For many start-up and growing businesses, an international joint venture can be an excellent vehicle for doing business in foreign markets. This allows many businesses to explore and quickly develop capabilities with international contacts, sources, distribution of goods and services and even intellectual property. Additionally, solid joint ventures can help growing businesses with the sharing of start-up and operating costs and expenses while mitigating many risks. Furthermore, smart strategic joint ventures can help quickly expand domestic businesses much more quickly than if the start-up business would attempt such an endeavor alone.
However, the wrong joint venture with the wrong partner in the wrong market can be both very costly and ultimately detrimental to a business. The purpose of this blog post is to simply outline many of the issues and concerns to determine if an international joint venture is right for you and your business.
First, legally speaking there is no single definition for joint venture; however, from a practical perspective, joint venture is often described as the joining of two or more business partners in separate jurisdiction to divide and share risks and rewards of the joint enterprise. Many times the purpose, scope and duration of a joint venture are defined and it is given a limited lifespan. Additionally, contributions of each of the joint venture partners can differ depending on each partner's capability, resources and business objectives.
The advantages of an international joint venture generally are to allow a much faster and less costly access to foreign markets, as well as quicker access to distribution of goods or services. Also, the resources associated with the joint venture can be less than if the business desires to pursue international markets individually. Similarly, with the right partner the skills and resources can be complementary depending on each of the joint venture parties.
Some of the disadvantages include having to divide profits with your joint venture partner, unknown market and economic downturns, as well as regulatory uncertainties and potential international issues with intellectual property and other legal and business matters. A good partner provides a start-up business with complementary skills and resources to infiltrate a foreign market in a cost-effective and businesslike approach. However, issues such as legal jurisdiction, language and time barrier can prolong the efficiency and productivity of such a joint venture, depending on the particular location, culture and ultimate business objective of the joint venture partners.
Next, the actual legal documents associated with an international joint venture can be tricky. However, as with any business plan, the core business objectives should be clearly identified and written out similar to your business start-up plan. One of the key issues is how the joint venture will control management and ultimately the decisions associated with the venture. In a perfect world, you should be in control of voting, operational and management control. However, many times joint ventures are just that, divided equally 50/50.
Additionally, should the joint venture be a 50/50 division of control and management, there should be a clear path to deal with conflicts. As with any business relationship, conflicts will likely occur. One of the simple ways to head off potential conflicts is to do as extensive due diligence on your joint venture partner as soon as possible. Similar to a marriage, you may want to consider spending a significant amount of time meeting and discussing not only the specific business venture, but also the potential joint venture partner's overall business thoughts, objectives and philosophy.
Also, remember to, unlike many other business ventures, be cognizant of trying to cut yourself too good of a deal. In most successful joint ventures, the best participants and outcomes start from win-win situations for all joint venture partners. Additionally as important as the elements of whom is going to deliver what to the joint venture, provisions dealing with a logical and consistent exit must be considered as well. As you would expect, however, exits are not necessarily the most flavorful topic to discuss, but it is highly necessary to mitigate the risks for both parties.
Lastly, I would highly encourage any of you considering an international joint venture to discuss with colleagues or contacts both painful as well as successful lessons learned from international joint ventures. However, careful due diligence, planning a thoughtful structure, and the ability to remain flexible will increase the odds of success as your business continues to grow.