Joint Ventures for Business Opportunities

By Muhammad, Tariq K. | Black Enterprise, June 1995 | Go to article overview

Joint Ventures for Business Opportunities


Muhammad, Tariq K., Black Enterprise


IT'S OFTEN SAID THAT POLItics makes strange bedfellows. In today's precarious economic environment, the same can be said for business.

The lack of available business loans, rising operating costs, higher taxes and other factors have combined to make this a tough time to strike out into the business world on your own. In fact, entrepreneurs going it alone might consider partnering with a larger firm. It could give them a more secure foothold in their industry.

Regardless of their race, today's business executives are finding out that strategic alliances are an effective way to expand their current businesses or even create new ventures. The evidence? Last year's mergermania that captivated the cable industry and other high-tech businesses has become contagious. Qwest Broadcasting, one of the nation's largest minority-controlled broadcasting companies, was launched last December as the result of a partnership between a group of minority investors, led by Quincy Jones and the former Green Bay Packer football star Willie Davis, and the Tribune Broadcasting Co. Two years earlier, the black-owned comic book publishing firm, Milestone Media Inc., struck a joint venture distribution deal with DC Comics. The success of such deals suggests that partnering is a trend that's here to stay.

The wisdom of joint ventures and strategic alliances can be summed up by the old adage, united we stand, divided we fall. Two companies can combine their resources to withstand turbulent market forces together, or remain individual entities and eventually be driven out of business separately. Smaller firms fighting for a decreasing number of contracts offered by the government and the private sector are being required to handle greater responsibilities. Without partnering, smaller firms and companies that don't have a sterling track record might as well pack it in. Larger firms can increase their competitiveness in the market by teaming with smaller firms that handle specialties more efficiently. The use of shared resources and expertise increases the ability of both companies to capture a larger market share.

Does forming alliances with larger, more established white-owned companies mean black-owned businesses must sell out? Not necessarily. For many black-owned firms, partnering or joint venturing is becoming a matter of buying into a business strategy that's a proven winner. There is, however, no guarantee that a strategic alliance will be successful. But business owners can strategize to increase their chances of success.

First, business owners should understand the risks associated with each type of partnership. In a strategic alliance, the participating companies are bound together only as long as there are some mutual benefits. When those benefits cease to exist, the participants are free to dissolve the relationship.

Kathryn Rudie Harrigan, the Henry R. Kravis professor of business leadership at Columbia University, says that a joint venture actually creates a third company. "Legally, they are more complicated to dissolve." If you form an ill-conceived alliance, it could drive both companies out of business.

To help you make the right decision, Harrigan says all participating companies must agree on a clearly defined business purpose for the alliance. There must be agreement on several critical issues, including the target customer base, the type of product to be sold, the services to be provided, the vendors to be used, the prices to be charged for the products, etc. Then the participants must also agree on the specific contributions of each company in meeting the goals of the alliance.

Finally, Harrigan says, "[Both] companies should have a clear understanding of each other's role in the alliance and the controls which will be used to guide it." If you're uneasy about any aspect of a partnership, it may not be the best alliance for you. You'll want to be sure that the partnership produces similar scenarios to those of the profiled companies below.

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