This is part 6 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.
Your joint venture partner, if you choose well, will significantly strengthen the business. Your local partner will especially add value in the JV’s locale, which of course is a key reason for entering into an international JV instead of just opening up on your own.
Don’t ever take your partner or its contributions for granted. Local partners who feel (often justifiably) unappreciated are a leading cause of problems between JV partners. Nonetheless, it’s essential that you strategically build your own local relationships and capabilities.
Failing to do so has tremendous costs. The JV landscape is littered with losses of capital, reputation and strategic advantage suffered by sophisticated companies that depended too heavily on a local partner.
Some of these losses are outright fiascos; others are subtle missed opportunities or failures to achieve a JV’s potential. Some are related to topics covered in this Series: differences between the partner’s objectives (Parts 1 and 2), failure to assess accurately the character and capabilities of the partner (Part 1), changes at the partner or in the business (Part 4), underestimating the challenges of the country or overestimating the capabilities of the local partner (Part 5).
Without investment in your own capabilities and relationships, the JV, and you, will be completely reliant on your partner. If the JV misses a few opportunities, this is a problem. If the JV suffers losses, or you find yourself in a dispute with your partner, or you need to exit the JV, it can be a disaster.
How do you do it?
Start by investing in human capital at your headquarters. You need people on your team who have real knowledge of, and a real relationship with, the partner, the JV and the country. Give these people real authority at the JV. When companies try to keep all the important relationships in the C suite, they stumble. Very senior people don’t have (or make) time to develop deep knowledge of the JV or its locale. Give some key roles, including on the JV’s board, to outstanding up-and-comers, and use top executives to provide support and, when necessary, a high-ranking presence.
Insist the JV develop its own team as well and doesn’t rely mainly on the partner’s people. As noted in Part 4, if the partner drops key people in to the JV, it may eventually need to pull them out. Confirm that the JV’s personnel planning is sound.
Next, determine the most strategically important capabilities and relationships. These are usually in money and financial management, government relations, business relationships, legal, tax and communications. Send some trusted employees to the JV to build relationships, and carefully choose advisors to build more. If your JV is very substantial, or you have several JVs in one country, consider establishing a local office of your own.
Build your own continuity plan for key people. It’s not healthy when someone on your team is ready to move to the next career step and you have no one ready, and available, to move to the country to take the position.
A few areas critical to the success of the JV require special attention:
Watch the Money.
It’s most critical for you to watch the money in your JV. For this, you need a capability inside the JV and relationships beyond it.
Place a financial person of your own in the JV, ideally as the CFO. You need someone senior enough to be independent, and who has or can develop language and cultural skills to be effective. Second, engage an accounting firm independent from the JV’s accountants. You will have questions and will be thankful to have your own person to answer them. Third, depending on the size and activities of the JV, and on whether you anticipate an eventual purchase or sale transaction, you might want to have a relationship with a local financial advisor.
Government Relations.
No matter how capable and plugged in your partner is, you need at least rudimentary relationships with the government and the local business community. Start with the commercial officers at your home country’s embassy. Meet them early in your process, and keep up that relationship.
Know officials at the government offices and ministries that are relevant to your JV, starting with business development officials and continuing as high up as you can get. Your embassy can help you. Don’t be shy – governments usually like to build relationships with foreign investors, and those relationships may be important if you have an opportunity or a problem. Get to know carefully vetted government relations advisors.
Include your partner in some of your contacts so it doesn’t feel that you are constantly working behind its back. Make your own government relations a matter-of-fact part of your approach to the JV from the beginning.
Business Relationships.
Start meeting local businesspeople as you vet potential partners. It’s not hard to meet people, even in a new country. Your embassy’s commercial office can make introductions. Join the local American Chamber of Commerce. Your auditor, insurance broker, commercial and investment bankers, and lawyers can make more introductions. Keep up relationships with potential advisors who were runners up in your selection process – you never know when they will be good friends to have.
If the JV shares multinational suppliers or customers with your other locations, build good relationships with their local teams. Know what suppliers’ and customers’ local people are telling their headquarters about your JV. Consider building relationships with important local suppliers and customers. These relationships will help you understand the market and help build the “trust but verify” posture with your partner that is discussed in Part 5 of this Series.
Legal, Tax and Communications.
Get your own in-country legal and tax advisors. They should clearly represent you, not the JV, so that they can continue to advise you if there is a dispute. Consider adding public relations professionals to your team. They will help you to know the territory and will be good to know if an issue arises. Each advisor should agree in writing that it will not take on work (for your partner or that would prevent it from representing you in a dispute with the partner or the JV.
Making it Work – At a Cost that Works
Tallying the potential cost of these relationships and capabilities can be daunting. In my experience there’s a direct correlation between JV profitability and investment in building and maintaining local relationships and capabilities. And if your relationship with your partner becomes difficult, the investment will repay itself many times over. Consider the JV’s size and risks, and utilize your assessment of your partner, its goals, and the other keys in this Series, to allocate your resources strategically.
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© George Creal
You can read the entire Keys to International Joint Ventures series by clicking here.