How to Choose an International Joint Venture Partner
(Part one of two parts)
BY WILLIAM C. MUNROE
Your company owns operations within the United States, and perhaps a sales subsidiary or two abroad. Why consider a joint venture with a foreign partner? The usual answer is that your company foresees one or more needs in establishing and running the prospective ventures that it cannot adequately meet alone. Thus, the right partner may give you a stronger operation sooner, with less risk.
How May An Overseas Partner Help?
- Sales and Marketing. You may wish to achieve direct contact with potential customers, but not know how best to reach them.
- Operations. You may seek to bridge a cultural gap, and to gain access to familiarity with the country's language(s) and its labor and business practices.
- Financial. Your company may seek additional capital for the venture, or you may wish to share its investment risk with another.
- Research and Development. Your company's product may require adaptation to the local market, or its manufacturing needs may dictate the acquisition of a local supplier of plant capacity and personnel.
- Foreign Laws and Regulations. Local law may require local participation or you may want a partner that is familiar with local regulations.
Having decided to seek out a venture partner, what are your choices? Among the more likely ones are competitors, customers, suppliers and distributors. Often, it proves preferable for your and your partner's interests to be complementary rather than identical.
Teaming up with an actual or potential competitor may assure you of getting a partner that understands your business. However, such a joint venture may carry inherent conflicts on such matters as territories and new product development.
Similarly, joining with a local customer may give rise to a conflict between your company's need to sell to a wider market and your customer's interest in restricting its competitors' access to your company's products.
On the other hand, a joint venture with a local supplier may assure your company of a source of supply and your partner a market. In the alternative, teaming up with a local distributor may guarantee access to established routes of distribution.
Your ideal partner may prove to be a public or privately owned company or, less likely, one or more individuals or the foreign State itself.
When considering a large, public company as a prospective partner, one's concern often should be whether its management will show the flexibility and continued interest to provide its agreed support throughout the duration of the venture.
In the case of an individual or his wholly owned company, you may need to anticipate problems such as continuity of management and the risks of death or disability, as well as the potential competence, or lack thereof, of the succeeding generation.
Joint ventures with state enterprises are particularly subject to bureaucratic staffing and the risk that political considerations will dictate management and financial decisions rather than the needs of the business. However, with privatization gaining in many areas of the world, there remain few areas where state partners are required, except in the exploitation of natural resources, utilities, or defense related industries.
A joint venture may be likened to marriage. In both, trust, understanding, an ability to communicate and a compatibility of interests will go a long way toward ensuring success.
Next time: The Joint Venture Agreement: contentious issues and problem areas.
© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 1994; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.