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Joint Venture Study
Before embarking on a joint venture, companies require extensive information and analysis. This process is sometimes referred to as a joint venture study. Every market and company is different, so the focus of the study can vary; however, the goal is to gather all the information relevant for making a decision about undertaking a joint venture. Some areas for study include the business environment in the target market; classification and background research of potential partners; regulatory issues in structuring the joint venture; financial projections for multiple scenarios, and operational structure of potential ventures such as logistics and supply chain setup. There are many other issues that might be considered, depending on the type and goals of the joint venture in question.
Usually, joint ventures are undertaken by companies on order to gain access to greater resources, or enter new markets. In the case of the former, the resources sought might be technological, operational, or knowledge-based. For instance, a company employing top experts in its field might partner with a company that has patented cutting-edge technologies to cooperate on new product development. Or a company with a strong distribution network might seek out smaller firms with unique products that might benefit from wider distribution. In the case of market entry, companies tend to form joint ventures to be able to access overseas markets, particularly challenging ones with significant language and cultural barriers. China is one country that is often cited as an example of a market that foreign companies should enter via a joint venture with a local player.
Usually, the term "joint venture" refers to a structure where both companies contribute resources and take equity in a new undertaking, creating a new business. However, sometimes partnerships or short-term collaboration agreements are also referred to in this way. The decision on structure is one of the goals of a joint venture study. There are many other decisions to be made, and any company considering a joint venture should be prepared to address them.
In order to conduct a successful joint venture study, either in-house or with the aid of external consultants, some initial questions should be answered. What are the goals of the joint venture? How do they relate to the larger goals of the company or business unit? What resources can be contributed to the venture, and what resources would a partner need to provide? What is the desired timeframe? Who are the main stakeholders in the company and among its partners? After answers are available to those initial questions, the research can begin.
The research process can be expected to result in projections for financials, partner selection, and structure, but a comprehensive joint venture study will also consider alternatives. Can the goal be accomplished in another way? Possibly the company can grow by purchasing another, or expanding to create a new internal business unit that meets the goals. Potential partners might not necessarily be the companies with the best resource match, but the ones with the closest relationship, such as existing suppliers or customers. There are many alternatives in every step of the way, and failing to consider them could incur substantial opportunity costs.
Whether choosing to conduct a joint venture study in house or externally, management teams should seek multiple perspectives to avoid neglecting any aspects of the process. Within the company, identifying the experts and stakeholders, and bringing them on as part of the process will ensure the appropriate information is gathered, and also produce buy-in for the eventual course of action. Employees may also have connections to potential partners through former employment, educational ties, or other networks - in order to leverage these, it might be necessary to sacrifice some confidentiality by announcing the joint venture search process within the company, but the upside is better information and ready contacts. External consultants are usually prevented by confidentiality agreements from leveraging their networks fully, but they bring specific expertise that may not exist inside the company, and fresh perspectives that are key to making the right decisions. Regardless of the way a company chooses to conduct a joint venture, the usual principle applies: to get the right answers, start with the right questions and the right people.
