Author: Charlotte Gifford
28 Aug 2020
Joint ventures are relatively unusual in the corporate world. Often involving shared management teams and long, drawn-out negotiations, they can seem more trouble than they’re worth.
But sometimes a new partnership can be the key to business innovation. Without NASA, Google wouldn’t have been able to create Google Earth. And when Sony joined hands with Ericsson, together they created one of the best-known providers of mobile devices in the world.
A joint venture can be particularly advantageous during a downturn as an alternative to a merger or acquisition. In this arrangement, two partners share business ownership, returns and risks. This can make it an effective method for navigating an uncertain business environment while also bringing new skills and perspective into each organisation.
However, in order to unlock these benefits, it’s crucial that businesses build a strong and healthy partnership. In this article, European CEO outlines its top five tips for a successful joint venture.
The first thing a successful joint venture needs is shared objectives between the two parties. While this may sound easy to achieve, ensuring goal alignment is actually a part of the process that many companies neglect. According to research by McKinsey & Company, planners in a joint venture often spend less time discussing the structure and business model of the proposed entity than they do hashing out specific deal terms. Unless both parties are clear on the long-term goals of the alliance, there is sure to be conflict later down the line.
Joint ventures are time-consuming to set up. In fact, they can take longer to complete than even M&A negotiations. Business leaders should remind themselves of this when carrying out their due diligence; it’s not a process either party should rush.
Because a joint venture involves the integration of different business units, it’s crucial that each party knows what they’re getting into ahead of time. Before committing to a partner, businesses should take into account the other party’s corporate culture and decision-making style, its history with joint ventures and its operational capacity.
The right management team
Strong leadership is needed in any organisation, but it’s particularly important when two companies join hands. The different businesses should be careful to appoint highly effective leaders to deliver the new alliance’s objectives. These individuals will be the bastions of the partnership; they should therefore be vocal in their commitment to it and skilled at motivating the newly combined teams. It also helps to allocate the responsibilities of these leaders quickly and clearly to ensure the smooth delivery of the new business plan.
Understanding the market
One of the reasons a firm may enter into a joint venture is to gain access to a new market. Sometimes a joint venture may therefore mean operating in an unfamiliar country or region. Businesses should spend as much time familiarising themselves with this new market as they do with their prospective partner and be aware of the risks that accompany it. In addition, companies should ask themselves if there is a new market that, through their joint venture, they might be able to explore.
When bringing two cultures together, conflict is inevitable, even if the due diligence process has suggested that they should be compatible. This conflict can present a major threat to the success of the joint venture, since disillusioned employees may be tempted to find jobs elsewhere.
Rather than letting the culture of one company dominate, the two parties should be ready to embrace their differences. Before implementing the deal, the business should have a clear grasp of the differences between each organisation as well as a detailed plan on how to address any problems that could emerge as a result.