is distributed via satellite to cable systems throughout Argentina.
Continental has committed to invest approximately $150 million (U.S.) in Fintelco. This has represented the largest single investment to date by a U.S. cable operator in existing cable systems outside of the U.S. By the end of1994, VCC and other Fintelco owned cable systems are expected to serve more than 600,000 cable TV subscribers.
Chairman and CEO of Continental Mr. Amos B. Hostetter Jr. said: “Continental’s investment in VCC gives this company the opportunity to be a major participant in one of the most dynamic cable TV markets outside of the U.S. With a 4 million cable TV subscriber universe that is growing rapidly, Argentina is leading cable television system development throughout Latin America.”
Question No. 01.
The joint venture of Continental and Fintelco is a strategic move in the history of cable service providers. Entry of continental in to the Argentine market was a good strategic move for the company.
Cablevision had started operations in 1981; and has grown into Argentina’s cable television leader. The company has more than 3.2 million subscribers and provides TV services in 96 large, medium and small cities throughout the country, in eight provinces (Buenos Aires, Salta, Cordoba, Santa Fe, Misiones, Entre Rios, Corrientes and Chaco) and in Capital Federal. Cablevision offers a wide range of products and services including CATV and High-Speed Internet via Fibertel. It controls more than 45 per cent of the pay-per-view television market in Argentina and also provides services in Uruguay and Paraguay.
Argentina’ market is one of the most important television and cable markets in Latin America. After Brazil and Mexico, it has the largest number of television receivers in the region. By 1994, its cable penetration was the highest in Latin America (52%, according to Production & Distribution, 1995, p. 22). Domestic programs were actively competing with foreign productions, and popular genres include variety shows, sitcoms, telenovelas, and sports and children’s programs. The history of television in this country (for example, Fintelco) is characterized by cyclical patterns of state and private media ownership which parallel the changes occurring in the political and economic arena.
Continental’s investment in Fintelco is subject to regulatory approval by Federal authorities working in Argentina. The recent approval of a bi-lateral investment and trade agreement between Argentina and the U.S. make it possible for the first time for U.S. companies to own cable systems in Argentina. And now there are no restrictions of foreign ownership of cable systems in the U.S.
- It helped in reducing ‘entry’ risks by using the local partner’s assets.
- They were able to get the adequate knowledge of local institutional or legal environment.
- It helped in accessing the local borrowing powers.
- Goodwill of the partner was carried forward.
- It also helped in accessing the local resources through participation of national partner.
- It helped in getting government incentives, job and skill growth through foreign investment.
- Increase in Foreign exchange and investment.
Argentina had around 5.5 million cable TV customers by mid-1999. It has more than 43% of all CATV subscribers in Latin America. It also has the region’s highest rate of cable penetration with 54% of the country’s TV households now connected to a cable service.
A large percentage of Argentina’s population lives in urban areas so there was a competition for subscribers which was particularly fierce in cities such as Buenos Aires. The market has undergone a large degree of consolidation in recent years because of the joint venture with one of the US dominant players i.e., Continental CableVisi�n, swallowing up smaller operators although the market still supports around 600 local CATV companies. When Argentina entered the decade of the 1990s, it experienced a dismal economic performance over a prolonged period of time. From the period of 1975 through 1990, the country was plagued by high inflation and general economic stagnation. Inflation seldom fell below 100 percent; there were bouts of hyperinflation, notably in 1985 and 1989-90. In the year 1990, real GDP stood 6 percent below the level in 1974. Over this period of time, the general stance of economic policy was inward-looking and interventionist, although there were occasional attempts to adopt more market oriented policies. All-out crises erupted twice during the 1980s. But with the help
of joint venture of Continental and Fintelco, these companies were able to cope up with the Inflation.
- •(7,165,000 receivers/4.6 persons per receiver, according to the Britannica Book of the Year, 1994, p. 841).
Question No. 02.
Continental wanted to make a partnership in which the local entity would continue to run the business. Businesses of any size can take joint ventures to strengthen long-term relationships or to collaborate on short-term projects.
The market share of Continental Cablevisi�n in Argentina was around 26%, second largest cable operator. The joint venture helped in getting more and more business to the company. By the end of June 1999, it already claimed 1.45 million subscribers on its 65 networks, down slightly from 1.46 million three months earlier. Continental Cablevisi�n launched services in Buenos Aires in 1979 and by mid-1999 its networks had passed 3.37 million homes in north-east Argentina. The company was owned by US cable operator TCI (35.86%), Argentina’s CEI Citicorp (35.86%) and Telef�nica (28.28%), were the former majority shareholder TCI retains management control until 2002. Telef�nica originally bought a 33.28% stake in October 1997 for ESP57.2 billion and increased this by 2.58% in December 1998. As a result of this joint venture, In August 1998, Continental cablevision was able to sign a contract with 3Com, the US based equipment supplier, to provide modems for a new cable Internet access service being rolled out in Buenos Aires. The service was allowed to operate through Continental Cablevision’s subsidiary Fibretel, offering Internet and data services to both residential and business customers. By the mid of 1998 Argentina’s third largest cable operator, US West-backed Video Cable (VCC), was bought by Multicanal and Cablevisi�n and in July that year had its assets and 700,000 subscribers split evenly between them. While Multicanal retained the VCC brand and its range of programming, CableVisi�n decided to convert its share of VCC customers to the CableVisi�n name and services, increasing its monthly charges at the same time.
Following were the opportunities in Continental and Fintelco joint venture:
- It helped in assessing new markets and distribution networks.
- It increased capacity of both the companies.
- They could share the risks and costs with each other.
- They could access to greater resources, including specialized staff, technology and finance.
This joint venture was very flexible. Following were the risks in this joint venture:
The companies might not fulfill their main aim out of the venture. The main aim of Continental was to keep their hold in the Argentine market and Fintelco was in need of capital.
- Partnering with the business of Fintelco was very complex. It took time and effort to build the right relationship.
- The objectives of the venture were not totally clear and communicated to everyone involved.
- Both the partners had different objectives for the joint venture.
- There was an imbalance in levels of expertise, investment or assets brought into the venture by both the partners.
- Different cultures and management styles of companies resulted in poor integration and co-operation.
- Both the partners did not provide sufficient leadership and support in the early stages
Success of the joint venture was totally dependent on thorough research and analysis of aims and objectives. This should have been followed up with effective communication of the business plan to everyone involved.
- •A case study by Bruner, Robert F.; Paddack, Katarina
Question No. 03.
The venture of Continental Cablevision and Fintelco gave them a substantial additional resources and technical expertise to further expand VCC’s operations throughout Argentina, creating hundreds of new jobs.”
Plans were also underway to deploy fiber optic technology in our systems to provide the highest quality cable service to their customers and to build Argentina’s Information, Superhighway,” Liberman said.
Investment of Continental in Argentina represented the company’s third major international joint venture. In month of July, Continental announced that it had entered into a joint venture with three Singapore companies to build and operate a fiber optic/coaxial system to provide cable television services to Singapore’s 800,000 homes. Then in September, Continental announced that it had joined forces with Optus Communications, Australia’s alternate long distance provider and with Australia’s two largest television networks, Nine Network and Seven Network, to develop the most advanced broadband network of its kind in the world to deliver telephony, video and interactive services to urban markets with more than 3.5 million homes in Australia.
The 50-50 partnership concerned both the companies. Continental was not in the mood to become a company system operator in Argentina. Basically, they were looking out for partnership whereby local entity would be able to run the company.
Both the companies were offering different kinds of deals. One was offering 75% while the second was offering 25% but finally they came to 50-50 partnership deal. Apart from few pit holes, this deal was a fair deal for both the companies. Continental wanted to enter into the Argentine market and Fintelco needed capital at that time. So, overall, the deal worked well and both companies were in win win position.
- •A case study on Continental Cablevision Inc. and Fintelco joint venture.
Question No. 04.
Continental Cablevision and Fintelco knew that Joint Ventures are the fastest and most effective way to radically increase sales and profits with virtually no money and no risk, as long as it is done correctly.
But inspite of every thing set well in the joint venture of Continental Cablevision and Fintelco, there was no speed, access, sharing of resources and the leveraging of underutilized resources, high profits, back end income, low or no risk opportunities and massive leverage.
There could be a major disadvantage of the Joint Venture which was the possibility of being ripped off or disappointed by unscrupulous and unprofessional JV partners, and hurting the reputation and/or customers and associates by associating with the wrong people, even unknowingly.
There should be a way to locate and contact really solid JV partners, however. Members should have been carefully screened and the support and education provided should have been very effective. In an international joint venture, generally, small enterprises suffer two basic disadvantages that large enterprises by definition are without:
- Elevated rates of employee costs.
- Working capital requirements.
Large enterprises like Continental cablevision have lower costs per unit turnover and substantially larger cash flow capacities. Moreover, these kinds of joint ventures represent a high risk factor in terms of debt repayment capacity, often because of inadequate financial know-how and limited access to guidance and consultation. Long
term success of the joint venture is additionally contingent upon a heightened degree of financial flexibility that enables rapid adaptation to changing market needs.
The disappointment with large scale, capital intensive and often import-dependent businesses has been growing long before the current global economic downturn set in.
Continental and Fintelco has a lot to blame on themselves for their experience with large enterprises, reports of their diminishing impact on inclusive economic growth is emerging unmistakably from across the globe. As new economic realities begin to hold sway, slowly but surely the practicality of these kinds of ventures running on gigantic employee and capital turnovers is slipping away.
It holds out a multitude of short and long term benefits that are of especial relevance to this joint venture. In the context of both immediate and long term goals, a policy shift in favor of rapid promotion of smaller enterprises is perhaps the only policy priority standing between Continental and Fintelco and a rapidly prospering economy.
There are significant challenges in this direction, none more pressing than the need to create a mindset change among these companies with regards to grassroots entrepreneurship. Further practical problems were in the form of skilled manpower shortage, a disturbing enterprise mortality rate and devastating infrastructural deficiencies, especially in terms of security, power and roads. Improving availability and access to finance and equity was the most critical challenge by far.
Many of the problems were encountered in the negotiation and operation of joint venture between Continental Cablevision and Fintelco. In general, they were occasioned by a lack of community of interests between the partners or at least a clear understanding and appreciation of each other’s basic objectives in the venture. Such lack of community or appreciation of interests led to the atmosphere of distrust that could have become the cause of the failure of a joint venture operation.
Problems were also caused by the way in which management control was structured and exercised. Only one party should not have management control of the JV or are decisions made by discussion and agreement between the parties. Senior management was not always used for running the venture by consensus and was not always agree with its partner. Neither party was able to outvote the other at shareholder or board level; there was a real risk of deadlock. And wherever this occurs, the JV’s inability to make decisions can cause significant operational difficulties, or at worst even a collapse.
Accounting issues also caused some problems. There were other ways of reporting results; this is particularly true of multinational JVs, where treatment of items in accounts may differ, notwithstanding the development of international accounting standards.
Whenever a joint venture fails, it is in neither party’s interest for assets to be locked up while lengthy litigation ensues to determine financial severance. Commercial negotiation is often the speediest and most sensible ways of arriving at terms on which the joint venture can be divided up.
In order to ensure rapid development, both companies must effect swift fiscal, monetary and industrial policy changes in order to capitalize on its huge potential of venture. A lot more things depend on the effective management of its human resource capital its sizeable population that has been traditionally dependent on extremely small, subsistence-level enterprises. It is a matter of fact that the fate of Continental and Fintelco ambitious economic goals rests largely on its ability to convert this talent into tangible economic growth.
* Continental agrees to become 50 percent partner in Fintelco, S.A., owner of VCC, S.A., Argentina’s largest cable TV operator Business Wire, Nov 3, 1994
CONCLUSION
Apart from few pit holes, the joint venture of Continental Cablevision and Fintelco was an average venture. There is a theory of joint venture formation and instability based on synergy and monitoring. An international research has shown that the monitoring problems may prevent the joint venture from forming at all. Moreover, in joint ventures like the case of Continental Cablevision and Fintelco, formation usually involves over-monitoring, and ex post which could involve cheating by one, or both the firms. It is quite possible that joint venture formation leads to zero monitoring by both the firms. So, there should be a proper monitoring and supervision of all aspects before taking a joint venture.
REFERENCES
* Continental agrees to become 50 percent partner in Fintelco, S.A., owner of VCC, S.A., Argentina’s largest cable TV operator Business Wire, Nov 3, 1994
A case study on Continental Cablevision Inc. and Fintelco joint venture.
(7,165,000 receivers/4.6 persons per receiver, according to the Britannica Book of the Year, 1994, p. 841).
A case study by Bruner, Robert F.; Paddack, Katarina
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