International Trade and Investment Law

Creating Successful Joint Ventures in Emerging Markets

September 04, 2013 − by Renata − in Blog − No Comments

In my spare time I like to canvass international business publications in search of different perspectives and tips that could be useful for North American companies. After all, why re-invent the wheel… If business leaders in other parts of the world have come up with innovative ways to deal with the challenges of doing business across borders, why not take advantage of their knowledge and experience? In one of my recent searches I came across an article published in the French financial newspaper Les Echos on how to create successful joint ventures in emerging markets that made me pause and reflect (“Comment réussir sa JV dans un pays émergent ?“).

What struck me about this article was its assertion that joint ventures in emerging markets involving companies from advanced industrial countries have a high failure rate. The article attributes this poor record to the fact that the actors involved in joint venture negotiations seem to focus almost exclusively on operational issues to the detriment of other aspects of the relationship that are equally important to the success of the joint venture, such as governance (who does what) and business ethics.

Is it really true that joint ventures in emerging markets often fail? A quick search of the web did not reveal any definitive evidence that would support that view. But if indeed they really do fail, I believe that one of the culprits is the impact of cultural differences. In situations where different cultures come into contact and interact there is a high risk of misunderstanding and broken communication. A striking example of the importance of culture to the success – or lack thereof – of cross-border deals is the ill-fated merger between Daimler-Benz and Chrysler, in which the differences between American and German national, corporate, engineering and manufacturing cultures were not dealt with in the negotiating and pre-merger planning stages.

If cultural differences have such an important role in cross-border deals involving corporations from advanced industrialized countries of similar levels of development and sophistication, what could be said of joint business initiatives with emerging market companies, in which differences between national, corporate and regulatory cultures are much more pronounced? That is why in my practice I always stress the importance for any business contemplating entering into a cross-border deal to enlist the assistance of a professional conversant with the two cultures involved; such a professional would be able to bridge the cultural divide and efficiently negotiate and manage the joint venture relationship.

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