The Power of the Joint Venture

Ken Wilson, director of finance at Voxpopme in Salt Lake City, shares his experiences in international expansion and the power of joint ventures. Mr. Wilson has spent years working in corporate finance and management accounting with rapidly growing startups and Fortune 500 companies. He has helped facilitate the international goals of these companies through the strategic development of joint ventures to find a footing overseas.

What is a joint venture?

In the simplest terms, a joint venture is two parties agreeing to pool their resources to achieve a specific goal they share. In the business world, these arrangements are particularly effective when a company wants to expand to a new country. These expansionary scenarios typically arise between an entity entering a new market and an entity already firmly established.

Why participate in a joint venture?

While it is fair for a company to worry that the cost- and profit-sharing aspects of a joint venture would cut into their bottom line, there are other risks as well. Friction between management or a partner company retreating from the deal are also substantial concerns. However, the rewards often outweigh the risks.

When a foreign company enters a new country on their own, there are a variety of supply chain and logistics to manage. When partnering with an established company, they can integrate supply chains and greatly increase efficiency. The foreign company naturally has access to all market research and enjoys the brand following built by the domestic company.

For the domestic firm, their new partner is likely entering the arrangement with considerable financial backing. The expanding firm will typically also have a strong brand, one which will help the domestic firm. As these partnerships are only temporary, the domestic firm can leverage the power of their new partner, and when their deal ends, they are left at no competitive disadvantage.

The Chinese market is perhaps the best example of the power that joint ventures can have. To spur domestic growth, the Chinese government does not allow international companies to expand into certain sectors without partnering with a Chinese company. These rules change from year to year, and wholly foreign-owned entities (WFOEs) are on the rise, but many of the most well-known international brands, from Starbucks and McDonalds to Ford and GM, are partnered with Chinese companies. This gives these companies better access to China’s massive supply chain network, established positive branding, and regulatory favorability otherwise difficult to attain.

Of course, there exist risks in participating in a joint venture with a company whose goals and objectives may be unclear, in addition to significant hurdles in structuring the deal, navigating taxes, and trusting partners. However, if those challenges can be mitigated, a joint venture is often the best way to expand, especially for younger companies and entrepreneurs.

For those pursuing an international career

If international experience is a priority, applying for internships and jobs at companies with joint ventures may be the right move. These companies offer a unique experience to applicants. As companies involved in joint ventures are partnered so closely with one another, there is a good deal of communication and cooperation between them. If an intern or early hire can get on one of these teams, they will gain valuable experience in global business negotiations, international development, and brand building. For more information on Joint Ventures, check out Ken Wilson’s podcast here.