Why Joint Ventures?

As there are good business and accounting reasons to create a joint venture (JV) with a company that has complementary capabilities and resources, such as distribution channels, technology, or finance, joint ventures are becoming an increasingly common way for companies to form strategic alliances. In a joint venture, two or more "parent" companies agree to share capital, technology, human resources, risks and rewards in a formation of a new entity under shared control.

Important Factors to be Considered before a Joint Venture is Formed screening of prospective partners joint development of a detailed business plan and short listing a set of prospective partners based on their contribution to developing a business plan due diligence - checking the credentials of the other party ("trust and verify" - trust the information you receive from the prospective partner, but it's good business practice to verify the facts through interviews with third parties) development of an exit strategy and terms of dissolution of the joint venture most appropriate structure (e.g. most joint ventures involving fast growing companies are structured as strategic corporate partnerships) availability of appreciated or depreciated property being contributed to the joint venture; by misunderstanding the significance of appreciated property, companies can fundamentally weaken the economics of the deal for themselves and their partners. special allocations of income, gain, loss or deduction to be made among the partners compensation to the members that provide services Human Resources (HR) Action Steps to Prepare for a Successful JV2 Business Strategy. Begin with a sound, well-articulated strategy. Before moving forward, determine and explain why you wish to enter into a joint venture, why you have chosen your partner(s), and what you hope to achieve. Define involvement (managerial, capital, etc) of the parent companies and how long the JV will last. Put in place strategies to define governance, accountability, decision-making process, and conflict- and issue-resolution procedures. Ensure buy-in and participation at the highest level. Consider outcomes: what could cause you to terminate the joint venture, and what is the preferred exit strategy. Human Resources (HR) Strategy. Develop HR strategies that align and support the goals of the JV: develop a distinct identity and culture for the new organization; communicate aggressively to employees; and establish distinct career paths, management, and a means of return for employees transferred to the JV. Create compensation, incentive, and retention programs tied to the success of the JV. Maintain open communication between the HR departments of the parents and the JV. Leadership. Define a process for leadership selection that's seen as fair and credible, and name top-tier leadership as soon as possible. Look for key indicators of leadership potentials such as behaviour, past experience, and measurable outputs. Communication. To engage and motivate your employees, communication should be frequent and used to create a common vision, establish a connection with leadership, explain the new rules, support the individual transition process, aid in

retention, and ultimately, define the new organization in terms of "We" instead of an "It" or "They". Share as much information as you can, and never sugar-coat or make false promises. Talent. Make the identification, retention, and motivation of the key talent a top priority. As times of uncertainty can lead to defections, take strong counter-measures to prevent them. Paying close attention to the specific skills, knowledge, and behaviour that will be required to achieve the new organization's business objectives, identify the key players in both the parent companies who will be needed during the transition to a joint venture organization and beyond. Be aware of which employees are most at risk for recruitment by other organizations and collect data on the causes and costs or turnover that might influence which employees to target and which retention practices to implement. Conduct employee research to help the new organization determine what matters to employees and can serve as the foundation for all programs and incentives.

What are the Advantages of forming a Joint Venture?

Provide companies with the opportunity to gain new capacity and expertise Allow companies to enter related businesses or new geographic markets or gain new technological knowledge access to greater resources, including specialised staff and technology sharing of risks with a venture partner Joint ventures can be flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting both your commitment and the business' exposure. In the era of divestiture and consolidation, JVs offer a creative way for companies to exit from non-core businesses. Companies can gradually separate a business from the rest of the organisation, and eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one partner to the other.

The Disadvantages of Joint Ventures

It takes time and effort to build the right relationship and partnering with another business can be challenging. Problems are likely to arise if: The objectives of the venture are not 100 per cent clear and communicated to everyone involved. There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners. Different cultures and management styles result in poor integration and co-operation. The partners don't provide enough leadership and support in the early stages. Success in a joint venture depends on thorough research and analysis of the objectives.

Joint venture - benefits and risks Businesses of any size can use joint ventures to strengthen long-term relationships or to collaborate on short-term projects. A successful joint venture can offer:

access to new markets and distribution networks increased capacity sharing of risks and costs with a partner access to greater resources, including specialised staff, technology and finance

A joint venture can also be very flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting the commitment for both parties and the business' exposure. Joint ventures are especially popular with businesses in the transport and travel industries that operate in different countries. The risks of joint ventures Partnering with another business can be complex. It takes time and effort to build the right relationship. Problems are likely to arise if:

the objectives of the venture are not totally clear and communicated to everyone involved the partners have different objectives for the joint venture there is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners different cultures and management styles result in poor integration and co-operation the partners don't provide sufficient leadership and support in the early stages

Success in a joint venture depends on thorough research and analysis of aims and objectives. This should be followed up with effective communication of the business plan to everyone involved.

Examples

Air Hong Kong (Cathay Pacific + DHL Express) Air France-KLM (Air France + KLM) AutoAlliance International (Ford + Mazda) Brewers Retail Inc. (Inbev, Molson Coors + Sapporo Breweries) Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited. (Canara Bank + HSBC + Oriental Bank of Commerce)

CW Television Network (CBS Corporation + Warner Bros.) Bank DnB NORD (DnB NOR + NORD/LB) Dow Corning (Dow Chemical Company + Corning Incorporated) Fujitsu Siemens Computers (Fujitsu + Siemens AG) GlobalFoundries (AMD + Advanced Technology Investment Co. (ATIC)) Huawei Symantec (Huawei + Symantec) Hulu (NBC Universal + Fox Entertainment Group + ABC, Inc.) INTO University Partnerships specialises in creating JVs with British universities LG.Philips Components (LG + Philips) MSNBC (Microsoft + NBC Universal) NBC Universal (NBC [part of General Electric] + Vivendi Universal Entertainment [part of Vivendi]) Nokia Siemens Networks (Nokia + Siemens AG) NUMMI (General Motors + Toyota) Penske Truck Leasing (GE + Penske) PetroAlam (Royal Dutch Shell + Vegas Oil and Gas + GDF Suez) Prime Time Entertainment Network from the Prime Time Consortium (Warner Bros. + the Chris-Craft group of independent stations.) Rigar Donuts (Rigarsia + Dunkin' Donuts, 2010) Shell-Mex and BP (Royal Dutch Shell + British Petroleum, 1932) Sony BMG Music Entertainment (Sony Music Entertainment [part of Sony] + Bertelsmann Music Group [part of Bertelsmann]) Sony Ericsson (Sony + Ericsson) Strategic Alliance (Northwest Airlines + KLM) The Balfour Beatty Skanska, construction contractors (Balfour Beatty + Skanska) The Baseball Network (ABC, NBC, + Major League Baseball) Tata DoCoMo (Tata Teleservices + NTT DoCoMo) TNK-BP (BP + TNK (Tyumen Oil Co.)) TriStar Pictures (Columbia Pictures, HBO, + CBS) United Launch Alliance (ULA) (Boeing + Lockheed Martin) Uninor (Telenor + Unitech Group) Verizon Wireless (Verizon Communications + Vodafone) Virgin Mobile India (Virgin Group + Tata Teleservices) The XFL (NBC + World Wrestling Entertainment)