5 Considerations With An International Joint Venture

International joint ventures lend themselves well to particular industries, like manufacturing and oil. The partnerships with companies worldwide lend themselves well to providing local businesses the edge they need to compete in a global market. However, international joint ventures also come with their own unique set of obstacles and challenges.

Here are five factors to consider before diving into one.

Foreign Laws

Because laws vary widely in other countries, how you're able to set up and manage your international venture may be greatly limited. In some countries, up to 51% of a business must be owned by nationals. Tax structures and labor practices vary greatly from country to country, so it is important to familiarize yourself with the specifics of the country you will be working with to ensure the joint venture is going to work to your advantage.

Different Customs and Traditions

Every country has its own unique set of customs and traditions, which can make it challenging to build a positive relationship with both your JV partner and your new customer base. Like foreign laws, it is important to familiarize yourself with the customs of the country you will be working with to ensure you don't offend any of your partners or future clients in the process.

Loss of Managerial Control

If some or all of your operations will be shifting overseas, it will be much more challenging to maintain quality control of production or customer service. On a different level, overseeing basic accounting practices or staffing may also be very difficult with a company so far away.

In some cases, loss of managerial control may result in lost profits and increased operating costs, an issue that may be very difficult to correct when partners are located thousands of miles apart.

Licensing Issues

Many international joint ventures resort to technology licensing because it is much easier to obtain and maintain in the foreign market. However, if your joint venture calls for any other sort of licensing of intellectual property or other assets, it may be difficult to get the right protection with two different countries involved.

If significant anti-trust issues arise, the companies involved may also want to consider applying for an export trade certificate of review from the Department of Commerce.

Security in Foreign Markets

When you are working with a foreign company, you are now concerned with more than just the state of the U.S. economic structure. In addition, the stability of an international joint venture can become more questionable due to the loss of managerial control and the variances in business practices and laws governing companies between the two countries.

These differences make for a less secure joint venture agreement overall, which is enough to keep many American business owners playing in their own backyard.

International joint ventures have proven quite profitable in recent years, but they are not without their share of complications and risks. If you are considering an international joint venture, it is very important to seek legal counsel to ensure your interests are well protected in your new partnership.