Why form a JV in the first place?
in my experience the principal reason for companies to commit to a JV: Taking a risk together to generate a synergy that benefits both partners.
Let’s review some actual examples:
Example 1: Volkswagen Autoversicherung AG.
JV between Allianz Insurance (one of the biggest insurance companies in Germany) and Volkswagen Financial Services. Offering car insurances for VW, Audi, SEAT und Skoda cars.
Objective: To sell insurance at the point of sale.
- You buy the car and at the time car insurance is offered.
- In a neat bundle at a discount.
Both JV partners benefit from this arrangement:
- Allianz keeps competitors out of this market segment and
- VW offers its customer discounted insurance as part of the car purchase.
Example 2: FAW-VW.
FAW Chinese state-owned automotive manufacturing company (51%) and Volkswagen AG.
- Bringing together German know-how and access to Chinese/Asian markets.
- In addition lower manufacturing costs for VW due to lower labour costs in China.
- Although there are some concerns regarding alleged corruption and the murky flow of monies.
Overall result: win–win
Example 3: SB LiMotive
Bosch, German appliance and battery manufacturer and Samsung, Korean electronics giant.
Objective: to develop a rechargeable battery for electrical cars.
Bosch supplies battery packs (combined cells) in entire systems. Samsung wanted only single battery cells and not complete battery systems. Bosch wanted to apply the new technology to other products such as lap tops. Samsung disagreed.
The JV was discontinued. Result: Lose–Lose
Why do some JV’s succeed and some fail?
1 Planning. It is critical to allow sufficient time buffers to review the proposed mutual business model. How do we fit together? what does each partner bring to the party? Now and into the future. The below diagram highlights the value that could be at risk if shortcuts are taken during the internal planning phase prior to the JV negotiations:
What to do? Improve the internal planning process BEFORE commencing detailed discussion with the new JV partner(s):
- Allow quality time for the internal planning process
- Review and hone on own goals and objectives
- Carry out SWOT analysis and review with trusted third party advisors/mentors
2 Building Trust. The single most important factor in my experience. I have seen a number of JVs fail due to the lack of mutual trust. If the partners watch each other to gain an advantage over the other – the JV is bound to fail.
What to do?
- Communicate as much as possible to ensure the JV objectives remain clear and measurable.
- Adjust quickly to any discomfort and raise the issue
- Ensure regular meetings of the key decision makers. Do not delegate this as this is critical to the success of the JV
3 Embed the processes. Planning and building trust are the cornerstones of a successful JV. Yet, this is not enough if not sufficient automatism are embedded:
- Transparent decision making
- Shared targets and measurements
- Scaling the business must benefit both partners