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Volume 15, Number 1: Faculty Focus
January 2009

Listen to a 4-minute interview with Professor Paul Beamish on joint ventures   Listen (3.4MB)   Subscribe

Every year thousands of joint ventures are established. Paul Beamish, professor of International Business at the Richard Ivey School of Business, recently had a book published on the best practices in joint ventures, called Joint Venturing. In this Q&A, Professor Beamish separates fact from fiction and explains how joint ventures can be very profitable and enjoyable business alliances.

Q.  Why did you decide to write this book and why did you choose this format?

A.  I wrote the book out of a desire to pull together a body of work and thinking which had developed over a period of 25+ years, and to put it in a format which would be very accessible to busy practicing managers. This book is written for practicing managers. It is for those who are contemplating the formation of a joint venture and those currently engaged in joint ventures. The book is about best practice: the factors and processes which lead to joint venture success.

Over the years, I’ve talked with over 500 managers about their joint ventures. A number of the research projects I’ve undertaken in fact were a result of questions they’ve asked. We’ve jointly pursued answers regarding “what works” and “why”.

The book thus draws on both a very large volume of research, plus my work as a joint venture facilitator. In this latter role, what I do is work with the senior management teams of the existing or potential joint venture. I go with the top two to four people from each side, usually to a neutral site, and walk them through a series of questions that ought to be answered regarding every joint venture. It’s a form of due diligence. I make a series of short presentations of 20-30 minutes each. Both during and after each presentation, anyone on either side can interrupt, request a break to consult with team members, whatever… The idea is to make sure the right questions have been asked, and considered, by both partners.

The format of the book is intentionally conversational. It uses the Socratic method (question, answer, question, answer) which works so effectively in a case-study classroom. Here the “classroom” is a business-class seat on an international flight.

Q.  For those of us who don’t know, what is a joint venture? How does it differ from a strategic alliance, and what do you consider some of the advantages of joint venture vs. a wholly owned subsidiary?

A.  A strategic alliance is a formal, mutually agreed commercial collaboration between companies where the partners pool, exchange or integrate specific business resources, which can affect the long term profitability of the organization.

There are innumerable types of strategic alliances. They vary according to the level of interaction required and the level of cooperation versus competition inherent in them. Examples of non-equity strategic alliances would include licensing, franchising, R&D consortia, co-production, and so forth. The type of strategic alliance with the greatest requirement for interaction and cooperation is the equity joint venture. All equity joint ventures are examples of strategic alliances, but not all strategic alliances are joint ventures.

The term joint venture has become incredibly over-used in recent years. It is important to recognize that some people use the term very loosely. Some will go so far as to call any longer term business relationship a strategic alliance, not defining what they mean by the term. It’s always pretty useful when talking to someone about their strategic alliances to try to determine how inclusive they are being when they use the term.

The most common type of joint venture, at least from an international perspective, is the taking of existing products (for sale and/or manufacturing purposes) to a new national market. The second most commonly observed type is to acquire foreign products for the existing, local market(s).

In both of these traditional types, one partner will usually provide the technology/brand while the other will provide market knowledge. There are different motives for joint venture formation for each.

Q.  What effect does today’s current economic climate have on joint ventures?

A.  This is not a book about making a fast buck and hoping the cheque clears before someone figures out what you were up to. It is a book about establishing a viable, long-term, jointly-owned business. It emphasizes things like sound strategy, trust and respect for what your partner brings to the table. It is the antithesis of the Wall Street greed and mismanagement stories of late. One of the key lessons is the importance of having congruent measures of success.
The strategic logic of joint ventures is not specific to bull vs. bear economic conditions. Joint ventures are motivated by underlying rationales, and if the potential partners can work through the questions I provide, they stand a very good chance of success.

That was Paul Beamish, Canada Research Chair in International Management, and professor of International Business at the Richard Ivey School of Business.

Professor Beamish will join Professor Charles Dhanaraj on January 22, 2009 at the Ivey Idea Forum. They, along with a panel of experts, will discuss business opportunities in India with a presentation called Access India: Your Company’s Next Move?