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Click on one of the two buttons to access the content you wish to view. COVID Remote personalized support Our physical offices are closed, but our advisers remain at your disposal to help you plan the resumption of your activities. Guide Joint ventures and partnering Share on:. However, a joint venture could give you: more resources greater capacity increased technical expertise access to established markets and distribution channels. Types of joint venture Joint venture - benefits and risks Assess your readiness for a joint venture Plan your joint venture relationship Choosing the right joint venture partner Create a joint venture agreement Make your joint venture relationship work Ending a joint venture.
How well do they perform? What is their attitude to collaboration and do they share your level of commitment? Do you share the same business objectives? Can you trust them? Do their brand values complement yours? What kind of reputation do they have? Are they financially secure? Do they have any credit problems? Do they already have joint venture partnerships with other businesses? What kind of management team do they have in place? How are they performing in terms of production, marketing and personnel?
What do their customers and suppliers say about their trustworthiness and reputation? Get your relationship off to a good start. For example, you might include a project that you know will be a success so that the team working on the joint venture can start well, even if you could have completed it on your own. Communication is a key part of building the relationship. When Partner B sees this happening, it uses the information to justify holding back its committed contributions, creating a loop of partner suspicion and distrust.
Winning JVs start to address economic interdependencies as soon as an agreement looks likely in order to avoid launch delays and the loss of millions of dollars in potential synergies.
They make sure that the launch team contains appropriate expertise and authority to resolve important economic issues. Specifically, successful ventures do the following:. The process of sorting out who will provide what to the joint venture is time-consuming for everyone involved. In one high-tech consolidation JV, the partners spent 10, man-hours over four months determining precisely which services and resources each parent would provide the JV and constructing service-level agreements that specified transfer pricing, access rights, and other critical terms of the deal.
This group established criteria for determining which services the JV would purchase from the parents. It then documented the shared resources and services and collaborated with the purchasing and finance teams to price each shared service. One of the most valuable tasks of the launch team is to challenge—and limit wherever possible—the number of interdependencies between the parents and the JV.
Working teams in the high-tech consolidation JV initially generated a list of more than 1, dependencies upon one parent—that parent was slated to provide administrative services, component purchases, and shared research facilities, among a slew of other resources. Recognizing that a heavy load could create unmanageable complexity down the road for the parent company, the launch leaders challenged virtually every line item on the list.
Eventually, they whittled it down to just services that the parent would provide the venture in the first year and less than ten services in the second year and beyond. Once a list of shared services is finalized, the launch team must develop transparent and honest methodologies for calculating transfer pricing.
This is critical for maintaining trust down the road. A telecom joint venture depended on one parent for 90 different shared services. The partners did renegotiate transfer pricing, but the distrust that was created continues to plague the venture.
Parent companies need to move outside their comfort zones when devising an organizational structure for their JVs. To avoid this situation, the launch team should agree at the outset on the methods for allocating costs, specifying which operating costs should be included for instance, customer billing or maintenance and the basis upon which to allocate each shared cost for instance, per subscriber, per region, per dollar of revenue.
And the launch team should specify a path for resolving contentious economic issues. Finally, the JV should be linked to the corporate review and planning cycle of at least one of the parents, reducing the odds that important economic issues will fall between the cracks and require 11th-hour intervention.
Parent companies may need to move outside their comfort zones when devising an organizational structure for their JVs, adopting a staffing model, and designing incentive plans.
There is a tendency in many JVs that combine existing organizations to select a familiar organizational model—either a regional one, if the parents are contributing assets from different regions, or a product-division structure, if each parent is contributing different products.
This simple approach allows each parent to protect its turf and minimize organizational disruption—but it also dilutes the potential effectiveness of the new organization. If the parents try to preserve the status quo, they risk reducing the synergies between them.
The creation of a joint venture is an opportunity to unfreeze the organization. Beyond the issue of formal structure, a successful JV launch requires taking the following approaches to staffing and incentives. There are three basic organizational models for joint ventures: independent, dependent, and interdependent. The independent model, pursued by companies such as Carlson Wagonlit Travel and Marathon Ashland Petroleum, lets companies create new and often more entrepreneurial cultures.
The independent JV typically has an entirely separate reporting structure from the parents, its own facilities, and the freedom to source from external as well as internal suppliers. This model allows venture management to have greater focus and unity of purpose, but it also requires the venture to establish and maintain separate HR systems. This can make it harder to recruit potential managers who would prefer the wider career opportunities offered by the parent companies.
Some companies go to the opposite extreme and create dependent JVs. BP and Mobil used this approach when creating two JVs in their downstream European oil businesses: The refining venture operated as a BP business, while the lubricants venture operated as a Mobil business. The advantages here are opposite those of the independent JV.
The third model, the interdependent JV, is tough to execute but is by far the most commonly implemented structure. Members of the management team maintain links to their original corporate parent.
They remain on the same compensation plans, anticipate future career moves back to the parent, and sometimes have dotted-line-reporting relationships to an executive in their parent organization. The interdependent model protects career paths and offers maximum flexibility, but it can be complex to manage and can perpetuate divided loyalties. In one billion-dollar global media JV, the management team remained culturally divided into U.
This interdependent JV was operating in a mature sector, and the partners had agreed to rotate the senior positions between them every three years—which created a questionable career path for those deciding to stay at the JV. To make matters worse, the venture was functioning at a significant talent disadvantage. Those managers who performed well were repatriated back to the parents, while those with mediocre performance remained at the venture. This JV was further bedeviled by unclear reporting relationships.
For example, a senior-ranking German manager in the JV routinely communicated privately with a senior board member from the German parent who was his former boss. As a result, the JV CEO had to treat his second in command as a board liaison rather than a direct report, making it difficult to hold his feet to the fire on performance issues.
Unfortunately, this is not an isolated case. Many JVs are held back because they offer the wrong incentives and are unclear about accountability. And the problems are not limited to the senior management team; they spread throughout the venture, even back to the support staffers who remain with the parent organizations.
Regardless of the organizational model, the launch team must create a compelling value proposition that makes good people want to join the team. For start-ups, the excitement of building something from the ground up is often sufficient to attract motivated players. In difficult turnaround situations, the compensation upside might be essential lower base pay but higher bonus or stock options than in the parent companies.
Personal considerations cannot be underestimated. Everyone wants to work for a motivational leader, and selecting a CEO who inspires loyalty is the best way to build a strong new business. The physical proximity of key members of the JV management team is also important for accelerating team building. Sometimes a joint venture may therefore mean operating in an unfamiliar country or region.
Businesses should spend as much time familiarising themselves with this new market as they do with their prospective partner and be aware of the risks that accompany it.
In addition, companies should ask themselves if there is a new market that, through their joint venture, they might be able to explore. Culture fit When bringing two cultures together, conflict is inevitable, even if the due diligence process has suggested that they should be compatible. This conflict can present a major threat to the success of the joint venture, since disillusioned employees may be tempted to find jobs elsewhere.
Rather than letting the culture of one company dominate, the two parties should be ready to embrace their differences. In many ways they are. JV is a little more complex than an acquisition simply because you know who the dominant party is. In a JV, you need to build a consensus and collaboration without having the dominant party, so it is very advisable to create an independent management team with pre-defined expectations.
The biggest problem for a JV is the need to quickly adjust to new demands because if one side demands a different report, the other side should agree with it. When we were setting JVs there was a rule - what is provided to one parent, needs to be provided to another as well.
I define trust by whether the person I am talking to has the best interests for the JV or they are in it for the best interest of a parent. It is natural for each party to represent the objectives of a parent company, but at the same time, the benefit of the JV simply needs to be at the forefront when making decisions. You can usually notice this difference in attitude very early on.
Scenarios tend to be different. For example, one was a fragmented brand, where we looked at how we can make sure that the brand is more aligned and that we have more synergies around it. Another strategy was around distribution, where neither side was large enough to be effectively distributing the product, so therefore we ended up combining forces.
If you focus on that purpose, that objective, then a JV is a successful one. Scientists, researchers, and engineers are very proud of their work and they want to get a lot of credit for it and are very protective of it.
In a JV, that is difficult to achieve, which is why working on creating the right culture matters. JV is a legal or corporate structure that serves a specific purpose where two parties bring their assets together and share the outcome of those investments.
Strategic partnerships are really about collaboration and having separate fruits of the labor. If you are willing to share the risk then I would definitely approach it as a joint venture. However, you won't share the rewards of that legal entity. With a joint venture, you should have a lot more responsibility and a lot more say for whatever happens in that particular market.
We had an example where we were planning for a JV, but once we consulted, we decided we are not fully ready for it, so we decided to go for a partnership instead. Once things develop we are going to form a joint venture. The one that I found crazy was when we were negotiating a deal which started as a divestiture. In the middle of the process, as we were trying to negotiate, the CEO of the company we were talking to sent a letter to a French Minister of Industry stating that the French workforce gets high wages, only does the talking but works only three hours a day.
We got so much backlash in the middle of it and the number of politicians that got involved in it was insane. Please subscribe for more content and conversations with industry leaders.
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