The Beginner"s Guide to Joint Venturing
The following article is an exclusive excerpt from Happy About Joint Venturing by Valerie Orsoni-Vauthey. If you have arrived directly at this page, you may want to start with Joint Venturing 101 - What is a joint venture and how do they work?
Their main findings were that most joint ventures fail about 60% of the time within five years. Why? Experts agree that the key to success is the human factor, such as human resources integration and knowledge sharing, rather than geographical or financial factors.
Keep in mind that joint venturing in third world countries entails a higher rate of failure. Lack of local legal knowledge, communication problems, divergence on agreed-upon objectives, differing deadline perceptions, etc., all contribute to this elevated rate.
How do we measure the performance of a joint venture? There are several formulas that can be used. It depends on the strategic alliance in the first place. Do you wish to:
Though some objectives are hard to quantify, like "reducing competition," for instance, methods are always available to analyze how well a joint venture's plan was executed.
One could argue that if competition is cut down, then profits should increase.
If reducing competition has the sole objective of stabilizing or reversing a slowing revenue growth, it is easy to demonstrate the positive impact a strategic alliance could have on such a goal.
Remember, the key determining element responsible for joint venture failures is the human factor. Being able to make your employees feel comfortable about a potentially disturbing strategic alliance will be crucial to your success. This implies that not only must both sides understand how much they have to gain from this joint venture, but more importantly, how much they can lose by not partnering.
Information sharing will be vital, and it is essential that as early as possible, both teams talk and exchange their knowledge. This entails meetings, steering committees, joint company events, employee "swaps" and internal promotions.
Going back to our primary question: what are my chances for success? We know that on average, only about 40% of joint ventures are successful within five years. Since this figure includes partnerships with underdeveloped countries; which have a high rate of failure, we can reasonably state that if you join forces with a company located in a developed area and have done your homework, your probability of success should be closer to 80%.
What are the risks and legal implications?
What are my chances of success?
Although there are no official statistics on the rate of success of specific strategic alliances, like joint ventures, per se, a few studies have, however, been conducted in this field.Their main findings were that most joint ventures fail about 60% of the time within five years. Why? Experts agree that the key to success is the human factor, such as human resources integration and knowledge sharing, rather than geographical or financial factors.
Keep in mind that joint venturing in third world countries entails a higher rate of failure. Lack of local legal knowledge, communication problems, divergence on agreed-upon objectives, differing deadline perceptions, etc., all contribute to this elevated rate.
How do we measure the performance of a joint venture? There are several formulas that can be used. It depends on the strategic alliance in the first place. Do you wish to:
- Increase profits?
- Share R&D expenses?
- Extend or maintain market position?
- Improve distribution channels?
- Reduce overall costs/economies of scale?
- Develop new technology?
- Diversify product offerings?
- Reduce competition?
- Spread risk (mainly on large investments)?
Though some objectives are hard to quantify, like "reducing competition," for instance, methods are always available to analyze how well a joint venture's plan was executed.
One could argue that if competition is cut down, then profits should increase.
If reducing competition has the sole objective of stabilizing or reversing a slowing revenue growth, it is easy to demonstrate the positive impact a strategic alliance could have on such a goal.
Remember, the key determining element responsible for joint venture failures is the human factor. Being able to make your employees feel comfortable about a potentially disturbing strategic alliance will be crucial to your success. This implies that not only must both sides understand how much they have to gain from this joint venture, but more importantly, how much they can lose by not partnering.
Information sharing will be vital, and it is essential that as early as possible, both teams talk and exchange their knowledge. This entails meetings, steering committees, joint company events, employee "swaps" and internal promotions.
Going back to our primary question: what are my chances for success? We know that on average, only about 40% of joint ventures are successful within five years. Since this figure includes partnerships with underdeveloped countries; which have a high rate of failure, we can reasonably state that if you join forces with a company located in a developed area and have done your homework, your probability of success should be closer to 80%.
What are the risks and legal implications?
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