!

Joint Ventures Key Success Factors|What Makes Joint Venture so Difcult to Manage?!
!
It's a recurring theme: of all the different business operating models, the JV is the one that regularly fails to meet expectations and gives an untoward amount of trouble to the parties involved. Why is this the case? Can the factors that make JV's uniquely different be identified, and from that the Joint Ventures Key Success Factors be derived in a meaningful way that can help reduce the failure level of this business structure?

A Surprising Observation and Joint Ventures Key Success Factors!

Knowledge of - and the willingness of companies to adjust their plans to respect the known joint centuries key success factor appear to be surprisingly lacking in places it could be expected to be well known.

JV is successful.

Cases of JV's that have demonstrably failed to meet of the objectives of one or both partners are quite common and this is even more of a concern when very often the international partner is a well known, large and thriving business that could be assumed to posses access to all of the necessary resources to make sure the

Exactly why should this be so tough? Clearly the alignment of two entities toward a common purpose typically a foreign entity a local organization - that bring supporting and complementary attributes to the game, and where it can be clearly seen that '1+1=3' should be relatively easy - but in practice it is the opposite. History tells us it is in fact an incredibly difficult undertaking to control a JV with success over time, and the analysis of well over 100 such entities over the past decade - incorporating 1-1 interviews with senior management in many instances - has offered insight into the various complex issues that often divert a JV from its optimal path; sometimes this diversion becomes derailment; and on occasion the outcome is a nasty train wreck. Even though the detailed factors contributing to success or failure may be numerous and involved, a small number of obvious considerations emerge at a high level, and these must form the basis of any greater understanding of the reason why JV'S so often fail when at the beginning there seem so many good reasons to expect a successful outcome.

Here are the 9 key insights that have emerged from practical research into Joint Ventures key success factors - nine points that should be the most common basis of knowledge and agreement among any organisations remotely concerned with or considering the JV operating model.

Joint Ventures Key Success Factors #1. A JV is a distinct entity in its own right!
A great many JVs falter over this basic point, coming normally from one or more stakeholder simply not comprehending the situation - or sometimes inflexibility on the part of one party to understand a JV must not be treated as a subsidiary or branch. Often this is apparent in the foreign partner presuming - or insisting - on compliance with international programs and this varies from items such as compensation, benefits and performance management; accepted IT platforms; product and pricing factors and more. Whilst a JV might have been formed to offer representation in a specific market, the overseas party should never assume they are running a single worldwide endeavor - or things can go dramatically awry. Here's an example of an subject I have seen in a variety of guises on a number of occasions, and it illustrates the care that is necessary. A MNC used to to pitching for a global deal that would be provided via country entities is generally used to to committing to a international pricing and product performance understanding and for legitimate and pragmatic grounds such a pitch is often arranged in such a way that is lucrative for the MNC as a whole, but this may not be reflected in the country P&L's. Many times it is the smaller countries or those in developing markets who are disadvantaged by such international pricing models and the larger countries, because of scale, record higher retained earnings overall balancing itself out. Treating smaller businesses as a service outlet to support a worldwide contract even if they do so at a loss makes good sense in many circumstances and it us also the prerogative of any business to come to such arrangements.

However where things can come unstuck is (many times well after the deal has been struck and is a fait accompli) when the JV in China or Brazil or Kenya says sorry - no - we're not having a part of this, due to the fact this deal disadvantages us and there is nowhere we have any balancing upside. MNC's especially need to continually remember a JV is NOT a subordinate and cannot be dealt with as such, and the Directors are obliged to perform in the better interests of the JV, and not one or other stockholder (and in principle, not even in the interests of both shareholders, if it is not in the interests of the JV - although it would be a courageous Director to take such a stance). And I have noted and advised on a number of occasions that JV Directors who also hold executive ranks with one of the JV partners (a common practice) must take great care they do not expose

themselves to a conflict if interest and make resolutions that disadvantage the JV and benefit their principal employer - and this is not at all an unusual position. That is, of course, if they wish to avoid a 24 hour trip to a Board Meeting in Shanghai or Abu Dhabi turning into a 10 year jail sentence in less than deluxe surroundings.

!
Joint Ventures Key Success Factors #2. Most companies are ill-prepared to consider the interests of a different party!
With the exception of a very small number of MNC's who possess a deep level of experience in running JV's, most companies - both the foreign and local entities - simply are not geared up to think about the different thought processes that go with an appreciation that the JV is a unique and separate entity. We should not be shocked if an executive working for MNC and accountable for a region in which a JV is planned or operational has spent, say, 20 years thinking about the interests of his or her own business by itself - and in their current role spends 90% of their time with just this focus - the paradigm shift to truly consider the JV from the perspective of the interests of the JV is asking a lot. Likewise whilst some local businesses have a great amount of experience working as a JV partner with a foreign party these are in the minority and so for the local partner it is often a massive learning curve for them also to see the world using a different lens.

Joint Ventures Key Success Factors #3. Beneath the surface, the true objectives of both parties are many times not aligned!

While there is a great deal of palaver related to JV's, frequently the true, underlying drive behind the involvement of one or both partners continues to be opaque - often never even clearly explained. I have known cases where the real motive of the foreign party were promises made to the market or Board before really serious thought had been put into the idea; a simple flag-planting stunt; acquiescence to a Chairman or CEO who once possessed a Toyota and for that reason was an expert on Japan; or simple ego.

I have also known local partners whose underlying

motivation was to take as much IP from the other party as achievable prior to tackling the industry category alone; the association with a well known global brand; or the necessity for regular and recurring international travel to acquaint themselves with the foreign partner's businesses. Smart operators in reality understand and allow for these underlying need, acknowledging the fact that human nature is what it is.

Joint Ventures Key Success Factors #4. The justication for setting up the JV may not stand up to pressure!

There are cases where a JV is the result of a 'forced marriage' of one kind or another - or the 'last resort' situation unkindly (but graphically) referred to as the '3am in a night club' situation where the choice set is sub-optimal but better than nothing. Many companies that have found themselves in such a situation would say ruefully that they really should have settled for nothing however when confronted with a commitment to form a JV in a specific market - and diminishing prospects - many times a company will simply take what they can. However eventually there will arrive a point of stress that will test the resolve and determination of the parties and that is often the point where such forced agreements reach a deadlock. A good case of this was in the financial services industry in China in the late 1990's where regulation meant that only a specified number of local businesses - often totally unconnected to the financial services world - were qualified as local JV partners. In one such case the JV was formed and managed with modest success, and 3-4 years into operation came the requirement to inject additional investment capital - which the local partner simply refused to do - unless the foreign entity 'lent' them the needed capital. This led to an deadlock that lasted many years where the business stagnated, frustrating the ambitions of the foreign shareholder who was basically stranded with no way forward.

! ! !

Joint Ventures Key Success Factors #5. Fundamental understandings on numerous issues may differ!

The old proverb that says 'never make assumptions - or they will make an ass of you' is very true. Many JV's have tripped over the fundamentally dissimilar views that one party (and often one culture) has on issues such as how significant the legal agreement is in comparison with the spoken agreements and personal relationships involved; what is the time frame that is anticipated before the venture will start to be cash flow positive; and just what does 'transparency' really mean in practice.

Wise and successful JV operators do not assume there is common understanding on any concerns and will often take much longer to carefully make sure that there is a high level of alignment on issues that other companies simply presume to be generally known or agreed.

Joint Ventures Key Success Factors #6. One or both parties underestimates!

the challenge and fails to give the JV the necessary attention A cause of failure (brought about more often by the foreign partner) can be to assume the JV is less complicated to establish and operate than in fact it is ... which can contribute to the undertaking being delegated to more junior or less experienced staff, and placed lower on the priorities of the CEO than it should be. Successful JV operators know the JV can be disproportionate in terms of time and resource requirement than it should be at times, based on its absolute economic contribution. Nevertheless the reality is that if the JV goes 'pear-shaped' as they so often do due to the fact of this absence of attention and prioritization, the amount of time and resource consumed by rectifying the issue is sufficient to guarantee that this mistake is not duplicated in the future.

Joint Ventures Key Success Factors #7. Politics connected to the JV overshadows the business challenges!

"Let me introduce you to the spy," said the CEO of one significant JV after we had spoken for some time. He was about to introduce me to his Deputy of whom he explained had no understanding of the industry, no interest in working on the small business, but was there as the appointee of the local JV partner purely to make certain the CEO (a foreign appointee) did not go home with extra paper clips each night. JV's can rapidly become highly political, particularly when the shareholders either do not trust one another totally - or have an extremely intrusive style. This can lead to more energy being expended on dealing with the politics than actually managing the business and one ramification of this is that so frequently when there is lack of trust and understanding being placed on finding proof for that lack of confidence - that this ends up being a vicious circle leading the venture to paralysis and if not remedied eventual disaster.

Joint Ventures Key Success Factors #8. One party (usually the foreign partner) has a change in their strategy!
Possibly the one biggest reason for the failure of JV's has been the inconsistent strategy of so many MNC's. Over the past 15 years - with macroeconomic events that have included the Asian financial crisis; the 'tech wreck', 9/11, SARS, and the GFC there are few MNC's whose course has continued to be consistent throughout this time. Many have been quite the opposite and have lurched from one extreme to the other in terms of the international development aspirations and typical frequent restructuring events or change of CEO which is accompanied by the ritual recanting of preceding management mantras and demonization of earlier strategies. One US based global insurer is on its third Asian commitment and development strategy since 2000 and one manager was rather stunned when I made the remark 'why should I believe your are any more fully committed to the Asian market after abandoning it

twice in the past 15 years?

Joint Ventures Key Success Factors #9. The decisionmakers within many of the parties involved simply do not know what they don't know, and don't listen.!

Finally - and regrettably - it is sobering to understand the absence of research and planning that accompanies the decisions that a number of organizations make - often repeating exactly the errors of peer companies that are a matter of open public record. I have concluded that for many businesses and the individuals who hold the torch of international expansion at any point in time, the possibility that they may not have all the answers or could learn from the experiences of others may be a sign of weakness and as a result they simply do not consider learning from the experience of others. In a decade of investigating the grounds for success and failure in JV's and engaging behind closed doors with many dozens of executives involved in all aspects of this subject I have yet to come across one that has not admitted in some way (often in numerous ways) 'we would do it in a different way if we did it all over again'. It's very easy to be critical in hindsight, but my plea is aimed not at the managers who are likely to be responsible for the implementation of future JV's but at their Board and Chairperson to question and act as a moderating influence balancing the recklessness, self-assurance and sometimes arrogance of those managers who believe they know all the answers. Maybe - just possibly - they don't

!
Read to original and related articles | http://inversionpoint.com/joint-ventures-key-success-factors/