CHAPTER 6
Factors Affecting Success or Failure regarding why international JVs get into trouble. Each JV is, of course, unique, and it is therefore difficult to draw sweeping generalizations from these studies. Nevertheless, it is useful to understand some of the more common problems that tend to arise. In each case, the parties need to consider appropriate changes in JV operations and/or the overall business strategy of the JV. Recognition of early warning signs is important because failure to deal with a specific problem may doom later attempts to reach a solution through one of the formal dispute resolution procedures described in Chapter 16.
NUMEROUS STUDIES HAVE BEEN MADE
Poor Pre-Formation Planning Many problems that might arise during the operation of a JV are in fact created by pre-formation planning that is inadequate and, perhaps, too hasty. For example, a distribution relationship might fail if a product was inappropriate for the target market, or the parties failed to assess correctly the competitive factors in the market. Before you leap into a JV, consider the following: ■
Pay careful attention to country and market analysis, due diligence investigation, and entity selection and formation. This is time well spent, even if the timeline for becoming operational must be extended a bit.
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Take assertive steps to guard against communication failures, which may occur due to language, cultural, or geographic constraints.
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Reach a consensus on the fundamental objectives of the JV. Often, discussions during formation and negotiation unduly emphasize methods and procedures, without clarifying or expanding on the overall objective. As a result, the JV is less able to adjust if another method is needed to accomplish its prime objective.
Unexpectedly Poor Financial Performance Nothing can strain a relationship between two parties more than unexpectedly poor financial performance by the JV, whether in poor sales, cost overruns, or otherwise. Poor financial performance can result from such factors as inadequate preformation planning, failure to approach the market with sufficient management flexibility and efficiency, and unanticipated changes in the country’s situation. Although business risks cannot be completely eliminated, factors that might adversely influence the JV’s financial performance can be identified and monitored. These factors should be reviewed before finalizing formation of the JV and periodically during its operation so that adjustments can be made if problems are found.
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