A popular way for many businesses to grow is through joint ventures. By definition, a joint venture is a business enterprise undertaken by two organizations to share in the expenses and profit of a particular business project.
Joint ventures have grown in popularity in recent years, especially in emerging market economies such as Brazil, Russia, India and China. These emerging markets have a potentially large domestic market for products and generally have protectionist duties and tariffs that make shipments from outside the country more expensive. Lower labor and production costs in these markets may be an important strategic manufacturing consideration for a joint venture.
Once you come to a conclusion that it makes sense to explore a joint venture, there are several things you should consider:
- Due diligence: Make sure you conduct exhaustive due diligence on the target country’s market or industry. Look at the market size, profitability, domestic or international competitors and other potentially important factors specific to your business or industry.
- Find a partner you are compatible with. Picking the right partner is crucial to your success. Make sure your partner has the character and values as similar to yours as possible.
You also need to make sure your company and your partners can withstand the financial risk and unexpected challenges. Also, your partner should bring value by having a good understanding of regulations and product approvals required in your industry.
Your potential partner should offer the opportunity to help manage the company and supply personnel while getting the company off the ground.
- Align with a good professional services firm. Be certain to engage with a competent legal firm that has international business experience. The firm needs to be able to give solid legal advice on joint venture documents, technology transfer, intellectual property protection and international trade.
Also, make sure you align with a good tax advisor/audit firm to make sure you keep precise track of financial obligations and taxes specific to where your joint venture is located.
Finally, there needs to be a clear understanding of the regulations and difficulties regarding the repatriation of cash and profits to the United States.
- Operational execution. It is imperative that you have a detailed financial and market growth plan. The plan should be jointly developed with your partner and should take into consideration that joint ventures always take more time and financial contribution than you originally will project.
Your success will depend on the personnel you staff the joint venture with so having a good interview and hiring process is essential. Training and education of the joint venture staff is typically underestimated in terms of time and amount of trips needed by your company’s product experts.