How to venture together into foreign fields

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The Independent Online
JOINT ventures have been hailed as the answer for companies looking to get into new markets without incurring massive costs.

While many succeed, however, a significant number fail. GEC may have forged happy relationships with a variety of companies, but Airbus, a joint venture between three European governments, drifted for a long time with little sense of direction.

Finding out why things go wrong was one reason KPMG Management Consulting decided to commission research into this important area of commercial activity. Lack of clear leadership was cited, unsurprisingly, as a big difficulty, but other factors also emerged.

Sarah Charles, KPMG's partner in charge of joint ventures, said cultural and managerial differences were a common cause of problems. Difficulties understanding local regulations were cited as a key problem by 22 per cent of the 165 UK companies involved in cross-border joint ventures, while 18 per cent said negotiation was problematic.

Unrealistic expectations also play a part. While nearly two-thirds of the respondents expected positive results within two years of the start of a relationship, less than half of them claimed to have achieved this target.

It also appears that companies are better off seeking joint venture partners among companies with which they already have relationships - 43 per cent of the companies knew their partners before getting into bed with them.

'Many companies may be wasting time on company searches for suitable new partners, when in fact they should be examining companies they are already working with,' said Ms Charles.

To this advice she adds 10 golden rules for success.

Both parties must have comparable objectives.

The overall strategy of the venture must be defined.

A clear communicative structure is needed.

Patience.

Management resources must be allocated.

Areas of responsibility need to be defined.

Draw up an agreed exit mechanism.

Make a good checklist.

Commitment/contributions are needed.

Involve a joint-venture specialist.

With the market tightening - in the first nine months of 1992 there were 357 cross-border ventures by UK companies compared with 588 in 1991 - such principles are even more important.

As joint ventures can be defensive as well as offensive - in that companies use them as an escape from troubled home markets into stronger overseas ones - the fall in the number of new ventures reflects the growing stagnation of the whole European economy.

'If everybody is having problems, there is nowhere to go,' said Ms Charles - unless companies are prepared to head for the Far East and eastern Europe, which are widely regarded as the most difficult territories.

(Photograph omitted)

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