Between 1991 and 2001, the average number of joint-venture deals announced each year increased dramatically from 1,000 to 7,000. As that trend seems to be continuing, executives are clearly setting great store in these temporary partnerships as a way of achieving both short-term and longer-term goals.
Are they getting all they hope for? The answer is murky. While it has been argued that 50% to 60% of joint ventures fail, the definition of success and failure is blurred.1 Joint ventures last an average of six years and are then terminated for any number of reasons. Sometimes success is clear, as the partners have achieved the strategic and financial goals they sought when they began the venture. In other cases, the competitive environment has evolved so that the partnership no longer makes sense for one of the companies, and it sells its stake to the other partner (85% of joint ventures end with the acquisition of the venture by one of the original partners). In China, for instance, joint ventures were once the only way for foreign companies to gain access to that market; when the law changed to permit wholly owned subsidiaries, companies began to terminate joint ventures in order to fully consolidate operations and gain efficiencies. Although not all terminations have such neat explanations, joint ventures are increasingly viewed as strategic options to be exercised in due course. And achieving financial success in the limited window of existence is an ever challenging task.
Often at the root of difficulties within a venture are poor partner relations. Although partner-relationship management has been widely discussed by academics and practitioners, it does not seem to be well practiced.2 In order to maximize a joint venture’s potential over the course of its life, companies must pay more attention to the impact of partner relations on the performance of their offspring. Too often, a negative cycle develops in which poor partner relations lead to poor performance, which in turn puts the partner relations under greater pressure. In ventures where, for example, communication between the partners is primarily limited to formal board meetings, the joint-venture general manager will struggle to respond quickly to differences of interests when hit by an unexpected event like the loss of a major customer, the loss of market share or a general business recession.<