This is part 3 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.
The relationship between joint venture partners is a unique amalgam of cooperation and competition. Partners commit to a long-term relationship that inherently requires cooperation to achieve success. At the same time, each partner tries to maximize its individual net benefit from the venture, leading to competition.
Cooperation and competition begin as soon as you and a prospective partner start thinking about creating a JV together. Differences in your respective goals, discussed in part 1 and part 2 of this series, will drive competition. So will changes in the JV’s business and in the partners’ situations, which will be covered in part 4.
Balancing the need for cooperation and the reality of competition is your central challenge when building a JV. If you give up too much leverage in early negotiations, it is nearly impossible to recover. When partners are competing, and especially when they disagree, each will refer back to the joint venture agreement in order to use any advantage the contract provides. You need to have enough power to protect yourself over the life of the JV or you will pay a high price at the most critical times. On the other hand, if you drive the partner away in the negotiations, you will never get the deal.
What is the best path to this balance?
Understand and accept that your potential partner will be negotiating and seeking advantage from the very beginning. Don’t be tempted by the idea that you need to build the relationship by being very agreeable at first, and getting down to business only later. This view is naïve and dangerous. Of course you need to build a good relationship, but it should be the relationship of a respected friend, not an easy mark.
Learn to practice polite insistence. By being friendly yet firm, respectful yet respected, you can build a sound relationship for the long term. Keep the fundamentals of your proposed business in mind along with the following:
Preparation is everything. Many outstanding businesspeople want to have the first conversations with potential JV partners by themselves, to talk about “business issues” without the “complications” that lawyers and other advisors add. That often makes sense, but only with rigorous advance preparation with a business team that includes those legal, financial and tax people.
Necessary preparation includes analysis of the proposed business, the joint venture keys discussed in this series, and the basics of the business, legal and tax environment in the country. Find, vet and use trustworthy, capable local advisors to help you.
“It’s not the will to win that matters. It’s the will to prepare to win that matters.”
— Coach Paul “Bear” Bryant
Maintain healthy skepticism. Prospective partners will tell you about their goals and capabilities, and about the market, the country and their experience with foreign investors. Do not accept anything at face value, as you don’t know where your partner draws the line between acceptable “puffing” and unacceptable lying. In some cultures and for some partners, outright lies are normal and acceptable. Any time you are told something like, “everyone here always does it this way,” alarms should be blaring.
“Trust, but verify.”
— Ronald Reagan
Demonstrate respect for your partner. The concept of “saving face” is commonly associated with Asian cultures, but nobody from any culture likes to have his or her shortcomings amplified. Show respect for your potential partner by being polite in negotiations. If you are bringing technology to the JV, don’t belittle your partner’s technical efforts. Avoid NFL-style end zone celebrations when you win a point. Learn about and honor your partner’s national and business culture, but do not let them use culture to create negotiating leverage. Watch for traits that will present challenges later, and be sure to show respect in a way your partner will understand.
Regard “politeness as a sign of dignity, not subservience.”
— Theodore Roosevelt
Don’t Rush. Companies seeking international joint ventures are often in a hurry. You may be trying to beat a competitor into a particular country or region; you may want a public announcement this quarter; you may want to impress the CEO with your effectiveness. If you traveled for the discussion, you have a flight home to catch. Your potential partner may have more time, and the local culture may emphasize patience more than yours does.
When you’re inclined to rush, think about what the balance of negotiating leverage is at that moment, whether being in hurry is likely to have a cost, and whether the reasons for your impatience are really worth that cost. Be ready to delay the announcement, put off the groundbreaking, or cancel the flight home.
“He that can have patience can have what he will.”
Resist the temptation to respond to every question or argument. Emulate the best negotiators and embrace the power of silence. Sometimes, several seconds – or even minutes – of silence will speak far more powerfully than words. When silence is impossible, fall back on ambiguity. Learn from Japanese negotiators, who often respond “that’s very interesting” when they are thinking “hell no.” When you actually say “hell no” less frequently, you will find that each occasion has more power.
If you can’t say anything nice, don’t say anything at all.
— Your mother
Recognize the tension between cooperation and competition in any JV, and use polite insistence to build a solid relationship with your partner and maintain balance in your partnership. With this balance, you can build a JV agreement that will withstand a challenging and changing environment and enable the partnership and all of its partners to thrive.
You can read the entire Keys to International Joint Ventures series by clicking here.