This is part 5 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.
Many businesses enter into joint ventures to gain local knowledge about a new country. You want a local partner to help you navigate and get established in its home territory. Unfortunately, in many JVs the partner fails to deliver this critical service.
Have you ever hired a guide for a vacation in a foreign country and been disappointed? The website made the guide seem like a fount of knowledge, but when you arrived he didn’t know how to get from place to place, the restaurants he recommended were awful, and he didn’t know all that much history. Worst of all, he didn’t listen to you to learn what you wanted to see, but instead took you to the places on his regular list, including merchants selling overpriced souvenirs.
It has happened to me – in vacations and in JVs.
When you plan a JV, the lack of knowledge that you’re (admirably) trying to address with a partner makes it difficult to pick the right partner. You don’t know enough to know what to ask.
To make things worse, a powerful cognitive bias leads you to act on your first impressions and makes it hard to seek information you need. In Thinking Fast and Slow, Nobel economics laureate Daniel Kahneman describes WYSIATI – “What You See Is All There Is.” He explains that “[t]he confidence that individuals have in their beliefs depends mostly on the quality of the story they can tell about what they see, even if they see little. We often fail to allow for the possibility that evidence that should be critical to our judgment is missing” (Kahneman, p. 87).
If a prospective partner who knows the territory much better than you do can tell an effective story, your mind rushes to believe it. This natural tendency is enhanced by distance and by differences in language and culture, which create obstacles to seeking better information. Your lack of knowledge makes the partner’s knowledge and capabilities seem greater than they are. As Kahneman puts it, “it is easier to construct a coherent story when you know little” (p. 201).
To maximize your JV’s potential for success, you must maximize the information that goes into building your story of how the project will develop. Fight the tendency to build your narrative around whatever facts a prospective partner provides. Use multiple sources of information to test that information and add to your knowledge base.
It is also easy to overestimate how much a partner will contribute to the JV once it’s up and running. In choosing the partner, and in designing the partner’s areas of responsibility and authority, it’s important to fight your WYSIATI tendencies. Assess the partner’s strength, depth, and commitment.
For example, it’s common for a local partner to take responsibility for government relations. However, even if your partner has great relationships in government, you need to test whether those are the relationships that the JV will need, whether the partner has the substantive government relations skills in the JV’s substantive areas, and whether the partner’s team will devote the resources to the JV for the long haul. Consider whether leaving government relations in the hands of the partner creates a corruption risk. In many cases, it will be better to give the partner a defined role in helping the JV build its own government relations capability.
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. It is naïve, or perhaps just WYSIATI, to assume that the partner’s ownership interest ensures it will act in the best interest of the JV. Do not build your JV structure on that assumption.
As in many areas of life, there is no sound path that avoids careful and disciplined preparation. As Kahneman says, the “voice of reason may be much fainter than the loud and clear voice of an erroneous intuition, and questioning your intuitions is unpleasant when you face the stress of a big decision.” He recognizes that “little can be achieved without a considerable investment of effort” (p. 417).
If you invest effort, if you and your team are disciplined about gathering and evaluating information, and if you are prepared to verify the appealing stories of prospective partners, you will greatly enhance your chances of a successful joint venture.
Of course, time and resources are limited. Gathering and digesting information from afar is difficult. And our cognitive biases are powerful. Take all this into account as you structure your JV, and give yourself enough flexibility and authority to recover from mistakes.
You can read the entire Keys to International Joint Ventures series by clicking here.