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Managing International Joint Ventures

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Six Issues for Managing International Joint Ventures (IJVs)

Joint Ventures (JVs) Deliver Important Corporate Benefits

The popularity of joint ventures springs from the many benefits they offer companies, large and small. The benefits offered by well-conceived and properly managed JVs often include the following:

  • Access to new markets. Whether expanding regionally or internationally, JVs offer entry into new and exciting markets.
  • Increased knowledge. This includes intellectual, manufacturing, marketing, and operations. Improved methods and procedures evolve as partners share knowledge and ideas.
  • Wider capabilities to increase income. Properly structured JVs usually increase sales and income to all partners along with improved branding results.
  • Enlarged, expanded resources cover all functional areas. Sharing policies, procedures, and talent equals more resources to accomplish corporate and JV goals and objectives.


Corporate Challenges Posed by JVs

JVs can be challenging, as the partners are typically strong, solid, and resourceful corporations. Many times the partners are two or more parent companies, most comfortable making their own unencumbered decisions.

There is the ongoing potential for partner clashes in some critical areas. International JVs often heighten the natural challenges. Among the more common areas of concern:

  • Varied management styles, sometimes in direct conflict with other partners. Management styles, if widely different, sometimes result in stressful partnerships in domestic and international JVs.
  • Government licensing and policy differences. Very important with international JVs, government relations and licensing issues may prove challenging if not addressed and resolved at the beginning.
  • Differing financial and marketing strategies that may conflict. Depending on the depth of the JV agreement, strategic philosophy, particularly in the financial and marketing areas, can prove counterproductive to the partners.
  • Business and operations practices. Operating philosophies, ethical standards, and corporate policy practices sometimes result in conflict among the partners. Address any obvious potential clashes in day-to-day relations early in the process.


Primary Management Issues with International Joint Ventures

These are generally accepted top management priorities. Whenever possible, JV partners should agree upon managing these issues before the JV becomes an operating reality. The following six important issues do not represent the entire universe of considerations, but tend to be common to all international and domestic joint ventures.

  1. Education and knowledge management.  Partners should establish the level of organizational training, learning, and intellectual capital management during JV negotiations. Intellectual capital usage and a protection policy must have the sincere agreement of the partners.
  2. Performance standards, measurement, and goals. Much like knowledge management, performance standards, benchmarking, and joint goals must be clearly stated and require all parties’ agreement before operations commence. Most senior executives are already graphically aware of the misunderstanding potential of performance goals and the measurement thereof within their own organizations.
  3. Internationalization of operations. International JVs include more critical path issues, particularly for the partner new to the country(s) involved. Among important considerations are timing of the physical entry into the foreign market, selecting the best partner for individual foreign operations, analyzing foreign industry conditions, and foreign government influences and policies.
  4. Cultural variances. Some international JVs are the partnering of two U.S. firms, one of which has established a foreign presence. Many other ventures involve a U.S. corporation partnering with an organization native to and based in the foreign market. A new JV must analyze cultural, protocol, and other ethnic differences to establish a performance-oriented marriage of the two organizations.
  5. Command and control. JV partners tend to be strong, confident, sometimes dominant organizations in their primary markets. Their senior management is typically strong, confident, and equally dominant. If the JV structure is divergent in equity participation, e.g. 80 percent versus 20 percent, command, governance, and control issues can become problem areas unless all nuances achieve enthusiastic and sincere agreement.
  6. Valuation of benefits and the JV as an entity. Properly and fairly valuing an individual corporation often requires experts to analyze, digest, and interpret complex data to arrive at a reasonable value for the organization. A JV with two or more equally complex organizations as partners can be a valuation challenge. It is of particular importance and difficulty to establish a solid value for the access to new resources and knowledge, along with a fair selling price when JVs seek buyers.


Final Thoughts on the Partnering Process

At least four items should be considered to resolve conflicts when establishing JVs (or any partner entity):

  • Objectively assess the “strategic rationale” for creating the JV. Is the effort consistent with the projected future financial results?
  • Carefully select partners. Do the projected partners’ operations and senior management project to be a successful fit for each other and the resulting new entity?
  • Set negotiation rules. Establish the negotiating terms before hard discussions begin so the process proceeds objectively.
  • Agree to implementation methods. Agree upon implementation and management rules in advance to ensure final success should negotiations be fruitful.