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Determining whether your company is ready to take on a joint venture requires a robust review of your business strategy and a SWOT analysis to examine its strengths, weaknesses, opportunities and threats. You may consider competitors, suppliers or existing customers — or you might decide to link up with somebody new.

Whoever you choose, there are certain criteria that must be fulfilled to ensure any risk is minimised. If this is your first joint venture ensure both parties share the same outlook, objectives, vision and culture — the latter which includes ways of working, commitment to developing staff — and corporate social responsibility. If you miss this step — you could be stuck with trying to work with somebody who has totally opposing views, risking the success you both wish to achieve. Establish early on that both parties will inject the same level of commitment to the venture, maintain a degree of scepticism — and avoid being too trusting.

Are you happy to take on that reputation? Is the other party happy to take on your reputation? Can you continue to build success based on these reputations? This should include the specifics of what your agreement with the other party involves — as well as an exit clause if things do not work out. Failure to do this could be much more costly than the fee for getting this drawn up. Quite simply, the ground rules change with maddening frequency, as do the nature and locus of governmental authority. These three formidable obstacles have kept many Western investors from plunging in and have forced others to pull out along the way.

Successful joint ventures, by contrast, have found their own inventive ways of surmounting these hurdles, and their approaches contain discernible patterns. We have interviewed the Russian heads of 33 joint ventures that have been in operation for at least two years—joint ventures with Western participation in both ownership and profits were not legal until late in —to discover what lies behind their success in addition to simple luck and timing.

The Western companies involved in joint ventures in Russia are not all large corporations. On the contrary, small to midsize Western enterprises started most of the joint ventures we studied. In practice, smaller companies have a number of advantages. They are less likely to feel constrained by rigid investment criteria, legal guidelines, accounting rules, and other management practices that are sometimes inappropriate in a turbulent business environment. And they are more likely to be capable of the adaptive, rapid responses needed to deal with unexpected situations and to transform problems into opportunities.

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Mitchell Osak: Improving joint venture performance

The number of joint ventures in Russia has increased steadily since the enabling legislation was adopted in At latest count, there were 6, registered joint ventures. Of the 33 joint ventures in our sample, many of which have several partners on both the Western and Russian sides, 10 have Western partners based in the United States.

Finland has the second largest number with 8, followed by Germany with 6. Other countries represented are Italy and Switzerland, each with 3, France with 2, and Japan, Sweden, and England with 1 apiece. This distribution is fairly typical of the general joint-venture population. The major business activities of the joint ventures are evenly divided between services and manufacturing. The range and diversity of the services they offer are considerable. Some of these, such as hotel, exhibition, and legal services, are oriented to Westerners in Russia.

Mitchell Osak: Improving joint venture performance | Financial Post

Other services are focused on the domestic market: computer software and systems, telecommunications, musical recording, architecture, and pharmacies. Finally, the services offered by some joint ventures are poised to meet the needs of both Russian and Western markets: engineering, retail distribution, dentistry, security services, business consulting, banking, construction, and the leasing of construction equipment. Most of the joint ventures engaged in manufacturing started with assembly work, but many have moved on to producing components in Russia.

Four companies are assembling or manufacturing computers, three are in machine tools, two in medical supplies and equipment, two in arts and crafts, and two in fish processing. The list then diversifies: wood and skins processing, food flavorings, cameras, automated process controls, ventilation and warehousing equipment, and roofing materials. Some of the joint ventures combine manufacturing and services. For instance, the roofing company also designs and installs roofing. The makers of ventilation equipment and process controls also offer installation and training services.

The camera company retails and services the equipment it makes. By becoming full-service companies, these joint ventures underline their long-term commitment to doing business in Russia.

Finding the Right Russian

What did surprise us was that the most successful joint ventures have all learned the same three secrets about doing business in Russia. We will speak only of Russia, but Ukraine and Belorussia present similar problems and offer similar possibilities for investment. Russia has a great many talented and experienced managers.

CIMA E3 SWOT, objectives, critical success factors and benchmarking

Successful joint ventures put these local managers in charge and delegate radically. Quality matters every bit as much to Russians as it does to Westerners. The successful joint ventures sell the finest goods and services they can produce, and they produce as much as possible in Russia. Intractable problems can often be turned to advantage.

Key to every joint-venture success is a capacity for extraordinarily rapid, adaptive responses to problems of economic turbulence and social change. In such organizations, all problems begin to look and behave like growth opportunities. The best joint ventures have pushed this insight one step further by recognizing that this work force includes a wealth of managerial talent that joint ventures can, indeed must, draw upon.


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Finding the right Russian to manage a joint venture is a riskier and more arduous task than conducting a job search in the West, but the right Russian will know more about indigenous markets and suppliers, networks and ministries, regulations and cultural patterns, and work-force strengths and weaknesses than a Western manager could learn in years on the job. A Russian manager is better equipped to look at possible partners and assess the worth of their experience, personnel, sources of supply, and equipment, land, and buildings. The right general manager is also a great help in negotiating an equitable joint-venture agreement.


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  7. In addition to all the good reasons for hiring a Russian as general manager, there are also good reasons for not using Western managers or for employing them only as long as their specialized knowledge is needed. For one thing, it is very expensive to keep any Westerner in Russia. In addition, their comparatively outrageous salaries and perks generate intense resentment. In choosing a general manager, Western companies are often misled by the false conventional wisdom that insists there never was such a thing as effective Soviet management.

    Considering the enormous handicaps imposed on them by perennial shortages and centralized command and control, the general managers of many Soviet enterprises accomplished wonders. These managers still have no training in Western management theory and practice, of course, but their own Russian management style, deeply rooted in the resilient culture of the Russian mir, or collective, has its own considerable strengths.

    For example, Russian executives are often strong, personal leaders who practice hands-on, walk-around, face-to-face management. They develop direct bonds of loyalty with employees at all levels. They also practice a unique form of decision making that combines consultation and command by alternating periods of open, widespread discussion of options with moments of strong, top-down authority in making final decisions.

    In all these ways, Russian managers achieve highly effective vertical integration. Unfortunately, their system emphasizes group solidarity to such an extent that it discourages, even forbids, the kind of direct lateral coordination between departments and divisions that we see in Western companies. The successful joint ventures we studied have generally encouraged Russians to use their familiar management methods and have only gradually and selectively introduced Western practices. Of the joint ventures we studied, all but one are managed by native Russian executives exercising levels of authority and autonomy that are remarkable by Western standards.

    In the most successful joint venture we studied, the Russian general manager has entered new businesses, expanded operations into new cities, and launched construction projects, all without advance approval of the Western partner.

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    Some joint ventures have specified in their charters that all relations with customers, suppliers, and Russian authorities are to be the sole responsibility of the Russian partner. Russian general managers themselves, along with their more experienced Western partners, argue that this kind of radical delegation is the surest road to success. When Yeltsin was wooing a group of Western businesspeople at a recent meeting in the Kremlin, the final speaker was a joint-venture general manager who contrasted two kinds of Western companies.

    The first kind applies tight controls and requires advance approval for all significant decisions. The second kind—and he held up his own Western partner as a prime example—grants its managers considerable freedom. Russian managers can certainly accommodate themselves to the first kind of partnership, he said, but the results will never be more than a fraction of what the second can achieve. This comment drew a standing ovation from the Russians present. If contemporary Russian managers have a weakness, unfortunately, it is that years of state ownership and centralized control taught them that the reward for professional success is the freedom to exercise authority while avoiding responsibility.

    The old communist apparatus desperately preserved all authority for the center while masterfully shoving responsibility down the throats of managers at the periphery. Getting a Russian general manager to take on full responsibility for a joint venture often calls for firm measures. For a start, we found that Western partners insist on complete and candid reports at regular intervals. Many also give their general managers a direct financial stake in joint-venture performance. Paradoxically, an even more critical way of underlining the relationship between authority and responsibility is to give Russian managers the authority they need to take responsibility—the authority that the communist system so stubbornly withheld.

    The best joint ventures send strong organizational messages to subordinates, suppliers, customers, government officials, and to general managers themselves that the Russian general manager is in charge, and Western partners take care to work through their general manager at all times. The principle of Russian control goes deeper than radical delegation of authority to a local CEO, however.

    The experience of the best joint ventures suggests that it is a good idea to put actual majority ownership in Russian hands as well. Ownership has the same effect on Russians that it has on anyone else—it encourages responsibility, adaptability, and hard work. The potential benefits heighten motivation; the risks sharpen the mind. In a country where both the law and the business environment are moving targets, a one-sided bargain is an especially poor bargain.

    Sharing financial risk and responsibility is prudent for other reasons as well. Russian partners are often more inclined than their Western partners to reinvest earnings. Most of the joint ventures we studied have yet to repatriate profits to the West, at least partly because their Russian general managers are eager to see their companies grow. The fact that Western partners earn profits directly from the components they sell to their own joint ventures somewhat eases the pain of not repatriating joint-venture profits as such. Another good reason for leaving profits in Russia is the attractive opportunities for investing rubles.

    A New Watchlist

    And he was right. Since radical management delegation is critical for achieving fast, creative responses to the rapidly changing Russian environment, the choice of a Russian executive is of paramount importance. We have said that plenty of managerial talent is available, but finding the right person is still a formidable challenge. It is hard to give the search too much attention on too personal a level. In the West, the hazards of hiring a CEO are somewhat eased by three factors: First, background and references are easy to check and analyze in depth.

    Second, business education is notably homogeneous, i. Third, correcting a mistake in hiring may be expensive, awkward, embarrassing, even contentious, but it can be done. None of these factors necessarily applies in Russia. Personal and professional history is often clouded in obscurity, compromised by politics, or simply inaccessible.

    One joint venture in our sample hired a general manager with apparently all the right experience and contacts, but as time passed, a clear disagreement developed about basic business objectives. After a string of heated disagreements, the Western partner decided to let the man go, only to discover that he could not be made to leave; he still had the firm support of the Russian partner, a government ministry where he had been a top bureaucrat. The ministry was not about to violate the Russian norm against firing its own people except in the most extreme circumstances.

    The Western partner eventually sold its interest to another Western company with a somewhat different business concept, and the Russian manager is still in place.


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    4. Conventional wisdom in the West holds that since strong personal and hierarchical relationships governed the conduct of the communist economy, it is critical to hire a person firmly tied into the old networks. This is generally good advice, since the old networks still have great influence. But in the real world, lack of initiative and dearth of imagination can render even exalted connections worthless. One joint venture picked a former ministry official to run a fragrance company whose only customer was its own Russian partner, the Soviet ministry where the new manager had previously held a high-ranking post.

      For a time, this cozy arrangement worked well. But the general manager, devoid of market judgment, failed to cultivate any other customers. When the Soviet government collapsed and the ministry closed, he was completely at a loss. Finally, on the strength of a rumor of available hard currency, he came up with a desperate scheme to sell his entire production in tiny Latvia. A talent search must focus not only on industry relationships and experience, but also on intelligence, fundamental integrity, and personal expectations compatible with the strategy and goals of the Western partner.

      The most successful joint ventures in our study have understood from the outset that the development of a trusting relationship across barriers of language, culture, education, and world view requires a generous investment of time and attention. Some brought Russian candidates to their Western headquarters for extensive formal and informal interviewing and evaluation. Most at least took the time to build personal relationships between their own top managers and the Russians under consideration.

      All engaged in an ongoing, reiterative process of discussion and probing that ranged back and forth from casual social discussions to concentrated dialogues on strategic business issues. In seeking a Russian general manager, Western partners look for self-confidence, initiative, and sophistication, as well as work experience.

      They pay attention to their own first impressions and instinctive likes and dislikes. They ask questions to which they already know the answers, often on sensitive topics, such as tax avoidance and employee benefit requirements. They test candidates by asking them to set up appointments with key officials, book hotel space, arrange for visas, secure official statistics or a draft of pending legislation.

      They tease out underlying beliefs about business ethics, profits, labor relations, and political institutions.