Magazine article Management Today

Wedded Bliss or Bitter Woe

Magazine article Management Today

Wedded Bliss or Bitter Woe

Article excerpt


A joint venture may be a marriage of two minds or an absolute disaster necessitating immediate divorce. Christopher Arnheim looks at some simple and early precautions which should help partners to increase the likelihood of a longlasting and happy union The dismantling of internal EEC barriers is leading to more joint ventures of greater complexity and with larger numbers of participants -- as major players from Japan or the US team up with Europeans who have valuable local knowledge to assist the penetration of EEC markets. Similarly, the huge costs and business risks of new technology projects have spawned numerous joint ventures, as collaborators seek to pool resources and share the risks. Against this background it is becoming increasingly important for executives to be aware of the key issues to be resolved before embarking on a joint venture.

A joint venture is a marriage of separate corporate cultures; perhaps for a limited period and perhaps only for a limited purpose. However, as a marriage it stands or falls with the relationship between the collaborators. Internal tensions can ruin a good business project.

There are several different types of marriage and the same is true of joint ventures. Projects may be constituted by way of contract, partnership or joint venture company. The route chosen will depend on the business and accounting requirements and the needs of the project. A consultancy contract or technology licence may be suitable if some of the collaborators do not wish to share in the project's risks and rewards. A partnership allows tax transparency but each partner will be jointly and severally liable for the others -- which will be undesirable if the business risks are great.

Most joint ventures are carried on through a joint venture company owned by the collaborators. As shareholders, the collaborators benefit from limited recourse. With the joint venture company legally separate from its shareholders, administration and accounting issues are often more straightforward. Equity finance can be raised fairly easily if required, and the prospects of realising the project's value are enhanced -- since the joint venture company may be sold or floated.

There are four key points for collaborators to negotiate and resolve. These are the aims, roles, operations and duration. If there is no misunderstanding on these, then joint venture management can get on with ensuring the project's success. Often collaborators leave i's undotted and t's uncrossed and trust each other to sort problems out as and when they arise. To some extent this is always going to be necessary. But if major issues are not resolved at the outset tensions are likely to surface.

Identifying the joint venture aims is essential. It is a recipe for divorce if one collaborator merely wishes to second its staff to the joint venture company to learn the management methods of another, while others are seeking to establish and develop a successful long-term operation. The criteria for success or failure must therefore be agreed and cast in stone; and they can vary enormously. One collaborator may seek to maximise profitability and another market share; one collaborator may wish to develop or exploit new technology which is ancillary or complementary to its core business, while another wishes to seek out alternative applications for that technology; collaborators may wish to merge and rationalise existing excess capacity or to create jobs to offset redundancies in their core businesses; or the joint venture may be regarded as little more than a marketing tool to enhance the reputation in the community of one or more collaborators. …

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