A Reality Check About Joint Venture Strategies

Many business owners have only a limited understanding of joint venture strategies and gain only a little knowledge from hearing others discuss their experiences. A marketing conference speaker using the latest popular buzzwords perhaps easily impresses them. However, after the conference the attendees struggle. Ultimately they realize that they actually lack sufficient knowledge of the fundamentals to develop practical and winning joint venture.

Start with a full plan

Always know the proposed goals of the potential JV. Otherwise, how can you adequately decide if they meet the desired risk-reward basics? Sustainability is the key principle involved here. A number of businesses on paper have all the assets and capital needed to propel a business to new heights. But further examination shows the financial objectives considered are actually not economically sound. The risk-reward factors perhaps do not consider the cost of financing, timelines, legal implications and so on.

Formulating JV strategies focusing only on the prevailing economic conditions can spell doom to a business. How exposed is the business to future changes in economic forces like crude oil prices, fluctuating world currencies, new regulations, and transportation bottlenecks? An effective JV strategy should still offer the necessary profit margin, even when evaluating worst case scenario situations.

Understand why you should form the partnership

The parties outlining their strategies should identify key synergies, which explain why forming a partnership is the right decision. There is absolutely no reason to have an agreement if both parties feel that they are better off alone. The potential partners should offer something the other does not have, and vice versa.

Money cannot be the sole determinant factor. Sometimes simple considerations like geographical location will impact success. JV strategies that take advantage of resources unique to a certain location can also be a good ingredient for a mutually beneficial agreement. In these cases there is an increased demand for an equally high supply of something. A good example is companies that deal with energy, mineral or natural resources. This is why some foreign entities will scramble to have a share of Middle Eastern, African and Asian companies.

The human factor

Multinational companies must fully examine what personnel resources both sides have to offer. Technical expertise, relevant experience and proven track records are resources a potential partner can perhaps offer in place of finances. On the other hand, if their staff is not ready it can wreak havoc on the budget and timeline. Too often a good percentage of joint ventures will stagnant behind schedule, because of the time spent training employees. Unfortunately, sometimes this training will not be properly forecasted which significantly impacts budgeted time and resources.

It boils down to doing your homework before signing the joint venture agreement. Simple pitfalls can be avoided or circumvented with a properly prepared partnership. When evaluating joint venture strategies, what is seen on paper is not enough; consider on-site appraisals even if the cost is significant. It is important to make sure you have the real picture.