Key Considerations for Joint Venture Agreements

Major Issues in Joint Ventures

1. Joint venture name and its legal nature (limited liability company or not)
2. Scope and scale of production or operations
3. Investment amount, unit of currency, and equity (ownership) distribution
4. Forms of contribution (cash, technology, land, or equipment)
5. Responsibilities of each party
6. Technology or knowledge transfer
7. Marketing issues, such as focusing on export market or local market
8. Composition of the board of directors (in EJVs)
9. Nomination and responsibilities of high-level managers
10. Joint venture project preparation and construction issues
11. Labor management (various human resource issues)
12. Accounting, finance, and tax issues (the currency unit of accounting)
13. Alliance duration
14. Disposal of assets after expiration
15. Amendments, alterations, and discharge of the agreement
16. Liabilities for breach of contract or agreement
17. Force majeure (power that cannot be acted against)
18. 1. Settlement of disputes (litigation or arbitration)
    2. Obligatoriness of the contract (when it will take effect) and miscellaneous issues

Management Issues in Global Strategic Alliances

• Managing inter-partner learning
• Exercising managerial control
• Accentuating cooperation and trust
• Thinking ahead of exit

Managing Inter-partner Learning

Operational Knowledge: includes knowledge of technology, processes (including quality control), production, marketing skills, and operational expertise.

Managerial Knowledge: comprises organizational and managerial skills, market, industrial, and collaborative experience; and financial management.

GSA Exit Triggers

1. Differences in strategic or operational objectives
2. Differences in managerial styles
3. Differences in conflict resolution styles
4. Inability to meet shifting targets
5. Inability to meet financial requirements
6. Acquisition of one or more of the partners
7. Bankruptcy, termination, dissolution, or liquidation of one or more of the partners

Managerial Control (Parent Control)

• The process through which a parent company ensures that an alliance is managed in a way that conforms to its own interest.
• Partners can have differing agendas for forming the alliance, and their strategic objectives are not identical.
• Parent control is realized through equity and managerial control.
• The majority equity holder can maintain greater equity control over the GSA, and this equity control is often reflected in the voting power in board meetings.