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Benefits of Joint Ventures2,5 |
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Provide companies with the opportunity to
obtain new capacity, expertise, and information
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Allow companies to offer their customers
new products and services
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Allow companies to save money when
businesses share operating,
advertising and
marketing costs
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Allow companies to save valuable time
when businesses share the workload
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Allow companies to gain new business
associates and get referrals from other businesses
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Allow companies to enter into related
businesses or new geographic markets or obtain new technological
knowledge
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Have a relatively short life span (5-7
years) and therefore do not represent a long-term commitment
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In the era of divesture and
consolidation, offer a creative way for companies to exit from
non-core businesses: companies can gradually separate a business
from the rest of the organization, and ultimately, sell it to the
other parent company (appr. 80% of all joint ventures end in a sale
by one partner to the other).
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Three Possible JV
Governance Arrangements4 |
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Full equality:
the parents decide policy and operating matters together
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Policy equality: the parents
must concur on JV policy terms, while one takes the lead in
operating matters
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Lead parent arrangement: one
parent has the lead on policy as well as operating questions...
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Common Reasons for Joint Venture
Difficulties2 |
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The joint venture partners possess
disparate, and often conflicting,
corporate
cultures and operational styles...
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Why Joint
Ventures?
As there are good business
and accounting reasons to create a joint venture (JV) with a company that
has complementary
capabilities
and
resources, such as distribution channels, technology, or finance, joint
ventures are becoming an increasingly common way for companies to form
strategic alliances. In a joint venture, two or more "parent" companies
agree to share capital, technology, human resources, risks and rewards in a
formation of a new entity under shared control.
Most Common Causes of Joint
Venture Failure
Research indicates
that 50 to 70% of all joint ventures fail. Not many
CEOs of joint ventures
characterized their venture as "very successful".
Cultural and ideological differences
top the list. Insufficient
planning is also one of the most
prevalent reasons for failed joint ventures...
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Choosing a JV
Governing Structure
There are
three possible JV
governance arrangement: full equality; policy equality, and lead parent
arrangement...
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Human Resources Strategy1
While joint ventures are driven by business
needs and are implemented in accordance with a
business plan or strategy which is generally stated in financial terms,
it is the responsibility of the human resources function to translate the
business plan into "people" terms...
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Preparing for a Successful
JV: HR Action Steps
As
Konosuke Matsushita the legendary founder of Panasonic, put it,
"Business is people.
Business success is achieved by getting each and every
person in the organization to be more successful in the job they do.
The
Tree
of Business Success
Hewitt
suggests to take the following human resources (HR) action steps to
prepare for a successful joint venture.
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screening of prospective
partners
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joint development of a detailed
business plan and shortlisting a set of prospective partners based on
their contribution to developing a business plan
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due diligence – checking the credentials of the other party ("trust and
verify" – trust the information you receive from from the prospective
partner, but it's good business practice to verify the facts through
interviews with third parties)
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development of an exit
strategy and terms of dissolution of the joint venture
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most appropriate
structure (e.g. most joint ventures involving fast growing companies are
structured as strategic corporate partnerships)
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availability of
appreciated or depreciated property being contributed to the joint
venture; by misunderstanding the significance of appreciated property,
companies can fundamentally weaken the economics of the deal for
themselves and their partners.
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special allocations of
income, gain, loss or deduction to be made among the partners
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compensation to the
members that provide services...
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Preparing a Business Plan
To maximize the chances of success, the
prospective joint venture partners should first jointly prepare and agree on
a
business plan -
even before signing the
joint venture agreement.
Wise Agreement
It will enable each party
to judge the other's expectations, level of interest, management style and
experience. "It is best to include as much details as possible with regard
to
strategies, policies and methods so that the expectations and
preferences of the parties are highlighted and sorted out. The partners
should particularly focus on areas where they depend on each other, such as
transfer pricing,
technology transfer, market restrictions and R&D."3
The
business plan should also include the exit strategies, the terms of
dissolution of the joint venture, mechanisms to resolve disagreements
between the JV partners, contingency plans and the a process to
make changes
in the business plan in response to the market changes and
feedback. It is
important to involve the key managerial and operating personnel in
development of the business plan as they will best understand the details
that need to be
negotiated.
Negotiation DOs and DON'Ts
Preparing a
Joint Venture Agreement
A good agreement is critical to success of
your venture. Once the business plan is finalized, preparing the joint
venture agreement becomes much easier. Using a
joint venture check-list will also help you prepare a sound joint
venture agreement.
Operating an
International
Joint Venture
Operating a joint venture with a foreign
partner requires time, resources, and
cross-cultural skills.
Cultural intelligence
and
strategic thinking
can be the prescription to avoiding errors in cross-cultural projects.
As your joint venture has to compete in its
market for people, customers and capital, its human resource, pricing,
service, financial and other policies
must be tuned to that market. "The resources
you place under the control of JV should be only those that are unique to it
needs. To minimize costs, all else should be drawn from your firms or bought
from outside."4 It is often tempting to take short cuts because
of resources constraints and
the need for speed. Nevertheless, if you wish to minimize the risks
inherent in an international joint venture, you must manage the processes
with great care.
Venture Management
Management of the venture-building process is
fundamentally different from corporate management that is focused
on delivering the annual operating plan. Management of a new high-growth
business is build around a customer-driven idea or a technology. It
requires
entrepreneurial
mindset and skills. Being first to the market is the top
priority for the venture manager. Your
core competence, the ability to move
quickly from idea to market, is a key enabler of success...
More
Case
in Point
Diamond
Associates
"Collaborate," – advises Georgann Occhipinti,
President of Diamond Associates. "I periodically collaborate with another
consulting firm as a way of developing my own. The group is comprised of
other consultants and business owners with very
diverse backgrounds. We work together a few times a year with specific
clients and are able to immediately function as a very effective
team.
It is a selfless experience in which egos are never an issue and each of us
can rely on any other to lend support, solutions, and the latest industry
knowledge. Simply put, this continues to be the best team that I have ever
worked with, regardless of the member configuration or work content. I
always look forward to working with this team, and it always exceeds my
expectations. We all engage in complete collaboration from start to finish."
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