Strategic Considerations in Cross-Border Joint Ventures

Joint ventures are the preferred strategy for cross-border M&A. There are several strategic considerations when entering into cross-border joint ventures, and for documenting JV agreements.

Identifying specific objectives is the first step. The relative importance of a JV for each party may be different because of different strategic interests. They can be better aligned by valuing the assets and services to be provided, clearly specifying the goals for the early years of the venture, and documenting the goals in the JV agreement.

Joint-venturers must consider “soft” issues such as cultural differences and possible conflicting incentives. To provide for more efficient governance a joint venture should consider forgoing linear decision-making and instead devise roles and responsibilities for each party. The parties may also decide to include geographic and other restrictions on the joint venture operations.

Financing is a critical item. JV agreements typically give careful consideration to future debt, equity financing, and the joint-venturers putting in more equity or bringing in new investors.

Safeguarding intellectual property is a major issue. Safeguarding proprietary technology is especially critical in emerging markets.

A JV strategy can be potent and with appropriate strategic maneuvering still leave open long-term options. However, successful execution requires advance preparation, thoughtful implementation of strategic considerations, and simple but well-designed deal structures that leave room for sophisticated implementation but do not prove to be impediments in negotiations with regulators.