Joint ventures hold a lot of promise. However, the vast majority fail to deliver. Pearl Lemon Consulting’s expert joint venture consulting services help businesses get more worth from these partnerships by avoiding common mistakes throughout the joint venture life cycle.
Companies in every industry are increasingly turning to joint ventures not merely to reduce risks and expenses, but also to encourage innovation and achieve goals that no single partner could achieve alone. While joint ventures have enormous potential for value creation, many of them—particularly foreign joint ventures—end up providing fewer benefits than the participants anticipated.
What exactly is the problem? Every phase of the process has a slew of causes, ranging from mismatched strategic goals, poor governance, and ineffective techniques to talent management issues and operational inefficiencies.
Working with the joint venture consulting team at Pearl Lemon Consulting will help your business navigate – and overcome – these hurdles to joint venture success. We can also help those who have yet to find suitable joint venture partnership candidates do just that, thanks to our extensive network of contacts across a wide range of industries and niches.
A typical business strategy used by organizations looking to achieve a common goal or target a specific consumer market is to form a joint venture. A joint venture is established when two or more businesses agree to collaborate on a specific project for a set period of time under the terms of a contract. Businesses collaborate and pool resources in order to make the project beneficial for everyone involved.
When a joint venture succeeds, the participating companies split the profits according to the terms of the initial contract. Similarly, if a joint venture fails, all participating companies are responsible for their share of the losses. For some businesses, establishing a joint venture has distinct advantages that make it an appealing option.
JVs are tricky though, and without the right safeguards in place, they can become a litigious nightmare and even a brand-busting albatross that can be hard to shake. For this reason, even large corporations usually turn to the services of an experienced joint venture consulting team before entering into any agreements with another business!
The majority of the time, a business gets into a joint venture because it lacks the essential knowledge, personnel, technologies, or access to a certain market to pursue the project on its own. Joining forces with another company allows each party to benefit from the resources of the other participating company without needing to spend a lot of money to do so.
Let’s imagine that Company A owns the premises and manufacturing production technology that Company B requires to develop and eventually distribute a new product. A joint venture between the two firms allows Company B to use the equipment without having to buy or lease it, while Company A can participate in the manufacture of a product that it did not have to design whatsoever.
When the joint venture succeeds, both companies benefit, and neither is left to finish the project alone.
A joint venture, unlike a commercial merger or acquisition, is a temporary contract between participating organizations that ends at a predetermined date or when the project is concluded. Companies that form a joint venture are not required to form a new business entity under which the project can be completed, allowing for more flexibility than is available in more permanent corporate plans.
Participants also do not have to hand over ownership of their company to another entity, nor do they have to stop doing business while the joint venture is in operation. Once the joint venture is completed, each company can maintain its own identity and resume normal commercial operations.
Joint ventures also have the advantage of spreading the risk of difficulties among the participating enterprises. The development of a new product or the provision of a new service entails a significant amount of risk for a company, and many organizations are unable to manage that risk on their own.
A joint venture allows each company to contribute a percentage of the resources required to bring a product or service to market, easing the financial load of research and development. Because the project’s expenditures are divided among the participating companies, the danger of the project failing and having a negative impact on profitability is reduced.
Joint venture agreements frequently restrict participant companies’ outside activity while the project is under development.
Exclusivity agreements or non-compete agreements that affect present ties with vendors or other business contacts may be required of each company engaging in a joint venture.
These agreements are designed to eliminate possible conflicts of interest between member companies and outside enterprises, allowing the new joint venture to focus on its success.
Although contractual restrictions disappear once the joint venture is completed, having them in place during the project may cause a partner’s core business operations to be hampered.
Most joint ventures are formed as a partnership or a limited liability corporation, and they operate with a clear understanding of the risks of responsibility connected with their selected business models.
Unless a distinct corporate entity is established for the purpose of pursuing the joint venture, the contract under which the joint venture is formed exposes each participant company to the responsibility inherent in a partnership. This means that regardless of its amount of engagement in the acts that produced the claim, each company is equally accountable for claims against the joint venture.
Outside of this, a poorly chosen joint venture can have branding repercussions as well. Aligning your business with one that does not share your brand’s values or will not align with your target market’s expectations of your business can lead to long-term reputational damage that can be hard to overcome.
In a joint venture, the participating companies share control of the project, although work activities and resource consumption related to the joint venture’s completion are not always allocated evenly.
One partner company is often expected or obliged to contribute technology, access to a distribution channel, or production facilities throughout the joint venture, while another partner company is merely responsible for providing staff to complete the project.
Placing a greater burden on one firm results in a disparity in the amount of time, effort, and cash invested in the joint venture, but it may not result in an increase in the overburdened partner’s profit share. Instead, unbalanced work and resource distribution might lead to conflicts among participating enterprises, lowering the joint venture’s success rate.
When it comes to joint ventures between any firm, and in any industry, many of the problems often associated with them can be overcome when working with an expert joint venture consulting team. And many of the advantages of these projects can be maximized.
Pearl Lemon Consulting has extensive experience in both consulting on joint ventures for other member companies in the Pearl lemon Group and for a wide variety of clients. We have also successfully matched businesses who were looking to undertake joint ventures with partners they might never have otherwise encountered.
As is the case for any consulting project we undertake, any joint venture consulting is executed in a completely bespoke manner. We take the time to fully understand both businesses involved in a prospective joint venture so that any advice offered, and suggestions implemented are relevant and beneficial to both.