Let’s talk about joint ventures

In several instances, various parties may consider collaborating to form a ‘joint venture’ to accomplish certain business goals which may be too challenging to attain independently. The joint venture may be described as a partnership, collaboration, agreement, consortium, franchise representation, a company (with multiple significant shareholders), and a host of other descriptions when more than one party is involved.

Reasons to form a joint venture

There are myriad reasons for companies to form a joint venture and these are dependent on various scenarios, for example to:

• Enter new markets
• Access more distribution channels
• Gain knowledge, such as, intellectual property, expertise, and specialised staff
• Reduce risk
• Spread costs
• Utilise your partner’s resources to provide or expand service lines to your current customers
• Expand the research and development department
• Inject an entrepreneurial spirit into a maturing business
• Re-allocate your own resources in a more efficient manner
• Increase your credibility to the community especially if partnering with a reputable partner.

Possible concerns for a joint venture

While it is to be expected that joint venture stakeholders will have the best interests of the joint venture at heart, there could be a number of concerns, including the following examples:

• Stakeholders may have different management styles and cultures
• Objectives of the joint venture may not be clearly defined
• Lack of support and leadership from the key partners
• Miscommunication between the partners
• Financial considerations, including the compensation for work undertaken and the distribution of earnings

Selecting a partner

The selection of a joint venture partner necessitates a pro-active approach by the parties aspiring to form such a business relationship. The global management consulting firm McKinsey & Company brings to the fore the criteria that may determine the long-term success of a joint venture including the following: a consistent business rationale with strong internal alignment, careful selection of stakeholders, clear and open communication, balanced and equitable structure, forethought regarding exit strategies, and strong governance and decision processes.

Attributes of the joint venture stakeholders

When choosing a partner for your joint venture, attributes that one should seek to ensure the greatest chance of success to the prospective joint venture include: trust, alignment, transparency, mutual respect, and results. The following is based on readings from “Partnernomics”.

Trust

When trust exists, less time is spent validating claims and people are less prone to stall when making decisions. Trust allows us to be transparent and vulnerable, enabling us to share issues and challenges that we face. When others understand our shortcomings, they have the potential to compensate for our area(s) of weakness. This is the essence of a fruitful partnership. However, trust is a very fluid and dynamic element of a relationship and we must constantly work to build the bank of trust that we have with others.

Alignment

Alignment of vision, mission, and core values is critical to minimize costly staff turnover and to maximize the speed of accomplishing company goals. When we surround ourselves with people who believe what we believe, we tend to be motivated to achieve similar goals and do it in a similar way.

Transparency

It is imperative that the parties be open and honest as they communicate issues, performance outcomes, and potential challenges that may lie ahead. By being candid and timely with communications, your partners will have the maximum time afforded to make adjustments to their individual responsibilities in order to minimize any collateral challenges that may exist due to a specific situation.

Mutual respect

The development of a strong sense of commitment and loyalty to the joint venture is fundamental for strategic partnership success.

Results

Stakeholders choose to enter into strategic partnerships so that they are better positioned to achieve projected results to ensure the prosperity of their joint venture. Unless meaningful results are attained, no business, no partnership, and no relationship will be sustainable. Achieving significant results takes time, discipline, planning, nurturing, management, leadership, and optimising the business opportunities that arise. This will determine the results.

Conclusion

While the above considerations will assist the stakeholders to establish an initial joint venture, it must be kept in mind that a joint venture is composed of a number of dynamic parts. Thus, the agreement may need to continually evolve to reflect current market conditions and partner concerns positioning the joint venture for the greatest chance of success in the market.