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Lesson#27
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Managing Joint Ventures
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MODES OF ENTRY INTO INTERNATIONAL MARKETS
Managing Joint Ventures
As there are good business and accounting reasons to create a
joint venture (JV) with a company that
has complementary capabilities and resources, such as
distribution channels, technology, or finance,
joint ventures are becoming an increasingly common way for
companies to form strategic alliances. In a
joint venture, two or more "parent" companies agree to share
capital, technology, human resources, risks
and rewards in a formation of a new entity under shared control.
Important Factors to be Considered Before a Joint Venture is
Formed
• screening of
prospective partners
• joint
development of a detailed business plan and shortlisting a set of prospective
partners based
on their contribution to developing a business plan
• due diligence -
checking the credentials of the other party ("trust and verify" - trust the
information you receive from from the prospective partner, but
it's good business practice to
verify the facts through interviews with third parties)
• development of
an exit strategy and terms of dissolution of the joint venture
• most appropriate
structure (e.g. most joint ventures involving fast growing companies are
structured as strategic corporate partnerships)
• availability of
appreciated or depreciated property being contributed to the joint venture; by
misunderstanding the significance of appreciated property,
companies can fundamentally
weaken the economics of the deal for themselves and their
partners.
• special
allocations of income, gain, loss or deduction to be made among the partners
• compensation to
the members that provide services
Joint venture decay and failure:
• Joint ventures
seem to have a life cycle
• At a certain
point in the life span of the joint venture, the high level of mutual interest
which
prevailed at the time of its formation grows weaker
• There are several
principal causes of failure or difficulty in joint venture partnerships
– the failure of
strategic vision
– the failure to
evaluate the intentions and capabilities of the local partner
– a classic
error is made in the choice of a distributor
– believing
gabout the partner/s without seeing
– failure to
understand the strategic logic of one’s own partner
– haste in
negotiation
– lack of
organizational support for the JV
– staff not
prepared to deal with the political and cultural complexity of the local
government
Drivers behind successful joint ventures:
• Pick the right
partners
• Establish clear
objectives from the beginning
• Bridge cultural
gaps
• Top management
commitment and respect
• Incremental
approach works best
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