NTN Strategic Partnerships

1 Guidelines for Strategic Partnerships August 31, 2006 T. Sogo
< 1. Importance of Strategic Partnerships > ・ It has become difficult for a company to be equipped with adequate human, financial and technological resources to respond effectively to:  Higher R&D costs  Higher material costs  Low price trends & Pressure to reduce prices  Shorter product life cycles  Difficulties in opening new markets  Costs of new customer acquisition  Higher demand for global standards ・ To achieve its vision in such an environment, NTN must build cooperative relationships with outside organizations such as customers, suppliers, and competitors to enhance its competitive advantages and expand its business. ・ As cooperative relationships go beyond normal dealings with these groups, doing business with NTN will bring success, earnings and growth for NTN’s customers and suppliers, too, thereby creating an ideal cycle to further strengthen the relationships with NTN. We want to make the best use of such win-win relationships as an NTN growth strategy. < 2. Definition of Strategic Partnerships > ・ A strategic partnership is "a relationship of equality (win-win) founded on mutual trust and respect and backed by a commitment to building cooperation with partners from whom one can expect complementary resources and major synergies for achieving mutual success." (“Strategic Partnership” = “Strategic Alliance”) < 3. Objectives of Strategic Partnerships > ・ When we contemplate building each strategic partnership, we should clarify our objectives consistent with NTN's Medium-Term Overall Corporate Strategy. (With a clear grasp of the partnership’s objectives and with clear expectations and duties, the partners can reduce each other's costs and expand each other's earnings.) - The Objectives of Building Strategic Partnerships - ① Leverage a global brand strength in specified businesses. ② Acquire and leverage R&D capability and technology (product and production technologies) in specified businesses. (Includes joint development and licensing.) ③ Acquire and leverage sales and marketing capabilities and a presence in specified

2 businesses, regions, and customers. (Includes long-term purchase guarantees and
preferential purchasing from specified customers.) ④ Acquire and leverage production capabilities and low-cost production know-how in specified businesses and regions. ⑤ Acquire and leverage management know-how. We will focus on HR Management, negotiation skills, and expertise in navigating local regulatory environments. ⑥ Achieve economies of scale (includes sharing of complementary resources and consolidation of redundant resources) and decrease both investment burdens and risks in specified businesses and regions. ⑦ Strengthen negotiating power with customers through improvement of production and engineering capabilities in specified businesses and regions. ⑧ Strengthen NTN’s business portfolio through the gradual purchase of core businesses (creating management synergies through gradual integration of corporate cultures for purchasing businesses). ⑨ Strengthen the business portfolio through the gradual sale of non-core businesses (avoiding social and employment problems by gradual integration of corporate cultures for selling businesses). ⑩ Leverage Free Trade Agreements between countries and tax preferences in specified countries. - NTN Experience -  In the strategic partnership (JV: France) between NTN and Renault, the main objectives of NTN were numbers ②, ③, ④, ⑤, ⑥, and ⑧ above, while the main objectives of Renault were numbers ①, ②, and ⑨. 【← The strategic rationale of NTN = The expansion of its CVJ business in Europe by establishing a foothold with Renault, and boosting NTN’s bearing business (e.g., W/B) by use of the SNR brand and synergies between NTN and SNR.】  In the strategic partnership (JV: Germany) between NTN and IFA, the main objectives of NTN were numbers ②, ③, ④, ⑤, ⑥, and ⑧ above, while the main objectives of IFA were numbers ①, ②, ⑥, ⑦ and ⑨.【← The strategic rationale of NTN = The expansion of CVJ business in Europe by getting VW business.】  In the strategic partnership (JV: Guangzhou, Taiwan) between NTN and Yulon, the main objectives of NTN were numbers ③, ④, and ⑤ above, while the main objectives of Yulon were numbers ① and ② above.【← The strategic rationale of NTN = The expansion of CVJ business in China by building a foothold with new customers in the Yulon Group such as Southeast Motor, and Dongfeng Motor.】  In the strategic partnership (JV: Beijing) between NTN and KOFCO, the main objective of NTN is number ③ above, while the main objective of KOFCO is number ② above. 【← The strategic rationale of NTN = The expansion of its CVJ business in China by getting the business with Hyundai Group.】

3  In the strategic partnership (JV: Taiwan, Shanghai) between
NTN and Tungpei (Treasure Island Trading Co.), the main objectives of NTN were numbers ③, ④, ⑤ and ⑥, above, while the main objectives of Tungpei were numbers ①, ② and ⑥ above.【← The strategic rationale of NTN = Becoming more competitive in high quality radial ball bearings in mainly Taiwanese and Chinese markets by expanding outsourced production.】  In the strategic partnership (JV: Zhejian, Thailand) between NTN and Nidec Corporation, the main objectives of NTN were numbers ② and ③ above, while the main objective of Nidec were numbers ② and ④ above.【← The strategic rationale of NTN = Participation in and expansion of the HDD fluid dynamic bearings business】  In the strategic partnership (JV: Changzhou) between NTN and the Changzhou Guangyang Bearing Co, the main objectives of NTN were numbers ③, ④, and ⑤, above, while the main objectives of Changzhou Guangyang Bearing were numbers ① and ② above.【←The strategic rationale of NTN = The acquisition of a low-cost production base, mainly for sales expansion of needle bearings in Chinese market. 】  In the strategic partnership (JV: Taiwan, Australia) between NTN and GKN, the main objective of NTN and GKN was number ⑦ above.【← The strategic rationality of NTN ＝ Improvement of production and engineering capabilities of CVJ business in Taiwan and Australia, under the basic policy of enhancing global CVJ supply supported by the local production and local supply for each region.】 < 4. Structures of Strategic Partnerships > ・ A variety of structures are possible, from joint research, joint purchasing, and technology licensing to joint ventures (capital participation). However, the detail structure and scope of each partnership must be determined after giving consideration to its objectives and the characteristics of the partners. < 5. Procedures and Check List for Strategic Partnerships > ・ The success rate for M&A activity (an improvement in enterprise value) involving European and American businesses is said to be 30%. NTN thinks that a strategic alliance is lower in cost and risk. However, to that end, clarifying the following items is necessary and shall be considered in light of NTN’s Medium-Term Overall Corporate Strategy. Clarification of the strategic rationale for NTN is the major precondition for building a strategic alliance or an M&A. 1) Selecting a Partner: Under the direction of NTN's Medium-Term Overall Corporate Strategy, NTN must study and clarify what to look for in a partnership, how to realize expected synergies , and the roles and responsibilities of each partner to achieve the mutual expectations and objectives. 2) Risk Analysis and Avoidance Measures: Compared to NTN going it alone or NTN buying

4 100% of a target company, the case for building
a strategic partnership requires properly cooperating while anticipating potential and competition with the partner. As a consequence, consideration must be given to the following risks and appropriate countermeasures.  The risk that one partner will use the partnership for building competitive advantages over the other partner. (The risk of nurturing a future competitor.)  In a relationship in which the partners utilize each other’s technology, the risk that one partner will study the other's technology, making that technology its own, and then carefully protect its own technology. (Each party is suspicious if the partner is really a friend or an enemy, so the risk is that of not allowing the partners to build a genuine cooperative relationship.) 3) Structure and scope of the partnership: NTN should not suddenly start an alliance of multiple joint ventures with a broad scope in an effort to promote many businesses in many regions. NTN should start with a simple alliance with a limited scope. The basic thinking is not to use wishful thinking, but to take enough time to get a clearer understanding of each side's motives, capabilities, and expectations. As mutual understanding increases, the scope of the alliance can gradually expand. (To accommodate long-term changes in the business environment, the flexibility to make appropriate modifications in objectives, range of responsibilities, and the division of roles is required. Further, it is possible that as the business environment changes, the alliance will lose its value.) ・ Further still, daily and individual efforts should conform to a "partnership spirit" in which mutual trust and respect is strengthened as each side fulfills its responsibilities. This is based on the concept of establishing "a relationship of equality founded on trust and respect between friends who work together to achieve a mutually profitable future.” End

NTN Strategic Partnerships

NTN Strategic Partnerships

Tetsuya Sogo

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1 Guidelines for Strategic Partnerships August 31, 2006 T. Sogo

2 businesses, regions, and customers. (Includes long-term purchase guarantees and

3  In the strategic partnership (JV: Taiwan, Shanghai) between

4 100% of a target company, the case for building