Dealing with Joint Ventures with Foreign Partners

By Uchitelle, Louis | THE JOURNAL RECORD, November 24, 1989 | Go to article overview

Dealing with Joint Ventures with Foreign Partners


Uchitelle, Louis, THE JOURNAL RECORD


Without a doubt, a joint venture with a foreign partner is the fastest and least costly way for a manufacturing company to expand abroad. Thousands are being formed, but as they proliferate, American companies are learning, sometimes painfully, that these partnerships require constant revamping to survive.

Whatever the turmoil, the joint venture, once considered a peripheral operation, is becoming part of the corporate structure, as commonplace as the personnel department.

``There is a strategic imperative for companies to get worldwide positions very quickly, and the joint venture is suited to this task,'' said Christopher A. Bartlett, a Harvard Business School professor.

Few companies are wealthy enough to operate factories abroad or to maintain sales people and distribution networks overseas. Even those that can often choose to take on a partner anyway - to get at the partner's technology or simply to avoid bearing the entire cost of a risky enterprise. Even the giant Coca-Cola Co. joined with Britain's Cadbury-Schweppes PLC to build a canning and bottling plant in Yorkshire, England.

But what happens when the joint venture (or alliance, or marketing agreement, whatever the label) veers from its original goal?

Or what do the partners do when the venture becomes much more important to one party than to the other?

Or how do they handle it when the alliance becomes so big and successful that it takes on a life of its own, beyond the control of either partner?

``They become mere shareholders,'' said Kenichi Ohmae, a managing director at McKinsey & Co., the management consulting firm. Ohmae and others predict that the joint venture trend will eventually produce a host of new, huge worldwide corporations - among them such emerging giants as Fuji-Xerox (both Fuji Photo Film Co. and Xerox Corp. make copiers) and Shin Caterpillar Mitsubishi (earth movers).

But along the route, the fallout rate is high. ``Many joint ventures, in fact, end up in buyouts, with one company gaining control of the enterprise,'' said Stephen Cooney of the National Association of Manufacturers.

That was how American Telephone and Telegraph Co. resolved its joint venture with Philips Industries NV, the electronics and communications giant of the Netherlands. The undertaking, in AT&'s opinion, quickly veered from its original goal.

In the early 1980s, having no overseas operations and seeking to become a multinational corporation overnight, AT&T established with Philips a jointly owned company to manufacture and market telecommunications equipment in Europe. AT&T supplied the technology; Philips the marketing clout.

AT&T, however, finally decided that while Philips was learning a lot about telecommunications, the Dutch company was not making enough of a marketing effort, AT&T officials said. So AT&T bought control of the venture. …

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