Many joint ventures (JV) are started in the offshore and maritime industry to perform a (long-term) project, or to conduct activities in a certain geographical location. By joining forces, you may be able to serve more clients, and grow the market share, or to be able to offer more specialist services. In addition, by setting up a JV you might be able to take out (part of) the competition in the market due to the cooperation.
The opportunities of a joint venture may be clear, but how to proceed once two (or more) organisations have decided to start working together in this form? Organisations are eager to start their intended activities, but they may be considering giving more attention to the start-up process of the JV prior to actually starting. Our experience is that when more preparation is done regarding the set-up of the JV, the more successful it is over time.
So, what aspects should be taken into account then? This article provides a few items that one might take into account when starting a joint venture.
Type of joint venture
Know what type of joint venture you want to start. This sounds simple, however, it is not as it straightforward as it seems, as many joint ventures consider this something to figure out ‘along the way’. One should realize though that there are multiple consequences related to this choice.
Aspects that the joint venture partners should agree on are, amongst others:
Duration of cooperation. Will the JV be a cooperation for a set time span – for the duration of a certain project for example – or for an unlimited period?
Organisation structure. Will the JV be set-up as a separate, independent, organisation or will it only perform core activities and the JV partners will provide support with regards to finance, legal, HR, etc.?
What will be the exact activities of the JV? Which activities will be managed by each of the individual partners? And how do these activities interfere or interact with the JV partners’ activities, or with the activities of the parent company?
Objectives and strategy
Even though the scope of the work may be agreed upon – this is often the immediate reason to start the JV –, the objectives related to the scope should be clear as well. Knowing the type and set-up of the JV does not mean that the objectives and/or the strategy to reach those objectives are similar to both the JV partners.
When do you consider the JV to be successful? When you have the biggest market share? When the profit is doubled? When you can serve high-end clients?
And if you and the other JV partner(s) have agreed on those objectives, what is the strategy to reach those? How should the market be approached? What type of policy or strategy is behind this?
Input of the partners
How are you going to build the organisation? Who will be responsible for what resources in the broadest sense of its meaning?
What financial investments are necessary and who is responsible? What personnel is needed, and will they be attracted from outside the JV partner companies, or will personnel be transferred from the partner company to the JV? Where will the office location be? What type of equipment / assets / materials / logistics is needed, and where will this be obtained from? Partners, third party, newly bought?
Know beforehand who will be managing what parts of the JV. This should not necessarily be divided in a 50/50 ratio, but as this is clear prior to starting, the JV partners know what to expect from each other.
In some cases IP from one of the JV partners may be used in the JV. Ensure that both parties know what it may be used for, and what the delivering party may expect from the receiving party with regards to non-disclosure.
In other cases, the JV might develop its own IP. Whose property is it? May it be used outside the JV? Or maybe the most important question; what happens with the IP after ending the JV?
Though you are not even started yet with your new JV, it sounds strange to already start thinking about an exit strategy. Unrelated to the duration of the JV – only for a specific project, or for an unlimited time span – you should have thought about what will happen if the JV will be dissolved. This may be after the project is finished, but what happens if one of the partners wants to exit the JV prior to the end? Aspects that should be thought about are, amongst others:
What happens with current customers, projects and prospects?
What happens with the name of the JV?
What happens with the resources (people, machinery, offices, etc.)?
What happens with IP?
What happens with obligations and requirements related to the JV after it has been dissolved?
What happens with the financial responsibility?
How will the JV be organized? That is a rather important question. How will the services you will provide with the JV be managed?
Even if the JV will make use of various staff departments and other services from the parent organisations, the JV will be a new entity that should be managed. There might be personnel from the parent companies, or maybe even people that are completely new to the JV and its parent companies. All might be used to a different work methodology, and there is no-one to train them on ‘how things are done around here’.
To ensure that all within the JV are on the same page, a management system should be developed and implemented amongst all involved. Processes will be explained, and where necessary associated procedures should be developed. It is not only of importance that the JV processes are clearly described, but also the interfaces and interactions between the JV and the parent companies should be clear as well.
After the JV has been set up on paper, it is time to focus even more on the people within the JV. It only starts here. Especially if the JV partners would differ a lot regarding organizational culture. Even though you might have aligned the expectations on how the organizational processes had to be designed, it is not being said that the employees within the JV will now work together flawlessly.
When you are introducing two groups of people with different organisational cultures, you need to ensure they learn to work together, and know what the mutual expectations are. Especially if the employees within the JV come from JV partners/parent companies with a very differing organizational culture. Much attention should be given to build cohesion between all involved and to build one group. This is not only of importance in het starting phase of the JV, but consideration towards the JV culture should be given continuously. Would worse times in the projects show up, a cohesive group is much more resilient, and chances are bigger that the group as a whole will survive this.
The objectives and the strategy that have been determined in the starting phase should be communicated very well to all employees involved in the JV. Just as with ‘normal’ organisations, it should be clear what is expected from all personnel involved. In a JV this might (slightly) differ from what is done in the JV partner organisation, and should therefore be explained.
The JV management should be visible and have a clear strategy. They should be clear on what is expected from those working for the JV, express the attitude that should be given towards risks and opportunities, working together, quality, and hierarchy, amongst others.
Be real, be flexible
You will be working together with another organisation, and you take on close commitment towards each other. Even though we have advised you to think everything through prior to starting, you have to trust each other as well. You have both good intentions to make it work. Give and take, and ensure that the JV stays in balance.
Starting a JV does come with a lot of aspects you need to pay attention to, for which some of them do not differ much from running a regular company. However, now you are working with two organisations, two cultures, two strategies, two types of management styles, and so further. Putting time and effort in the preparation phase, will save you much time further in the process.