Considering all possible joint venture risks carefully before potential partners finalize their agreement is essential. This should continue throughout the lifetime of the partnership. The process of partnering with a different business is not always a walk in the park. However; the time investment for a full assessment is worthwhile to ensure the partnership runs as smoothly as possible. Both sides need to fully understand the risks involved with integrating personnel and the relevant financial fundamentals of the each other’s businesses.
What are your objectives of the joint venture?
It’s important to communicate the objectives of all partners with the shareholders. Otherwise an unknown or unidentified conflict of interest may arise. Keep in mind that during the planning stage of the partnership, each side is in a “wooing phase” and on their best behavior. Enjoy it while it lasts. Be prepared for the end of the honeymoon because it will end. If goals, responsibilities and roles are not clearly outlined, a more assertive partner may attempt to impose their objectives and goals absent a thoroughly planned agreement.
Some of the more prominent joint venture risks include; differing ideas on how to raise capital, financing agreements, and spending philosophies. Be sure to consider whether the JV operations will be capital-intensive or labor intensive. One partner might prefer heavy investment in machinery or technology for a competitive edge. The other may prefer more investment in labor-intensive techniques to avoid tying up capital.
Other common risks may involve personnel and staff integration. The two teams are perhaps worlds apart in terms of expertise, and technical sophistication. Often it requires expensive training to bring the other side up to speed. The new JV partners may also encounter a deep-rooted resistance to change from their respective staff. The risks abound when employees remain too entrenched in their previous philosophies, corporate culture and work environment. Territorial battles ensue over the new system, and non-compliance often leads to increased staff-turnover.
Joint venture risks related to intellectual property and financial information
Another area of contention is how much information to share. It may not be necessary or required to provide the other partner full access to something like production secrets. A number of joint venture marketing agreements are between two related, but not directly competing businesses. A soft drink manufacturer might enter into a partnership with a confectionaries producer. In such a partnership, the soft drink manufacturer would not necessarily find the need to share their soft drink formula and vice versa.
Joint venture risks dependent on capital spending can arise when one side refuses to share exact details related to their financial backers. Sometimes there is reluctance to offer the full details about future investors out of fear the potential partner will contact the investor directly. This leaves their prospective partner concerned that they do not have a true financial picture.
Being aware of the potential risks involved in a joint venture partnership is not enough. Efforts should be taken to protect each company as much as possible from the adverse effects of poor planning and the lack of a thorough evaluation. Building the right relationship from the start is ideal. This should minimize ill feelings that could develop between the new teammates. Adequate research, negotiation and compromise are necessary when developing shared objectives in a joint venture.
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