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Benefits of Joint Ventures2 |
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Provide companies with the opportunity to obtain new
capacity and expertise

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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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Most Common Causes of JV Failure |
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According to a recent survey, only 44% of CEOs of JVs
characterized their venture as "very successful".2
The most common causes of failure cited by CEOs are:
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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.
Important Factors to be Considered Before a
Joint Venture is Formed
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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
The Role of the Business Architect
Business architect is a person that initiates
new business ventures or leads
business innovation, designs a
winning business model, and builds a
sustainable balanced business
system for a lasting success.
Business architects can be found in a multitude
of business settings: corporate change leaders, initiators of
joint ventures, managers of
radical innovation projects,
in-company ventures, spin-outs, or
new start-up ventures.
Although the settings in which business
architects act are different, they all design and run a new venture to
achieve its sustainable growth.
Human Resources (HR)
Action Steps to Prepare for a Successful JV2
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Business Strategy. Begin
with a sound, well-articulated strategy.
Before moving forward, determine
and explain why you wish to enter into a joint venture, why you have chosen
your partner(s), and what you hope to achieve. Define involvement
(managerial, capital, etc) of the parent companies and how long the JV will
last.
Put in place strategies to define governance, accountability,
decision-making process, and conflict- and issue-resolution procedures.
Ensure buy-in and participation at the highest level. Consider outcomes:
what could cause you to terminate the joint venture, and what is the
preferred exit strategy.
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Human Resources (HR) Strategy.
Develop HR strategies that align and support the goals of the JV: develop a
distinct identity and culture for the new organization; communicate
aggressively to employees; and establish distinct career paths, management,
and a means of return for employees transferred to the JV. Create
compensation, incentive, and retention programs tied to the success of the
JV. Maintain open communication between the HR departments of the parents
and the JV.
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Leadership. Define a
process for
leadership selection that's seen as fair and credible, and name top-tier
leadership as soon as possible. Look for key indicators of leadership
potentials such as behavior, past experience, and measurable outputs.
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Communication. To engage
and motivate your employees,
communication should be frequent and used to create a common
vision, establish a connection with leadership, explain the new rules,
support the individual transition process, aid in retention, and ultimately,
define the new organization in terms of "We" instead of an "It" or "They".
Share as much information as you can, and never sugar-coat or make false
promises.
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Talent. Make the
identification, retention, and
motivation of the key talent a top priority. As times of uncertainty can
lead to defections, take strong counter-measures to prevent them. Paying
close attention to the specific skills, knowledge, and behavior that will
be required to achieve the new organization's business objectives, identify
the key players in both the parent companies who will be needed during the
transition to a joint venture organization and beyond. Be aware of which
employees are most at risk for recruitment by other organizations and
collect data on the causes and costs or turnover that might influence which
employees to target and which retention practices to implement. Conduct
employee research to help the new organization determine what matters to
employees and can serve as the foundation for all programs and incentives.
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
business success... More
Strategic Business
Partnerships...
Choosing a JV
Governing Structure...
Three Possible JV
Governance Arrangements...
Preparing a
Business Plan...
Operating an
International
Joint Venture...
Common Reasons for Joint Venture
Difficulties...
Factors that Contribute to the Poor Track
Record of International Joint Ventures...
Eight
Conditions for Trust Between Organizations...
Human Resources Strategies...
Case in Point
Diamond Associates...

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