This is part 1 of a series that builds on “7 Keys to International Joint Ventures.” The series will give you tools to help decide whether a joint venture is right for your business project, find the right partner, and negotiate a joint venture agreement that positions your partnership for success.
To have a great joint venture, start with a great partner. That sounds obvious, but is much easier said than done. Finding a great partner is harder than hiring a great executive, and more critical because a partner has a tremendous impact, and it’s difficult and expensive to change partners if you pick the wrong one.
Hitting it off with the prospective partner’s owner or CEO over dinner is nice, but won’t help you truly understand the prospective partner and what it will bring to – and take from – the JV. The business world is littered with the wreckage of JVs where a partner was chosen on the basis of personal chemistry, hope, or an urgent desire to get started.
Below are key questions that require research, careful analysis, and intellectually honest assessment. Use your results to choose your partner and to create a JV structure that works for both of you. Remember that you are part of “both of you,” and that you are entitled to have your interests protected.
Is the partner successful in business?
Your partner almost certainly looks successful, but we all know stories of seemingly successful businesses encountering difficulties, or even outright failing. Is your partner really successful? If so, is it successful in its own right, or does it depend on special relationships, a government franchise or monopoly that may not apply to the joint venture?
What makes your partner successful? Will these attributes contribute to a successful partnership with you? Or will the partner’s business strategies and tactics conflict with yours?
Does the partner (or an affiliate, or the owner’s sister-in-law) own other businesses that might compete with, sell to, or buy from the JV?
Will the partner’s eye be on the success of the JV, or on what the JV can do for the partner and its friends and family?
What are the partner’s goals for the joint venture?
In building a partnership, it’s critical to understand what the other party wants, and to assess whether it can, and is willing to, deliver. Many JVs have foundered due to inconsistent objectives of the partners. Here are a few key questions to consider (alongside your own objectives, which I’ll discuss in Part 2 of this series):
- What is the partner’s time horizon? Is the partner looking for long-term growth, or a quick exit? You can find clues in its track record with other ventures. If it is a one-owner or family business, how old is the leader? Is there a track record of stability across generations?
- Is the partner eager to expand beyond the original project? If so, is it willing and able to contribute capital to fund expansion? What if capital is needed to overcome early difficulties in the project? Many companies have been surprised by partners who insisted on maintaining their ownership percentage, but were unwilling to put in one dollar beyond their initial commitment.
- Is the partner more focused on profit or market share? A mismatch with your partner in this area can make life extremely difficult.
- Is the partner’s risk profile similar to yours? Understand how (and whether) the partner analyzes business and financial risk, and how much risk it is willing to take on. Does the partner expand its own businesses based on a “seat of the pants” feeling while you require a 20 year discounted cash flow analysis? Is the partner fundamentally more or less willing to roll the dice than you are?
Understand also the partner’s view of compliance risk and whether it is compatible with your view and the legal requirements you face. In many places, you will find prospective partners that are used to evading, or even flouting, rules and regulations. With enforcement increasing around the world, you will be legally – even criminally – accountable for many of your partner’s actions. Can the partner adopt the compliance culture you need to build?
- What are the partner’s goals for control of the venture? Does it expect to be in charge, either through formal arrangements in your agreement, or by having its people on hand at the venture while your team is an ocean away?
- Does the partner have goals for your technology, your brand and other intellectual property? Does the partner expect you to contribute these to the JV for free? Or worse, is the partner’s goal to be able to use or control these itself?
- What are the partner’s human resources objectives? Does it have highly skilled people who can be deployed in the JV? If so, would that be for the long term, or only until a new project comes along? Is there a cousin of the owner who “needs” an important job? Is the cousin a strong contributor – or a disaster?
As you learn, new lines of inquiry will become evident. Vet the partner. Talk with its partners in other JVs, and with people with whom it does business. Use online search. Check carefully for compliance problems. (More on this in Part 7 of this series.)
Build a solid understanding of whether this partner can contribute to success, working with your company and your people. This understanding will help you and your team decide whether to go forward with this partner, and how.