Joint venture success

JOINT ventures between domestic companies in developing countries and foreign companies have become a popular means for both managements to satisfy their objectives. They offer, at least in principle, an opportunity for each partner to benefit significantly from the comparative advantages of the other. Local partners bring knowledge of the domestic market; familiarity with government bureaucracies and regulations; understanding of local labor markets; and, possibly, existing manufacturing facilities. Foreign partners can offer advanced process and product technologies, management know-how, and access to export markets. For either side, the possibility of joining with another company in the new venture lowers capital requirements relative to going it alone.

As attractive as joint ventures might seem, however, they frequently perform unsatisfactorily and are comparatively unstable. This seems to be true even when the partners are two companies from the same industrial country; international joint ventures seem to be more vulnerable still. In a study of the latter (Killing, 1982), for example, 36 percent were rated by participants as having performed poorly--a high proportion indeed.

Joint Venture (album)

English: Construction signs of the Clark-Smoot Joi...

Sapa and Chalco form joint-venture

An obvious set of questions therefore arises: If international joint ventures are established to exploit the complementary features of each partner, why are the partners frequently disapointed with their joint performance? What problems cause them to be unstable? Can these problems be alleviated to improve these ventures' prospects for success? On behalf of the International Finance Corporation (IFC), we surveyed joint ventures between domestic companies in developing countries and foreign companies based in industrial countries to try to understand the difficulties that arise in negotiations leading up to a joint venture agreement and those that arise during the venture's implementation and operation. About 75 joint ventures in 6 countries were included in the study.

Negotiating agreements

The managers we contacted expressed mixed feelings about the formal joint venture agreement,