Last Updated on December 19, 2022 by Anda Malescu
In the United States, what makes a joint venture successful is carefully planning and managing the implementation of the joint venture along multiple stages
A joint venture occurs when two or more companies pool their resources and expertise to achieve a particular goal in the market that neither can achieve alone.
Joint ventures can be formed for many reasons and take various forms, but joint ventures are commonly formed when business owners want to enter a new market or expand their customer base and distribution capabilities. This approach is used by small to medium size businesses as well as the larger players. However, forming a joint venture is a particularly attractive option for small and mid-sized firms because it gives them the possibility to explore a new market that would otherwise be financially unattainable, while allowing them to retain more control over the market strategy and have more intellectual property protection than they would if selling through local distributors.
The business leaders interested in taking their products or brands to a new or distant market can benefit from entering into a joint venture with a local partner that offers complementary strengths in a target market. The partner, chosen wisely, can provide an immediate base of local customers, experienced and knowledgeable local personnel, manufacturing capabilities, infrastructure as well as financial resources, knowledge of local marketplace conditions, language, culture and legal and regulatory requirements.
However, the advantages of a joint venture can be offset when the business objectives and interests are misaligned, there is a lack of commitment and unclear rules of governance, or there are problems with employees, the talent pool or company wide operations. Therefore, in order to make a joint venture successful it is essential to carefully plan and manage the various stages of entering into a joint venture.
If your company is interested in a joint venture, you should consider what makes a joint venture successful:
- Alliance Strategy. The joint venture partner companies may likely be competing following different approaches. These differences in strategy between the partner firms affects the way decision-making is executed at each company level and can either benefit or hinder the joint venture. As a result, it is critical to understand the strategy employed by each company participating in the joint venture and clarify the key objectives and drivers for the joint venture, define the expectations from the future partner, and outline the scope of the joint venture. The partners’ alignment must be over and above any profit potential to ensure that all partners derive value from the arrangement.
- Partner Search and Negotiation. It is essential to find the right partner for the joint venture, otherwise the venture may result in lengthy legal disputes, IP theft, bad reputation or unmet business targets. This is why it is crucial to conduct a partner-fit assessment up front and consider factors such as the potential partner’s business culture, decision-making processes, reputation, willingness to invest, management, ability to address challenges, and risk tolerance, among others. After assessing partner fit, the joint venture partners begin to negotiate the deal and choose the optimal joint venture structure.
- Legal Setup and Agreement. With help and advise from attorneys, the partners set up the joint venture in writing, whether in a joint venture agreement or through an incorporated joint venture structure. Irrespective of the form used, a successful legal setup and agreement covers a myriad of issues including intellectual property protection (copyrights, trademarks and patents), organization and governance structure, decision mechanisms and board structure, capital contribution, termination and profits and losses. Without these contractual terms the potential for disputes and litigation is unavoidable.
- Ongoing Management. The joint venture itself and the relationship between the partners evolve rather than being static and need to be developed on an ongoing basis. The management and operation of the joint venture must be flexible and engage in frequent communication to adapt to changes in conditions and foster a successful joint venture.
- Exit Preparation and Support. An exit strategy should be planned in advance and the partners should use third-party services to protect their interests in the deal upon exit.
Forming a joint venture can be challenging, but if done right, it can be worth the effort. Contact us or schedule a consultation with your business attorney in Miami, Florida USA to help you plan and execute a joint venture.
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