Restaurant

When you own a type of technology or product and you want to broaden your base outside of your own country/region without the high cost/risk of going it alone, the solution usually is on making either a Joint Venture or License Agreement with a partner in the new region of interest. The first question is always "which is better for us ?".

Both have their advantages and disadvantages. We'll list some article on the advantages and disadvantages later in this article, but before even getting to these check lists, the most important question to answer is who is your partner ? All partnerships succeed or fail on the success on the core relationship between the companies. So it is important to first understand your partner and for your partner to understand you before you start looking for the physical business set-up that you both want.

Joint Ventures are popular for two reasons; firstly when local regulations of the country require a local partner before business or production can start and secondly when you want to be involved in the business in the new region but limit your risk and investment.

The first point is quite obvious and self explanatory. The second point takes a significant effort to assess and answer if you want to do things that produce long-term benefit for both partners. From the perspective of selecting the right partner, you should review the following topics as part of your assessment;

  • Is the other partner's core business complimentary or competitive to your technology/products
  • What should the partner and you give into the JV to ensure that the parent companies do not end up competing in the marketplace with the JV.
  • Does both companies share similar business ethics and internal company management ?
  • Do both partners view the JV with the same sense of risk and commitment ? (e.g. if one partner is a four hundred million dollar a year company and another is a twenty million dollar a year company, then the larger company may not be as serious to make the JV work as they have more resources to write off any failures)
  • Is the partner's business reliant on the JV products (or region) or is the JV an "added value" technology/product to their core business ? (e.g. if one company views the JV as an "added value" business and the other view it as its core business, then differences in business approach will stress the relationship)
  • Can both partners agree amicably on how to split top management positions to ensure no one company has a monopoly control over the JV ?
  • Can each level of the organisation be self-motivated to cooperate and work with their counterparts in the other company ? (e.g. Having top management of both companies very enthusiastic about a JV will still lead to failure if the engineers, accountants, etc. lower in the structure do not get along with their counterparts)

License Agreements are more useful if you are comfortable to take a significantly smaller profit than potentially a JV can deliver but you want to minimise your risk and liability to the local market and allow a partner significant flexibility to make profit/loss on your technology/product as they see best. In some cases you can have a license agreement that covers one section of your technology and you use that reputation of your partner to market other technologies you own directly to the market.

When assessing license agreements with various partners, you should review the following topics as part of your assessment;

  • Will the partner be comfortable for the long term on the conditions of a license agreement ? (e.g. As the partner builds his business on the licensed technology/products, how will the relationship be affected when a market saturation point is reached)
  • Can the partner reasonably absorb the technology/product information required to execute the end business result in a manner that satisfies your company needs (whether it be reputation in the region, targets reached, quality delivered, etc.) ?
  • Can the partner reasonably handle the liabilities and risks involved in the business they want to use your technology/products ?

Which ever way you decide to go, selecting the right partner for the right reasons is the first question to be answered. There are many articles on the advantages and disadvantages of JV's and license agreements, some of which we list here for your convenience.

 

Starred Blogs

Cultural Bridging

One of the biggest reasons for failure of a company to successfully penetrate a new country's market or to effectively find reliable and trustworthy suppliers from a foreign company is the breakdown in cultural understanding between the two companies. It is an often an overlooked aspect when the excitement of talking to new partners gains traction at the top management level.

Expats - Are you looking for a job ?

Are you an expat living in South East Asia ? Or do you want to move here ? Are you looking for part-time or contract work ? Or are you retired and looking to help the next generation of engineers and managers ? Then send today to us your resume, contact details and a brief description of what you would like to do !

JV and License Agreements

Having a working relationship between companies from different countries and cultures is always a challenge. Do you set up a joint venture or create a license agreement ? Here are some guidelines from our expats that have had experience in this field.