This is part 2 of a series that builds on “7 Overlooked Keys to International Joint Ventures.” The series will give you key 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.
Conceptual goals often lead companies to seek an international joint venture (JV). They may want “to participate in growth in India, and get local knowledge to help,” or “to get into Brazil using the partner’s logistics capability,” or “to be in China because a big customer wants them there.” But many companies entering JVs fail to consider a deeper level of wants and needs from the JV.
Many expensive and infuriating JV disasters have been caused by companies failing to consider these components, even though they lie just below the surface of a partnership. In order to choose the right partner and create the right structure for your investment in a new place, consider what you want and need by analyzing the following questions:
Do you need control of decisions and risk?
- How much control do you need of the level of business risk that the JV takes day to day? Do you need a say in credit decisions? In warranties?
- Who will control sales and marketing strategy? If your company takes a new approach to global branding in five years, will you need the JV to adopt that same approach?
- Do you need to control the flow of dividends or the timing of reinvestment? What will happen if the partner wants dividends in circumstances that create a tax disadvantage for you?
- Will you have enough control of compliance risk? Failures in health and safety, environmental protection, or bribing local officials can have a huge impact on your company. Your partner may have a very different view of these risks.
Do you need to control resources?
- Who controls key personnel decisions? Can you fire a sales manager who infuriates your customer in a country far from the JV? What if that sales manager is your partner’s brother?
- Who will own patents and trademarks? If the JV has a local logo that incorporates your name and marks, will you be able to take it if the JV dissolves? If the JV’s local staff invents an improvement to your process, will the partner be able to hold you up for a big payment before you apply it to your other facilities?
What are your goals and needs for human resources?
- Who can you send to the JV? Is this an opportunity for great people inside your company to learn and grow, or do you want to enter a new market without sending first-rate people to the JV? Does your partner have capable people to assign to the JV, and if so, are they the people you want and need? In both cases, what will happen when these people return to their respective parent companies?
- Do you have a first-rate financial person to send to the JV to watch the money? Do you have a plan to always have such a person in place for the life of the JV?
- Do your senior leaders have the time and willingness to actively lead the relationship with your partner? JV relationships often become difficult when the local partner feels that it has no relationship with the people who matter in the foreign partner’s organization. If you give the responsibility to junior people, will you give them the authority they will need to have credibility with the partner and to act?
What are your real needs for investment, profitability and growth?
- Does your goal for the amount you will invest include a big enough contingency for currency fluctuations, cost overruns or startup difficulties? If more capital is needed, are you willing to invest it all, or do you need your partner to participate?
- If a big customer wants you to enter a market, are you compromising your standards on profitability? Sales personnel often say you can settle for low margins because a big global customer wants you in this place, but your shareholders and partner will quickly forget why lower margins seemed acceptable.
- Are you in a hurry to grow, or do you want to let the JV prove itself before committing additional resources? Does your partner see it the same way?
- If the JV is successful, what do you want to do with the profits? Can profits be repatriated easily, or are there high tax costs or currency controls that make this difficult? Can profits be reinvested easily? Do you have the right structure to preserve your options from corporate and tax points of view?
When entering, or considering, an international joint venture, think critically about your wants and needs and how they line up with those of your potential partner. Doing this will help you choose your partner wisely, allocate the right resources to the JV and create a sound JV structure on which to build a successful business.