Join Doug Ladd for an in-depth discussion in this video Joint ventures, part of Marketing Foundations: International Marketing.
- Finding good partners with whom you can work to expand your business to new markets is much like the dating process. When you choose to export, this could be likened to a casual dating relationship. Sometimes these last forever and sometimes they change as new partners enter the mix. The franchising model is more like a serious boyfriend or girlfriend, maybe even a fiance. This is a long-term commitment by both parties and the expectations for behavior are clearly defined. The really big commitments come when you look at a joint venture.
This is like a marriage. There's a significant contract involved, and if things don't go well, the process to break it up can be messy. A joint venture structure includes two or more partners who contractually agree to develop a business together. This method of entering a new market gives you more control and input than either exporting or a licensing agreement, but also requires a bigger investment in terms of time, and in all likelihood, dollars. This arrangement can work very well in those situations where you have an existing relationship with a person or company in the new geography that you trust, and just as importantly, one with whom you would like to work.
Some common examples of joint ventures are seen in the airline industry. Laws and regulations limit the ability of European-based carriers to make connecting flights between U.S. cities. So those carriers have created joint ventures with airlines based in the States to expand their schedules. U.S.-based carriers have done the same thing in other countries. When Pepsi Cola was expanding into Russia, they needed local resources who would navigate the different rules and regulations to open bottling facilities. They created a joint venture with a Russian firm to make this happen.
As a result, they were able to move more quickly than if they'd attempted to work through the red tape of government approvals on their own and they were able to get distribution networks established more quickly because their local joint venture partner knew how to move stock through the Russian retail trade. These partnerships come at a cost, though. To get access to the local expertise and capabilities in a joint venture structure means that you will have to give some percentage of ownership to the local partner. In some countries, such as China, this is a legal requirement.
Chinese law requires that a Chinese company or person have partial ownership in all manufacturing facilities in their land. So if China is on your list of countries to which you want to expand, you can't simply go buy a piece of land, build a factory on your own and start hiring people to run your business. You will need to find a local partner to enter the venture with you. Joint ventures have shared ownership and the split can range depending upon how much value each party is bringing. Typically, the company with the brand will want to retain at least 50.1% to ensure long-term control.
Lawyers and accountants will certainly need to be involved to make recommendations on how to best structure the relationship, as the laws and tax implications can vary, depending upon the country. Like any partnership, there are two sides to this contract. What you get out of a joint venture is peace of mind that you have someone else who is invested in the business with you. Your contract can stipulate the other party needs to invest a certain and ongoing amount of money, perform certain duties, hit milestones, deliver specific results, et cetera.
This give you much more control than either an exporting or franchise model. On the other side, the joint venture partner will have demands of you that will be laid out in the contract as well. You will also agree to how future investment requirements will be split and how the profits will be divided. The agreement should also address the plan for what happens if the business doesn't succeed. Your lawyers will certainly wanna be involved here to protect you as much as possible in this scenario. It it not uncommon for companies to progress through the different market expansion options, and in some cases, have exporting partners in one region, franchisees in another and joint venture partners in yet a third.
This is where the analogy to marriage falls apart. Generally, it doesn't work in the long run to have this many options open at one time in your romantic life.
The course also investigates options for global expansion, such as exporting, licensing, joint ventures, and direct investment, and details how to put together a successful marketing mix using distribution, promotional methods, and translation. Plus, learn where to turn for more information about your specific target markets.
- The rise of the global consumer
- Learning about customers in global markets
- Accessing foreign markets
- Adapting products
- Balancing risks and rewards