1) The key steps to forming a successful joint venture are reviewing strategies for synergy, assessing partner suitability, and setting terms in a written agreement. 2) When assessing partners, managers evaluate compatibility of objectives, trustworthiness, existing partnerships, performance, strengths/weaknesses, and risks/benefits. 3) The written agreement addresses structure, objectives, contributions, ownership, management, profit/loss sharing, disputes, and exit strategy. Joint ventures can be flexible in life span and scope.

1. Joint Venture Key steps

2. First step
Reviewing the firm’s business and corporate
strategies to determine synergy with the objectives
of a joint venture. In this process, managers can
apply a range of strategy methodologies such as
SWOT (strengths, weaknesses, opportunities, and
threats), Porter’s Five Forces, stakeholder analysis,
and the value chain to assess the firm’s strategy
and future vision. Managers may then determine
that the joint venture is not the most optimal
organizational form for achieving the firm’s
objectives, and that another form, such as a long-
term contract, may offer a better strategic fit.

3. Second step
Assessing the suitability of the potential joint venture
partner(s) for fit with the firm’s strategy, and compatibility
during the life of the JV. Key questions here include:
• Does the potential JV partner share the same business objectives and
vision for the joint venture?
• Is the potential partner firm trustworthy and financially secure?
• Does the potential partner firm already have JV partnerships with
other firms? If so, how are these performing?
• How would you rate the potential partner firm’s performance in terms
of production, marketing, customers, personnel, innovation, and
reputation?
• What are the general strengths and weaknesses of the potential
partner? How do they complement our firm?
• What benefits might the potential partner firm realize from the JV?
• What risks might we be exposing our firm to in the JV?

4. A joint venture should only be
formed when the parties mutually
agree that this form offers the best
possibility of optimizing
opportunities.

5. Third step
The parties set out JV terms in a written
agreement which addresses structure (for
example, if it should be a separate business or
not), objectives, financial and other resource
contributions (of each partner), including the
transferability of any assets or employees to the
JV, ownership of intellectual property created in
the JV, management and control responsibilities
and processes, sharing/re-allocation of
liabilities/profits/losses, resolution of disputes, and
exit strategy. Joint ventures can be flexible,
covering only a limited life span or a limited
scope of firm activities.

6. Third steps
Four basic types of JVs and their respective benefits
are:
• Consolidation JV: value derived from deep combination
of existing businesses.
• Skills-transfer JV: value derived from the transfer of some
key skill from one partner to the JV (or to the other JV
partner).
• Coordination JV: value derived from leveraging the
complementary capabilities of all partners.
• New business JV: value derived from combining existing
capabilities, not businesses, to create new growth.

7. BENEFITS

8. Access to markets
JVs can facilitate increased access to customers. One
JV partner might, for example, enable the partner to
sell other goods/services to their existing customers.
International JVs involve partners from different
countries, and are frequently pursued to provide
access to foreign markets.
Distribution networks
JV partners may be willing to share access to
distribution networks. If one partner was previously a
supplier to the other, then there may be opportunities
to strengthen supplier relationships.

9. Capacity
JV partners may take advantage of increased
capacity in terms of production, as well as other
economies of scale and scope.
Staff
JVs may share staff, enabling both firms to benefit
from complementary, specialized staff. Staff may also
transfer innovative management practices across
firms.
Purchasing
As a result of their increased resource requirements, JV
partners may be able to collectively benefit from
better conditions (for example, price, quality, or
timing) when purchasing.

10. Technology/intellectual property
As with other resources, JV partners may share
technology. A JV may also enable increased
research, and the development of new innovative
technologies.
Finance
In a joint venture, firms also pool their financial
resources, potentially eliminating the need to borrow
funds or seek outside investors.
Taken together, the benefits suggest an
improved competitive position for the JV, and
each of the partners.

11. RISKS

12. Communication
The firms may not communicate their objectives
clearly, resulting in misunderstanding. These
communication issues can be exacerbated by
geographic and cultural distance among partner
firms, and by the use of language such as “us versus
them”.
Strategy
The firms may have divergent strategies for the joint
venture, and fail to reach a set of mutually agreeable
objectives regarding business and exit strategies. Risks
can also emerge from a lack of agreed processes
regarding governance, accountability, decision-
making, HR, and conflict resolution.

13. Imbalanced resources
The firms may bring imbalanced resources to the
table, a source of great conflict. Another source of
conflict may be that the JV disproportionately
allocates resources among the firms. For
example, one firm may find that its technology is
being appropriated by another firm.
Culture
The JV partner firms may have distinct corporate (and
in the case of cross-border JVs, national) cultures and
management styles, resulting in poor integration and
cooperation.