A Joint Venture can be a strategic and required method for companies to enter international markets. For the past several months we have been working with North American companies looking at employing that method strengthen their manufacturing and supply chain options in southeast Asia. The engagement started early in the business lifecycle where some potential partners had been identified, but the entire process of defining the business model, negotiation, and overall planning was yet to be pursued. Determining the right type of partnership would be critical, because it would have long term implications around the development and integration of both organizations.
The work broke down to four major areas:
- Looking at the reasons and motivations behind pursuing the joint merger. Knowing the goals, both short term and long term, was critical to the conversation. There are a large number of options in SE Asia when it comes to manufacturing and supply chain partners and the long term goals can quickly rule out attractive short term options. Looking at differences between China and Thailand where contrasts in trade offs and benefits. Both in terms of the labor force, skill sets, and government policies, but also from a supply chain perspective in terms of long term stability. Thailand became the preferable country to seek partnership even in the face of its labor shortages. Supply chain preferences also indicated Thailand as a better option based on government position and stability.
- Structure of the partnership proved to be the most complicated area of design. Each company at the table is looking to protect their interests and maximize overall value of the partnership. Fair practice would seem to be the golden rule, but yet not everyone is bringing equal value to the table in many cases, but that doesn’t suggest that gouging is an acceptable behavior as well. The best discussions look at combining assets to maximize the new business model. In most cases the larger opportunity features many “sides” to the business. Whether that is in the designing, building, shipping, selling, supporting, and etc lifecycle of a new product or services. If each partner can see the upside of his side of the business, then they have a genuine vested stake in making that part of the model work, grow, and succeed to the benefit of all. Large partners, who may the capability to do several parts of the model, might want to consider the benefits to let a smaller partner focus on it or the regional benefits a partner may have in a new country of business. Sharing and making the pie bigger is a much better strategy overall. One aspect to consider is that as business grow, age, decline, and pivot. All partners play different key roles. The smallest partner of the first union, may be the key to the next pivot. So seeking pure advantage in the first venture is a short sided perspective that will weaken future deals. Once the roles each partner is playing is defined, then it is possible to move to the next level of discussing investments, expenses, revenue, and equity in the venture.
- Building with the business model in place a more detailed look at operating processes can be defined. These are critical success factors to the overall operations of the new venture. Both organizations will need to create new internal capabilities for direct collaboration and potentially for operations in international markets. Planning, Governance, Decision Support, and Knowledge Management will all need to be integrated across corporate boundaries as well as escalation paths. This should be considered a learning effort that will need to iterate. New forms of measurement will be required and a willingness to share data must exist between all partners. Process and measurement lays the foundation for developing trust over time through consistent behavior and honoring commitments. There are many types of trust in business, whether it is based on performance, consistency, incentive building, (etc) the point is that it is built over time and becomes a core component of your brand. When another opportunity arises to pivot or you are disrupted, the strength of trust can be a critical asset to respond and re-negotiate new business models.
- Building of cultural competencies and capabilities can be a very new journey for many organizations. Every new market has a distinct culture and landscape. Language itself may be an immediate barrier that will be a part of the partnership ongoing. Differences in values across cultures also can make standard business practices un applicable in a different market. Even basic colors can carry different meanings. A strategic partner, from the region, can help “decode” the cultural gap. Bringing a foreign brand into a new market can be met with resistance. In many cases the partnership involves rebranding, to leverage the brand trust of and existing company in the market. Networking in international circles can also be heavily influenced by partnerships and the credibility they already have in the network. This can be very important when dealing with government policies and regulations and during mitigation and arbitration of issues. Above we talked about the importance of process and operating procedure. Cross team emersion can be fantastic talent development opportunities and growing the depth of relationship across the partners.
Some reflections going through the experience.
- During the work I integrated with several American Chamber of Commerce agencies in SE Asia. I was impressed with the insights and networks they had access to that we could bring to the work at hand.
- One of the “stickiest” parts of business models revolves around IP. The full spectrum of IP protection, shared IP, new IP, etc. While this landmine of a topic seems like a show stopper, it usually is the multiplier in the business opportunity. Usually combining IP to allow both companies to more into the market in different ways creates synergies to fuel all sides of the business and can create disruptions for competitors.
- While all brands what to maximize profits and brand presence. The more successful path can be down the road of Strategic Alliances and Joint Ventures. Keeping focused on the long term growth and sustainability of partnerships seemed key to negotiations and creates a strategic asset when markets shift. A company needs to develop its capabilities around Joint Ventures and be working on them all the time for strategic advantage.
- In a world with ever more trends around Co-opition, you no longer competing company vs. company, but consortium vs. consortium.
- Its now about building a business ecosystem.