Resources Joint Venture Agreements

A joint venture agreement often has the following points: If you decide to set up a joint venture, you should set out the terms in a written agreement. This will help avoid any misunderstanding once the joint venture is operational. Some companies go to the opposite extreme and create dependent JVs. This type of JV operates as a business entity of a parent company and uses the incentive systems and HR guidelines of that parent company. BP and Mobil used this approach to create two joint ventures in their downstream European oil business: the refining company was operated as a BP business, while the lubricants business was operated as a mobile business. The advantages are compared to those of the independent JV. There is no need to establish a separate HR system for the company and the managing parent company ensures that the company`s service providers have equal access to promotion opportunities within the companies at 100%. However, the dependent model limits the JV`s ability to share people and skills with the non-operational partner and gives that partner less influence in the JV. The third challenge facing most joint ventures – and virtually all non-hands-free alliances – is to address the economic interdependencies between corporate companies and the JV. To avoid double cost, most alliances are structured in such a way that parents continuously provide capital, human capacity, material resources, marketing and other services. Parent companies typically sketch out the extent of economic interdependencies during the negotiation phase, but they often do not quantify the specific resources and finances that should go from each partner to the start-up phase. Think about what Starbucks and PepsiCo did.

In 1994, the companies created their successful North American coffee partnership, a joint venture with more than 90% of the U.S. ready-to-drink coffee business. The company was established with less than a dozen full-time professionals who benefited from the skills of the parent companies. Starbucks provides services such as coffee purchasing and roasting, beverage concentrate manufacturing and quality assurance. PepsiCo offers distribution of JV products to food, convenience and mass stores. The two companies jointly manage marketing and product development. And during the start-up phase, they agreed on specific ground rules to compensate each parent fairly for their contributions. Your business can have high growth potential and you can have innovative ideas and products.

However, a joint venture could offer you: companies create joint ventures for many different reasons, including the following: once the launch team is in place and a schedule has been set, the actual work begins. JVs that successfully meet each of the challenges described above. They prevent failures by highlighting tensions inherent in an early stage of the process. They move quickly from general road maps to detailed and practical planning. You clarify strategy and governance and put in place the right incentives and processes to ensure parents` best talent and critical resources. Parent companies may have to move out of their comfort zones when designing an organizational structure for their televisions, setting up a staff model, and developing incentive plans. There is a trend in many JVs, which combine existing organizations to choose a familiar organizational model – either a regional organization model, if parent companies contribute to assets from different regions, or a product division structure when each parent company brings different products. This simple approach allows each parent to protect their lawn and minimize organizational turmoil – but it also dilutes the potential effectiveness of the new organization.