CORPORATE STRATEGY BOARD
www.corporatestrategyboard.com
This report analyzes steps
in the joint venture
preparation process and
presents a checklist with
steps to consider
(Appendix A), a due
diligence checklist
(Appendix B), a sample
memorandum of
understanding (MoU)
(Appendix C) and joint
venture scorecards to
assess alliance value
(Appendix D, E).
A joint venture is formed when two
or more distinct firms (the parents)
combine a portion of their
resources to form a separate jointly
owned organization. Unlike
transaction-based negotiations, as
in the buying or selling of firms,
where the conclusion of the
negotiation is the end of the discrete
interaction, successful joint venture
negotiations represent only the first
step in a multiple-step relationship.
NOVEMBER 2002
ISSUE BRIEF
Joint Venture Toolkit
JOINT VENTURES--OVERVIEW
Over the past two decades there has been a significant increase in the formation of domestic
and international joint ventures. For many firms, joint ventures are no longer a peripheral
1
activity but a mainstay of competitive strategy. A driving force behind this trend is the
realization by many firms that joint ventures provide opportunities to enter new markets, obtain
new skills, and share risks and resources.
Nevertheless, many joint ventures do not achieve their potential and failure rates remain high,
frustrating the efforts of many firms to capitalize on alliance strategies. The following are
examples of recent unsuccessful partnerships, all of which were announced with a great deal of
promise:
2
• Apple Computer and IBM invested hundreds of millions of dollars in two software joint ventures
(Taligent and Kaleida) designed to challenge Microsoft's supremacy. Both ventures were dissolved a
few years later with both Apple and IBM having little to show for their cooperative efforts.
• US West and Time Warner formed an alliance designed to exploit the convergence between
telecommunications and entertainment. Several years later, the partners found themselves involved
in a lawsuit in which US West tried to block Time Warner's purchase of Turner Broadcasting.
Contractual agreements between joint venture partners are often executed under conditions of
high uncertainty, and it is unlikely that all future contingencies can be identified during the
formation process. Early planning, however, can eliminate many of the problems that plague
joint ventures and careful preparation may reveal whether a joint venture is indeed the most
appropriate strategic option. Often, firms become focused on getting their joint venture deal
3
done quickly and lose sight of the larger strategic and financial picture.
This report examines a series of planning issues that should be taken into account when a
company identifies collaboration through a joint venture as a viable option for growth.
THE JOINT VENTURE PREPARATION PROCESS
The first step in developing a joint venture is to formulate a strategy that
Strategy
aligns with organizational goals and vision. In developing a JV strategy,
Formulation companies must identify their core competencies, current capabilities
Page 2
and gaps as well as determine their level of risk tolerance.
Partner identification is a critical component of a joint venture.
Partner Successful companies have a proactive screening approach to partner
selection. High quality due diligence is critical to partner selection. Due
Identification
Page 2 diligence should uncover and analyze all issues that are likely to impact
the JV and most importantly assess cultural fit of the partners.
Establishing a governance structure that maintains appropriate decision-
Formal making powers while protecting the interests of the joint venture parents
is essential to joint venture success.
Governance
Structures Companies should formalize the joint capabilities and future direction of
Page 4 the venture in a Memorandum of Understanding to reduce ambiguity
connected with strategic intent.
To accurately measure the performance of joint ventures, partner
Accountability companies should establish a scorecard against which to measure the
& Performance performance of the joint venture against key goals and targets.
Measurement
Page 5
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 CORPORATE STRATEGY BOARD
JOINT VENTURE TOOLKIT
The joint venture process begins
first with making strategy
decisions and second with
screening potential partners.
Having information and
knowledge about your
organization’s objectives and its
capability resources and gaps are
critical before beginning the
partner screening process.
“Partner selection is so important.
There is such a thing as a partner of
choice, and the number one player in
a particular business isn’t always it.”
—Dan Trott,
Vice President, Pepsi Lipton Tea Partnership
Successful joint ventures cannot be
one-sided. Mutual value creation and
a common destiny should be the
objective of all joint venture partners.
PAGE 2
ISSUE BRIEF
STRATEGY FORMULATION
Joint Venture Strategy Development— Without first understanding and articulating the
alliance strategy issues internally, decisions about who to partner with are uninformed. The first
step in developing joint ventures is to assess current capabilities and gaps. A useful starting
point for developing joint venture goals is also a review of past and current alliance projects,
4
corporate strategy documents and vision statements.
Identification of Core Strengths and Value Activities—Firms should begin selecting deal
rationales by taking stock of their existing strengths. Clarifying core competencies helps
identify deal rationales in two ways. Firstly, it allows the company to identify competencies that
make it valuable to a prospective partner. A company can promote these areas when sourcing
and structuring deals, as competencies will attract partners and provide negotiating leverage.
Secondly, clarifying existing core competencies will uncover areas of weakness that need to be
shored up with new partnerships. A good deal can be the quickest way to close capability
5
gaps.
Determination of Risk Tolerance—The sources of risks should be identified and tolerance to
the risk determined as early as possible. Some of the risks to be considered include investment
in relation-specific assets, competitive risks associated with loss of technology and markets,
and the firm’s reputation and image.
The outcome of setting the joint venture strategy is the formulation of a business plan that
includes partner selection criteria, due diligence, a cultural self-assessment and a negotiating
strategy.
PARTNER IDENTIFICATION
Successful companies have a proactive screening process as opposed to an ad-hoc or reactive
approach to partner selection. Ideal partners have compatible objectives, complementary
resources and skills, organizational fit in terms of culture and processes and willingness to ally
with each other.
To facilitate proactive partnering, decision makers must have information and knowledge of all
potential partner’s objectives, financials, resources and skills, processes and culture. Legal
knowledge is also needed to determine the ramifications of entering a JV with a particular
6
company.
Firms should ideally have substantial knowledge about their potential partners including why
the other firms might want a joint venture, the firm’s strengths, weaknesses, reputation and
experience with joint ventures. Becoming a “partner of choice” come from three principal
7
sources:
• Corporate assets—Powerful alliance brands are built on unique corporate assets
• Alliance track record—Potential partners seek companies with a history of multiple,
successful alliances
• Strong alliance management skills—Partners of choice demonstrate excellent
management of their alliance portfolios
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 CORPORATE STRATEGY BOARD
JOINT VENTURE TOOLKIT
Even when companies pay close
attention to cultural issues in
alliance diagnosis and structuring,
cultural differences never go away.
Dealing with them is essential to
alliance management.
PAGE 3
ISSUE BRIEF
PARTNER IDENTIFICATION (CONTINUED)
Due-Diligence—The objective of performing due diligence is to uncover and analyze all issues
that are likely to impact the success and cost of the joint venture. These issues may vary from
highly objective, such as whether the accounting statements of the potential partner corporation
are accurate, to highly subjective, such as whether the organizational cultures of the two
companies are compatible. Due diligence reviews encompass a range of wide issues which
can be categorized into four broad areas:
! Strategic due diligence—Performed to understand the position of the partner in the market
place and its likely position in the future
! Financial due diligence—Conducted to obtain a realistic insight into the revenue growth
potential of the partner company
! Legal due diligence—Performed to verify disclosures made by potential partner and to
ensure that no major liabilities are incurred.
! Operational due diligence—Verification of all issues pertaining to operations, including,
management team structure, culture and morale.
Cultural Fit Assessment--After identifying potential partners, and in conducting due diligence,
the key step is to assess the cultural fit between partners (though it is often considered as
partner selection is conducted). Differences in corporate culture seldom stops deals from being
completed. But cultural differences can significantly shape the optimal approach to integrating
the organizations. Differences in partners’ corporate cultures must be assumed as given and
companies in a JV agreement must capitalize on the synergies that arise from successful use
8
of cultural differences.
During a cultural assessment, the company must examine the potential partner’s corporate
values and expectations, organizational structure, reward systems and incentives, leadership
styles, decision-making processes, pattern of human interaction, work practices, history of
9
partnerships and human resource practices. For example, Eli Lilly sends a due diligence team
to the potential partner to evaluate the partner’s resources and capabilities and to assess its
culture. This evaluation is used as both a screening mechanism and a tool to assist Lilly in
10,11
organizing staffing and governing the alliance.
12
Key areas of insight to determine cultural fit include:
! Interviewing target employees and managers
! Reviewing personnel practices to identify similarities and differences
! Comparing corporate mission and vision statements that reflect corporate direction and
values
! Evaluating compensation and benefit plans
! Evaluating decision-making processes and approaches to identify potential conflicts
! Studying corporate focus and orientation: does the company focus on profitability,
customers, performance appraisal systems to evaluate leadership and performance
management systems
! Examining succession planning and incentive systems to understand the behaviors the
organization encourages.
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 CORPORATE STRATEGY BOARD
JOINT VENTURE TOOLKIT
The optimal governance structure
will depend on the alliance objectives,
the level of investment, technological
conditions, and partner time
horizons. Ultimately what determines
joint governance structure is the level
of trust between the partners.
Governance costs under conditions of
mistrust will be greater and
procedures will be more formal and
cumbersome.
PAGE 4
ISSUE BRIEF
BUILDING THE JOINT VENTURE GOVERNANCE STRUCTURE13
Establishing a Governance Structure—Research shows that many companies with alliances
have no formal bodies to govern those alliances and that eight out of the ten most common
causes of alliance failure are related to governance.
14
Establishing a governance structure which gives the executive management of the joint venture
appropriate decision-making powers but which also protects the interests of the joint venture
parents requires careful thought and balancing of interests. The governance structure must be
15
tailored to the requirements of the individual transaction.
There are a variety of governance issues that must be resolved before a joint venture begins
operations including the following:
! Top management positions
! Board composition
! Reporting expectations
! Partner monitoring
To ensure that companies can cope with the complexities and demands of joint ventures, the
scope of such governance structures should broaden to include both the traditional governance
16
responsibilities as well as the six new areas of responsibility outlined below:
! Ensuring fiscal prosperity and integrity to meet the primary fiduciary obligations to
maximize shareholder value and minimize risk
! Allocating scarce capital to make the best choices along the “build, buy, borrow” continuum
! Valuing complex assets including both tangible and intangible assets
! Redirecting resource flows to reflect changing conditions
! Expediting working relationships to speed decision making both internally and with external
partners
! Establishing durable links across national and corporate boundaries to link shared
aspirations, operating principles and values across all operations
17
Developing the Memorandum of Understanding (MoU) —Finalizing the joint capabilities
and future direction in a documented business plan reduces the initial ambiguity connected with
strategic intents. This can be attained by developing a memorandum of understanding (MoU).
While failure to develop a statement of joint intent will not necessarily lead to failure, doing so
18
reduces the risk of early dissolution.
An MoU, which will often start off a joint venture, helps to:
! Confirm the fundamental intentions of the parties
! Enable the senior negotiators to concentrate on establishing the fundamental principles of
these often complex deals
! Provide a basis for any public announcements or approaches to initiate regulatory
clearances
! Ensure smooth transition and management of the joint venture
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 CORPORATE STRATEGY BOARD
JOINT VENTURE TOOLKIT
To get the maximum value out of
all joint ventures and to maintain
the ability to intervene when
performance veers off track,
managers should learn to measure
the joint venture’s fitness on
several levels—a process that can
reveal fundamental weakness in the
way companies create joint
ventures as well as assess whether
the joint venture contributes to the
corporate strategy.
It is essential for both the joint
venture and the parents to take a
balanced view of performance. To
achieve this balance, it is useful to
include the following dimensions of
performance fitness: financial,
strategic, operational and
relationship.
PAGE 5
ISSUE BRIEF
BUILDING THE JOINT VENTURE GOVERNANCE STRUCTURE (CONTINUED)
An MoU should normally address—at least in outline—the following principal issues (see
appendix B for a sample MoU):
• Likely joint venture structure
• Equity interests of the parties
• Initial capital and any commitments to future financing
• Board, management and voting structures
• Decisions requiring consent of the parents
• Commitments to provide technology
• Non-compete undertakings
• Broad scope of any warranties/indemnities
• Basic exit provisions
• Conditions precedent
• Target timescales.
FACILITATING ACCOUNTABILITY AND MANAGING PERFORMANCE OF JOINT VENTURES 19
To measure the performance of joint ventures accurately, a company must start by recognizing
the potential obstacles to the agreement and determine a common approach to performance
measurement, as each partner has its own reporting processes and systems. This can be
achieved by implementing a feedback mechanism and instituting a scorecard approach to
measuring performance of the joint venture.
Feedback Mechanism—Companies must ensure accountability of the joint venture on three
levels, each focusing on different aspects of the problem and prompting distinct managerial
responses. At the first level, every joint venture should be assessed to establish how it is
performing and whether the parents need to intervene. The assessment creates the foundation
for the next level, which is to search periodically for performance patterns across the portfolio—
a process that often leads to adjustments in the types of deals a company pursues and
sometimes to additional investments in building alliance-related skills. Once a company better
understands how its portfolio is performing, it can conduct a top-down review of overall strategy
in order to ensure not only that its alliance portfolio is configured in the best possible way and
contributes sufficiently to its performance but also that it has ranked new opportunities in a clear
order of priority.
Scorecard—Developing, up front, a detailed view of the economics of a joint venture is
indispensable to measuring its performance. The process should go beyond the usual cash
flow metrics to include transfer-pricing benefits, benefits outside the scope of the deal (for
instance, sales of related products), the value of options created by the alliance, and start-up
and ongoing management costs
Once a company has a clear view of the economics, the next step is to develop, within 30 days
of the launch, a scorecard to track the venture’s performance. Partners must decide whether to
share a single alliance scorecard, to have separate scorecards, or to develop some
combination of the two.
For a joint venture with its own P&L, a single scorecard is often possible; for most other
alliances, the combination approach works best. Each partner can supplement a shared
scorecard with additional metrics tracking the progress of an alliance against goals (such as
learning or strategic positioning) that aren’t shared by the other partners. This approach also
enables each partner to devise internal metrics that allow it to compare the performance of an
alliance with the performance of wholly controlled activities and of other, similar alliances (see
appendix for sample scorecards).
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JOINT VENTURE TOOLKIT APPENDIX

Appendix A—Preparing for the joint venture: Checklist

The following issues to be considered at the outset of discussions regarding a proposed joint venture:

1. Initial steps
Basic initial steps or questions to consider include the following:
Has a feasibility study or business plan been prepared?
Will confidential information be disclosed during negotiations? Has a confidentiality agreement or information exchange
agreement been put in place?
Is each party still free, pending signature of the definitive agreements, to negotiate with third parties an alternative or
competitive deal?
Should there be exclusivity obligations, preventing such negotiations, for a specified period?
Is a letter of intent or memorandum of understanding appropriate to establish points of principle?
Are any of the parties a publicly-quoted company with public announcement obligations or stock exchange requirements
for shareholder approval relating to the venture?
What material authorizations, consents, licenses or other conditions precedent will be required for the joint venture to
commence?
If an international joint venture, considering the effect of local laws of the country in which the venture is to be established,
what governing law should apply?

2. Structure of the joint venture

Consider the appropriate structure (note tax considerations) for the joint venture:
Corporate or unincorporated venture?
Limited or unlimited liability company?
Contractual collaboration or alliance?
Partnership? Limited partnership?
Limited liability partnership (LLP)?
Profit pooling or revenue sharing arrangement?
Location of joint venture entity?
Series of joint venture vehicles in different jurisdictions?
Existing entity – or new entity to be formed?

3. Contribution of existing assets

Due diligence investigation to be undertaken by either party into assets/business to be contributed by the other?
Tax/transfer duty considerations affecting method and timing of contributions?
Method of valuation of contributed assets? Accounting policies to be applied?
Any equalization payment required as between the parties? Method of calculation and payment?
Any minimum net worth obligation on either party in respect of assets to be contributed?
Any subsequent completion account adjustment as between the parties?
Warranties and/or indemnities to be given by either party to the joint venture/other party regarding business or assets
contributed? Limits as to time and/or amount?
Any material contracts/assets/properties which require third party approval prior to vesting in the joint venture?
Need to provide for partial, delayed or conditional completion of asset contributions?
Need for separate contribution agreement under relevant local laws?

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JOINT VENTURE TOOLKIT APPENDIX

4. Intellectual Property
Will material technology be provided by the parties to the joint venture? Is it protected by intellectual property rights (IPR)?
Is technology predominantly in the field of the joint venture – or is it used (mainly/partly) in the separate operations of the
parties?
Is it preferable to vest ownership in the joint venture – or to license?
Will parties need ongoing access to IPR generated by the joint venture?
Will antitrust regulations apply to the terms relating to IPR?
Will trade marks of the parents be licensed to the joint venture for its use –including in its name/logo?
What should be the position of rights to IPR in the event of termination?

5. Property and related services

Will property be transferred/leased to the joint venture?
Will ‘site-splitting’ be necessary?
Will transitional arrangements be necessary to support the joint venture in respect of services, property-related facilities,
IT/communication systems, accounting and other professional support?
Need for environmental audits? Allocation/indemnities regarding potential environmental liabilities attributable to pre-
completion circumstances?

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 CORPORATE STRATEGY BOARD
JOINT VENTURE TOOLKIT
Appendix B—Joint Venture Due Diligence Checklist
Note: The following list is not intended to be exhaustive, but rather to provide examples of the types of
inquiries that a prospective joint venture partner would typically make. In any given situation some of these
inquiries will be unnecessary or inappropriate and other inquiries will be necessary.
Strategic Due Diligence
Financial Due Diligence
Legal Due Diligence
Operational Due Diligence
PAGE 7
APPENDIX
" Do barriers to entry exist?
" Can market accept new product?
" What are the assumption underlying market estimates?
" Do they have any strategic alliances?
" Are they a likely acquisition target for competitors
" Who are the market leaders?
" What are the features and benefits of competitors products?
" Are the any potential product substitutes that can radically change the
industry in the short-term
" What is the nature of the personal relationships between key employees
and customers?
" What is the revenue potential of the joint venture?
" What are the short- and long-term forecasts, including driver-based cash
flow and valuation model?
" What is the quality of receivables?
" Are there any shareholder loans?
" Are there any unrecorded liabilities?
" What are some of tax contingencies to consider?
" Review articles of incorporation, corporate minutes, and corporate
bylaws
" Are there any anti-trust laws that should be considered?
" What are the existing labor agreements ?(Examine any collective
bargaining agreements, employee handbooks, employment agreements,
restrictive covenants, confidentiality agreements and partners general
employment practices)
" Review all pending litigation, including copies of complaints, answers,
motions and discovery
" Determine partners compliance with tax laws
" Are operations managed by formal schedule with clear objectives?
" Effectiveness of communication channels?
" What is the structure of the reporting relationships?
" What is the current culture/morale?
" Is the sales group motivated?
" Is there measurable superior technology that enables sustained product
development?
" Does a process exist to ensure cost/quality standards?
" Is management of raw materials and inventory optimal?
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JOINT VENTURE TOOLKIT APPENDIX

Appendix C—Sample Memorandum of Understanding for Joint Ventures

[Date]

[COMPANY NAME] (X) and [COMPANY NAME] (Y) are proposing to form a new company (Joint Venture) for the
purposes of a [DESCRIBE JOINT VENTURE] This memorandum of understanding sets out the proposed terms of the
Joint Venture and timetable for implementation. It is not intended to be legally binding except as specifically set out below.
This memorandum of understanding is confidential to the parties and their advisers and is subject to the confidentiality
agreement already entered into between X and Y which continues in full force and effect.
1. BUSINESS OF THE JOINT VENTURE
The parties wish to enter into the Joint Venture to [STATE REASONS FOR JOINT VENTURE AND INTENDED SCOPE
(PRODUCTS AND TERRITORY)].
2. STRUCTURE
It is proposed that the Joint Venture will be conducted through a [DESCRIBE NATURE OF COMPANY] incorporated in
[COUNTRY] and to be formed by the parties on or before closing (the joint venture). [But the parties may agree on a
different structure if it becomes necessary or desirable for commercial or other reasons].
The name of the joint venture will be [NAME] or such other name as the parties may agree.
The headquarters of the joint venture will be based in [LOCATION OF HEADQUARTERS].
Each party will own half of the share capital of the joint venture and will have equal shareholder voting rights.
3. CONTRIBUTIONS TO THE JOINT VENTURE AND FINANCE
In consideration for the issue of shares in the joint venture to X at closing, X will transfer to the joint venture the
[DESCRIBE BUSINESS TO BE CONTRIBUTED BY X] (the X Business) and make any required cash payment.
In consideration for the issue of shares in the joint venture to Y at closing, Y will transfer to the joint venture the
[DESCRIBE BUSINESS TO BE CONTRIBUTED BY Y] (the Y Business) and make any cash payment required
Upon signing of this memorandum of understanding, the parties intend to appoint [NAME OF VALUER] (the Valuer) to
conduct an independent valuation of the X Business and the Y Business on the basis of agreed instructions, a copy of
which is annexed to this memorandum of understanding.
If different values are attributed by the Valuer to the X Business and the Y Business, the party that contributes the lesser
valued business will make a cash payment equal to the difference in value in part consideration for the issue of shares by
the joint venture at closing [or the parties will agree an alternative arrangement for bridging any difference to maintain the
50/50 equity relationship within the Joint Venture].
The definitive agreements will provide that if either party gives inaccurate or misleading information to the Valuer in
connection with the initial valuation or withholds information that could have a material impact on the valuation, it will
compensate the other party on an indemnity basis for any difference between the original valuation and a revised
valuation as determined by the Valuer (as if made at the same time as the original valuation based on correct
information).
Each party will conduct investigations into the business to be contributed by the other to the Joint Venture that will include
[LIST SPECIFIC REPORTS AND INVESTIGATIONS REQUIRED].
Each party will allow the other and its advisers and the Valuer full access to such records, key employees, advisers and
operations of the X Business and the Y Business as are reasonably required for the purposes of the valuation and each
party’s investigations.
At signing, the parties and the joint venture will execute acquisition agreements relating to the sale of the X Business and
the Y Business to the joint venture which will incorporate warranties and indemnities and other terms negotiated between
the parties. [There will be appropriate provisions for compensation of the other party and the joint venture in the event of
breach of any of the warranties and indemnities given in the agreements].
The parties envisage that the Joint Venture will be self-financing. They do not envisage having to provide any further
finance to the Joint Venture but, if further finance is required, intend to contribute equally.

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JOINT VENTURE TOOLKIT APPENDIX

4. CONDITIONS AND APPROVALS

The proposed Joint Venture is conditional on:
Both parties accepting the valuation referred to in paragraph 3 and otherwise being satisfied with the results of their
investigations into the business to be contributed by the other party to the joint venture.
Any third party, regulatory or tax consents required for the Joint Venture being received in terms satisfactory to both
parties.
There being no material adverse change in the business, operations, assets, position (financial, trading or otherwise),
profits or prospects of the X Business or the Y Business between the signing of this memorandum of understanding and
closing.
No legislation or regulation being proposed or passed that would prohibit or materially restrict the implementation of the
definitive agreements or the participation in the Joint Venture of either party.
Each party producing a legal opinion, in a form satisfactory to the other, confirming that it has the capacity to enter into the
Joint Venture.
5. ACCOUNTS
The financial year end of the joint venture will be [STATE YEAR END].
The accounts of the joint venture will be prepared in accordance with [STATE RELEVANT ACCOUNTING STANDARDS]
and the first auditors of the joint venture will be [NAME OF INTENDED AUDITORS].
The management of the joint venture will prepare an annual business plan for approval by the parties as shareholders and
monthly management accounts which will be sent to the parties as shareholders (together with such other financial and
operational information as they may reasonably require from time to time). The first business plan will be prepared by the
parties and adopted by the joint venture at closing.
6. MANAGEMENT AND EMPLOYEES
Each party will appoint an equal number of directors to the board of the joint venture who will have equal voting rights. No
board resolution will be passed without at least one director appointed by each party voting in favor.
The post of chairman will be held, taking it in turn in alternate years, by an appointee of each party. The chairman will not
have a casting vote.
The following board appointments will be made upon formation of the joint venture:
! [NAME] will be Chairman,
! [NAME] will be Chief Executive Officer,
! [NAME] will be Chief Financial Officer,
! [NAME] will be [OTHER KEY POSITION OR DIRECTOR],
! [NAME] will be [OTHER KEY POSITION OR DIRECTOR], and
! [NAME] will be [OTHER KEY POSITION OR DIRECTOR].
The board of directors will be responsible for the day to day management of the joint venture but the following issues will
be reserved for agreement between the parties as shareholders:
! permitting the registration of any person as a member of the joint venture other than X and Y in relation to their
initial investment and any of their permitted transferees
! altering the name of the joint venture
! altering any constitutional documents of the joint venture
! adopting the Business Plan for each financial year
! [OTHER RESERVED MATTERS].
[DETAILS OF EMPLOYEES TO BE TRANSFERRED TO THE JOINT VENTURE AND HOW IT IS INTENDED THAT
REDUNDANCY COSTS (IF ANY) WILL BE BORNE BY THE PARTIES].

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JOINT VENTURE TOOLKIT APPENDIX

7. DIVIDEND POLICY
The parties intend that the joint venture will distribute by way of dividend at least [ ] % of profits available for distribution in
each financial year unless they agree otherwise.
8. RESTRICTIONS ON PARTIES
The parties will give undertakings not to compete with the business of the joint venture and not to solicit its customers or
employees.
9. DEADLOCK
If there is a disagreement between the directors or the parties as shareholders that cannot be resolved at board or
shareholder level, the matter will be referred to the Chairmen of the parties and, failing agreement, a termination process
will ensue.
10. TRANSFER OF SHARES
Neither party will be able to transfer shares to a third party without first offering to sell them to the other party at the price
of the proposed sale to the third party. But pre-emption will not apply to intra group transfers of the whole of a party’s
shareholding.
11. TERMINATION AND LIQUIDATION
If either party becomes insolvent or is subject to a change of control, the other party will be entitled to purchase its shares
in the joint venture at an agreed price or, failing agreement, at a price determined by an independent expert.
If the joint venture is wound-up, the parties will endeavor to ensure that assets contributed by each party will, so far as
possible, be transferred back to that party.
12. LANGUAGE
The negotiations will be conducted in [LANGUAGE] and all legal agreements relating to the Joint Venture will be prepared
in [LANGUAGE].
13. EXCLUSIVITY
This paragraph is legally binding.
Each party undertakes that for a period of [NUMBER OF WEEKS/MONTHS] from the date of signing this memorandum of
understanding it will not
a) commence or continue negotiations for the sale of all or a significant part of the X Business or the Y Business (as the
case may be) to a third party
b) commence or continue negotiations about a potential joint venture with a third party, the business of which may
overlap with the proposed business of the Joint Venture,
c) disclose any information (including, without limitation, information about the X Business or the Y Business) to a third
party for the purpose of negotiations relating to a sale or joint venture described in (a) or (b) above, or
d) seek, encourage or respond to any approach that might lead to negotiations relating to a sale or joint venture
described in (a) or (b) above.
Each party shall ensure that its employees, agents and advisers comply with the undertakings in this paragraph as if they
were the relevant party.
Each party acknowledges that the other will incur significant costs, fees and expenses by relying on this paragraph and
that if it breaches the paragraph it must (without prejudice to any other remedies the other party may have) indemnify the
other party for all costs, fees and expenses incurred in connection with the initial valuation and investigations, negotiations
and preparation of documents relating to the proposed Joint Venture.

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JOINT VENTURE TOOLKIT APPENDIX

14. COSTS
This paragraph is legally binding and is subject to paragraph 13 (exclusivity).
The fees of the Valuer appointed shall be borne equally by the parties.
The fees of [STATE ADVISERS] relating to the preparation of [STATE DOCUMENTS] shall be borne equally by the
parties.
Each party shall be responsible for its own costs (including, without limitation, costs relating to the investigations of the
business to be contributed by the other party to the Joint Venture)
Each party may end negotiations in relation to the proposed Joint Venture, without having to give any reason for doing so
or incurring any liability to the other party.
15. GOVERNING LAW AND JURISDICTION
This paragraph is legally binding.
This memorandum of understanding is (and all negotiations and any legal agreements prepared in connection with the
Joint Venture will be) governed by and construed in accordance with the law of [RELEVANT JURISDICTION].
The parties irrevocably agree that the courts of [RELEVANT JURISDICTION] have exclusive jurisdiction to settle any
dispute or claim that arises out of or in connection with this memorandum of understanding and negotiations relating to
the proposed Joint Venture.

Signed by [DIRECTOR OR OFFICER]

for and on behalf of [PARTY X] ………………………

Signed by [DIRECTOR OR OFFICER]

for and on behalf of [PARTY Y] ………………………

SCHEDULE
PROPOSED TIMETABLE

Action Responsibility Timing/ deadline

Instruct valuer
Start due diligence
Prepare first draft of shareholders’ agreement and by-laws
of the joint venture
Prepare first draft of [OTHER DOCUMENTS]
Establish third party consents and approvals
Valuation complete
Agree Business Plan
Signing
Closing

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JOINT VENTURE TOOLKIT APPENDIX

Appendix D—Measuring Performance of a Joint Venture—The Use of Scorecards

ALLIANCE PERFORMANCE SCORECARD FOR XYZ COMPANY

Missed Met Exceeded
Goal Metric Results
Financial Fitness
Increase alliance
Product sales growth 15% X
revenues
Reduce overlapping costs Reduction in overhead costs 18% X
Increased parent Transfer prices, fees $89 million X
revenues Related product sales $10 million X
50% chance of building
Increase/create growth
Embedded option value $500 million business in 3 X
options for parents
years
Strategic Fitness
Met first milestone; on
Develop new technology Technology milestones X
target for next hurdle
Fair (fewer staff rotations
Increase learning of Number of parent staffers on
in marketing than X
parent development teams
suspected)
Increase share of target
Market share 20% X
customers
Increase brand equity of Recognition/satisfaction 40% recognition among X
alliance products surveys key customers
Operational Fitness
Eight of ten top ten
Hit key operating goals Operational milestone operational milestones X
exceeded
Reduce manufacturing
Cost of goods sold $98 per unit X
costs
Optimize alliance 45 person-days at
Time spent by management X
management and appropriate management
and staff
coordination time level
Relationship Fitness*
Make fast and effective 6; slow to agree on pricing
Decision-making rating X
decisions strategy
8; generally high across X
Build and maintain trust Trust rating
teams
7; acceptable, but need
Communicate effectively Communications rating more informal X
communication
Ensure senior Senior management attention 9; good attention, no X
management involvement rating intervention needed
Define partner roles
7; marketing support of
clearly and leverage Role-clarity rating X
parent A not yet defined
unique skills
*Based on a ten point scale where 10=truly outstanding, 6=sub par, scored derived from annual partner survey of key staff in both
companies.

Source: James Bramford and David

Ernst, “Managing an Alliance Portfolio,”
The McKinsey Quarterly (2002).

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JOINT VENTURE TOOLKIT APPENDIX

Appendix E—Sample Joint Venture Scorecards: Siebel Systems

Siebel Systems Alliance Scorecard

Financial Fitness Strategic Fitness
Revenues Customer Satisfaction
Goal Performance
Customer Loyalty Index 9.5 out of 10
Overall Alliance Revenue Index 100 110
Performance Dimensions: Responses
• Partner led revenues 40 45
• Satisfaction with product 94%
• Siebel-led Revenues 50 50 performance

• Joint Revenues 10 15 • Satisfaction with integration of 93%

third party systems
• Revenues from new business 20 18
• Satisfaction with implementation 97%
effectiveness
Note: Revenue goals vary across partner Note: Based on biannual ~100 question
categories customer survey that contains ~ 5 alliance
questions

Operational Fitness Relationship Fitness

Management by Objectives Partner Selection
Goal Performance Partner allegiance index 8.5 out of 10
• Marketing Investment (percent 50 % 65% • Overall partner satisfaction High
of annual goal) • Change partner investment Dramatic increase
• Likelihood to continue High
• Number of partner’s staff 42 55
trained Performance Dimensions Score (0-10)*
• Number of joint sales calls 25 21
• Alliance Management 8.1
• Number of marketing events to 10 12 • Sales engagement 8.6
generate demand • Alliance marketing 6.7
5 7
• Product marketing 9.0
• Number of weekly pipeline calls • Integration, validations 9.7
• Training 7.4
• Global Services 9.6
Note: based on quarterly plan developed
jointly by Siebel and Partner; includes Note: based on quarterly >80 question
financial objectives, such as key revenue partner-satisfaction survey
metrics shown above in financial fitness.

*Siebel uses this information to calculate gap score (importance of dimension to partner—Siebel performance=gap score); gaps of 2.0 or
higher require action plan by alliance manager; performance in applying this plan is monitored by Seibel and senior executive of partner’s
company.

Source: James Bramford and David

Ernst, “Managing an Alliance Portfolio,”
The McKinsey Quarterly (2002).

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 CORPORATE STRATEGY BOARD PAGE 14
JOINT VENTURE TOOLKIT END NOTES

1
Andrew Inkpen and Kou-Qing Li, “Joint Venture Formation: Planning and Knowledge Gathering for
Success—Part 1,” Organizational Dynamics (Spring 1999).
2
Ibid.
3
Ibid.
4
Salvatore Parise and Lisa Sasson, “Leveraging Knowledge Management Across Strategic Alliances,”
Ivey Business Journal (March 2002).
5
George T Geis and George S. Geis, “Partnering and Deal Making in the Digital Age,” Ivey Business
Journal (March 2002).
6
Salvatore Parise and Lisa Sasson, “Leveraging Knowledge Management Across Strategic Alliances.”
7
William Gordon et al., “Becoming an Alliance Partner of Choice,” Accenture Outlook (2001)
8
Anton Gueth, “Entering into an Alliance With Big Pharma,” Pharmaceutical Technology (October 2001).
9
ibid.
10
Jeffrey H Dyer et al., “How To Make Strategic Alliances Work,” MIT Sloan Management Review
(1 July 2001).
11
Pippa Walker, “After the Alliance: Managing Cultural Differences,” Outlook (2001).
12
Christopher Bogan and Keith Symmers, “Marriages Made in Heaven” Pharmaceutical Executive
(January 2001).
13
Andrew Inkpen and Kou-Qing Li, “Joint Venture Formation: Planning and Knowledge Gathering for
Success—Part 2,” Organizational Dynamics (Spring 1999).
14
Ibid.
15
“Joint Ventures and Alliances” Freshfields Bruckhaus Deringer, November 2001.
16
Charles Rousell, “Leading Beyond Walls,” Decision Making Beyond the Boundaries,
New York: Jossey Bass Publishers (1999).
17
“Joint ventures and alliances” Freshfields Bruckhaus Deringer.
18
Betina Buchel, “Joint Venture Development—Driving Forces towards Equilibrium.”
19
James Bramford and David Ernst, “Managing An Alliance Portfolio,” The McKinsey Quarterly
(Summer 2002).

 2002 Corporate Executive Board