The road to successful international joint ventures is littered with wrecks, many of which were caused by wishful thinking. If you are considering or planning a joint venture (JV), consider the following points carefully and honestly.
1. Understand your partner and its goals.
Do not assume that prospective partners want the same things you do. Learn the partner’s business and what it wants from the venture. To evaluate whether its goals are truly compatible with yours, consider:
- Does the partner want to build a long-term business or to exit quickly?
- Is the partner more interested in profit or market share?
- Does the partner want expansion, and will it contribute capital to fund expansion?
- Does the partner want your technology, and what will it do with the technology it gets?
- Is the partner looking for an important post for a (possibly under-qualified) relative?
2. Understand your own objectives.
Think beyond your “big picture” wish list – growth, market entry, sharing capital requirements and risk, or local capabilities. Dig deeper with key questions, including:
- What are your objectives for invested capital, profitability and growth?
- What are your HR objectives? For example, do you have excellent people to send to the JV, or must it find its own people?
- What are your preferences on risk and control? How much control of management decisions do you need? Do you need control of intellectual property? Or customer relationships? What about whether to reinvest or distribute profits, or how to fund losses?
3. You need to form a relationship, and therefore need to be flexible and reasonable.
This conflicts with your need to need to form a basis for your relationship that can withstand change and the pressure of business, and therefore to establish your rights. It is not easy to maintain friendliness and at the same time insist on the level of power you must keep. Your prospective partner will not make it easier. Know what rights you need and study polite insistence.
4. Important things will change.
Over decades in JVs, I’ve seen many changes outside the ventures that have had important consequences inside. These include losses in the partner’s main business, causing a sudden need for cash and generational change at a family-owned partner, leading to completely new priorities. Some changes bring opportunities, and others bring obstacles – your organization needs the strength and depth to deal with change.
5. When you’re entering a new country, you don’t know much about that place.
Many companies fail to recognize that their lack of knowledge often makes the partner’s knowledge and capabilities seem greater than they are. It is easy to overestimate how much a partner will contribute. Assess the partner’s strength, depth, and commitment. If the partner will provide goods or services to the JV, remember that it will be very hard to change providers if quality, service or price is bad.
6. Build your own relationships and capabilities.
Even if your partner is great at government relations, procurement, or trade associations, use the partner to build independent capabilities in your team and in the JV. The JV must not depend on the partner’s accountants, lawyers and other advisors. If your partner’s goals and yours diverge, even short of a fight, it will be critically important for you to have independent expertise and for the JV to have key capabilities in place.
7. Your partner can do things that you can’t do. Your partner can do things to you that you can’t do back.
Your partner may feel comfortable paying bribes, talking strategy with competitors, or skirting safety or environmental laws. You must figure out whether this is the case and, if it is, whether you can control your partner. In some places, enforcement becomes stricter when a foreign company shows up. Once you are in a JV, you are responsible for your partner. Your JV needs an effective approach to compliance, which will be impossible if your partner resists. If you are in a place where judges can be bribed, it may be hard to enforce your rights, no matter what your contract says.