Magazine article Management Today

Joint Ventures Can Make for Vulnerable Parents

Magazine article Management Today

Joint Ventures Can Make for Vulnerable Parents

Article excerpt

Alliances with unevenly matched partners rarely succeed A few short years ago the air reverberated with talk of joint ventures. Strategic alliances which combined the subsidiaries of different corporations seemed, to many, to point a route towards the multinational millennium. Did one business possess a profound knowledge of a particular market but lag a little in technology? The answer was to tuck it into bed with some technological wizard lacking its market strengths. Was another floundering in a highly competitive sector? Put it together with a similar sufferer. Let them join forces, cut costs and move forward in confidence. If possible,

Joint venturing is still a favoured solution. How else is a company to break into China, say, or Japan? British Telecom currently reckons that its best chance of competing with Deutsche Telekom in Germany lies in taking a German partner or two. TI Group, having swept Dowty into its net a couple of years ago, decided that the way to grow the acquisition's landing-gear business -- in a sluggish aerospace market -- was to set up a 50:50 venture with the equivalent SNECMA subsidiary. Messier-Dowty rolled out on 1 January. But enthusiasm for joint ventures is less widespread than it was. The formula has been in general use long enough for judgments to be made about its validity -- and the success rate, according to one British academic, is `very similar to that of acquisitions'.

Joint ventures may fail on straightforward commercial grounds, or because the personal chemistry is wrong (the managers running the operation may be recruited from both parents, but they are seldom the ones who signed the agreement). But even assuming a close understanding -- and common interests -- at the outset, it's almost inevitable that these interests will diverge with the passage of time.

Writing in the Jan-Feb issue of Harvard Business Review (an article ominously entitled `Is Your Strategic Alliance Really a Sale?'), two McKinsey consultants, Joel Bleeke and David Ernst, identify half-a-dozen types of alliance, only one of which, they suggest, has a strong chance of surviving much longer than the seven-year average of such ventures. Lord Weinstock might not like the authors' views on the durability of alliances between core businesses of major companies which would otherwise be competitors. GEC is in partnership with Alcatel Alsthom of France in power generation, with GE of the US in domestic appliances, and has an equally famous joint venture with Siemens in telecommunications. In the last case, GEC is a 60% majority shareholder in GPT (the other two are 50:50 ventures), but in all three the UK company is much the smaller of the parents, and could be at a disadvantage in the event of a divorce. …

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