A clear agreement is an essential part of building a good relationship. Consider these ideas: Original document, joint ventures and partnerships, Crown Copyright 2009 Source: Business Link UK (now GOV.UK/Business) Adapted for Quebec by information entrepreneurs Unlike a formally organized partnership, © joint ventures are not permanent and are often dissolved in such situations: many companies assume that the fastest way to grow with new products or capabilities is to buy a other company or to merge with another company. But anyone who has taken the path of evaluating mergers and acquisitions knows the obstacles and risks. Mergers and acquisitions often require the buyer to pay a premium of 20% to 50% over the target company`s current share price. But experience and research show that most buyers never get this premium back. In contrast, a joint venture does not usually include a premium. Once the right launch team is on site and a schedule has been established, the real work begins. Successful joint ventures overcome each of the challenges described above. They prevent failure by revealing the tensions inherent in the beginning of the process.

They quickly move from general roadmaps to detailed and practical planning. They clarify strategy and governance and establish appropriate incentives and processes to obtain the best talents and essential resources from parents. Other reasons why companies may enter into a joint venture relationship could include access to broader markets, sharing resources, financing the growth of another company, developing or diversifying products. It`s worth seeking legal advice to identify your best option. How you start your joint venture affects how you manage it and how profits are shared and taxed. It also affects your liability if the company gets it wrong. You need a clear legal agreement that defines how the joint venture will operate and how the income will be divided. Visit the page in this guide to learn how to create a joint venture agreement. Parent companies may have to step out of their comfort zone when designing an organizational structure for their joint ventures, implementing a staffing model, and designing incentive plans. There is a trend in many joint ventures that combine existing organizations to choose a familiar organizational model – either a regional model if parents contribute assets from different regions, or a product division structure if each parent brings different products.

This simple approach allows each parent to protect their territory and minimize organizational disruption, but it also dilutes the potential effectiveness of the new organization. If parents try to maintain the status quo, they risk reducing synergies between them. And let`s not forget that companies are often attracted to the structure of the joint venture, precisely because they need a new model and a new way of thinking to be competitive in a new company. Starting a joint venture is an opportunity to liberate the organization. Beyond the question of formal structure, a successful start-up of a joint venture requires the following approaches to personnel and incentives. Once a list of shared services is finalized, the launch team must develop transparent and honest methods for calculating transfer pricing. This is crucial to maintain trust on the road. A 50-50 telecommunications joint venture depended on a parent company for 90 different joint services. Two years after the start of the joint venture, a strategic review revealed that this partner had allocated its overhead and other shared costs among the joint venture, thereby making significant profits for itself while hindering the company`s ability to set competitive prices and make a profit. The partners have renegotiated transfer pricing, but the mistrust that has been created continues to weigh on the company.

If your business could benefit from sharing resources with another company, a joint venture for a limited period of time and purpose can increase your chances of success. Companies often enter into joint venture agreements in the following circumstances: Entrepreneurial opportunities and potential conflicts with other business units in each party What is less clear to these companies is how they can overcome the many challenges associated with implementing joint ventures and alliances. In 1991, we evaluated the performance of 49 joint ventures and alliances and found that only 51% of them had been “successful,” that is, each partner had achieved returns above the cost of capital. A decade later, in 2001, we evaluated the results of more than 2,000 alliance announcements – and the success rate was still only 53%, despite studies that highlighted the known reasons for the failure of joint ventures: bad strategies, incompatible partners, unfair or unrealistic agreements and weak management. Working with another company can offer the following benefits: Another important point to consider is the scope of the joint venture. If you have an existing business, it`s important to make sure the joint venture doesn`t compete with or interfere with it. In order to properly end the business partnership, it is important to formulate details about the end of the contractual relationship in the agreement. This allows for greater flexibility and adaptability when changes occur. In addition, you will gain insight into the business practices and flexibility of your potential partner, which is a good indicator of whether they are suitable for businesses.

Consider the following examples. Two large pharmaceutical companies have created a company to expand the market for a specific class of drugs. Each partner brought complementary patented medicines within the drug class and regional marketing forces to the joint venture. But once the joint venture was up and running, one parent company wanted to promote its higher-margin products with lower volumes, while the other parent company wanted to increase its market share for its products through aggressive pricing. The companies had failed to address this fundamental misalignment from the beginning, and the company struggled for two years of friction and low sales before one partner ended up buying the other. In another consolidation joint venture between two global chemical companies, it was clear from the beginning that one partner was more willing to invest in the company than the other. Companies had different ROI goals and different perceptions of the long-term strategic benefits associated with the business. The CEO of this joint venture was caught in the crossfire as the parent companies failed to agree on how and where the joint venture would be competitive and on the appropriate level of investment. In both cases, the companies had failed to identify strategic conflicts early enough in the launch process when the partners might have been more willing to negotiate. To eradicate these conflicts, companies must do the following: The first challenge is to build and maintain a strategic direction between individual business units, each with its own goals, market pressures, and shareholders. If these individual interests are not taken into account in the start-up phase, conflicts develop in crucial strategic areas. Should the products or services of the JOINT Venture be aimed at high-end or consumer consumers, for example? Should the company`s reinvestment objectives focus on revenue or cash flow growth? Such conflicts can delay the development of the business and create costly conditions for compromise.

The joint venture and alliance partners try to anticipate areas of potential misalignment during the negotiation phase, but many conflicts of interest only arise when the partners delve deeper into the operational details and start running the business. A final section of the joint venture`s business plan should be the financial projections. The section contains specific information on product prices and costs of goods or services sold, expected sales and profits, and potential expenses arising from the activities. Pro forma degrees can also be included here. Statements are a formal review of potential profits and allow banks or lenders to assess the company`s chances of success. Other statements or documents may also fall under this section. Over the past decade, we`ve surveyed more than 500 executives about their alliances and advised more than 1,000 companies on alliance strategy, structuring, start-up planning and restructuring. We have also conducted several studies (1991 and 2001) on Allianz`s success rates and the factors associated with success and failure. .