Good legal counsel is needed to draft effective crossborder JV agreements. The technology and know-how shared with your local partner can result in a strong competitor when the JV dissolves, particularly in countries with weak intellectual property protection. Too much oversight or control can result in frustration, and value destruction rather than creation.īecause of these challenges, JVs are often short-lived, and thus, providing for the end is therefore also important. Too little oversight can mean lack of direction, or damage to your company’s brand or reputation. For example, which financial, ethics, or operational policies should the new joint venture follow? If the parties disagree about strategies and investment, which has the ultimate say-so?įinding balance is often difficult. Clashes in corporate culture and disputes about control and operational decisions are common. Operational clarity: What investments will be made, and by whom? Who will the employees report to? How will success be measured, and rewards shared? How will disputes and disagreements be resolved? Partner fit: How well does your partner’s business culture match yours? What is their reputation locally? How risk-averse or risk-taking is your partner? What is their willingness to invest? have its own employees or simply “loaned” to the J.V.? What functions are essential that you provide, and how will you do that? Is it important for you to book the sales from the J.V.? On what operational decisions do you want a say, or the final say? Strategy/objectives: How much control do you want, and how should it be exercised? What programs and processes must your partner have in place? How much oversight can you realistically provide? Will the J.V. Many JVs provide for outright acquisition after a test period, which also lowers risk.Ĭompanies considering JVs should consider many things, such as: Conversely, the market may prove to be so attractive that more investment makes sense. Typically, your JV interest can be sold back to the local partner, costing less than closing a local office or writing off an acquisition. JVs offer flexibility if local conditions change, or if the market or relationship proves unattractive. This model is less risky than outright acquisition-the capital investment is typically half or less. In certain markets, a JV may be the only permissible or practical way to enter. Your partner might also provide new manufacturing capabilities or products. You leverage the partner’s brand to gain market credibility and compete on even footing with local competitors. Chosen wisely, your partner gives you an immediate base of local customers, distribution capabilities to reach them, and experienced and knowledgeable local employees. You could buy into the local company, or you might agree to create a brand-new, shared company – either way, there is joint legal ownership and guidance. In this article, we look at forming a joint venture to expand into new markets.Īlthough JV’s can be formed for many reasons and take various forms, a common international structure is where you agree with a local company to share legal ownership and contribute resources to pursue business opportunities together. There are seven basic approaches to reaching new foreign customers, each offering advantages and disadvantages: ecommerce, distributors, strategic alliances, licensing, new foreign office, joint venture, and acquisition. Successful international expansion offers promising opportunities, but how to enter those markets is key to your success. acquisitions.īecause JVs are often short-lived, providing for the end is important. The JV model is less risky than outright acquisition.Ĭapital investment is typically half or less for JVs vs.
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