An international joint venture occurs when two or more companies come together to form a new business. The companies remain separate entities but share costs, profits and losses as set out in a joint venture agreement.
Overseas joint ventures are an alternative to exporting. They enable a UK company to establish a presence in an overseas market to capitalise on opportunities without taking on the full responsibilities and costs.
Tips from our trade advisers
- check the exact legal status of the proposed new business
- undertake due diligence on your potential joint venture partner
- be certain of each partner’s financial commitment
- establish how easy it will be to bring back profits earned in the venture to the UK parent company
- think about the board structure and decision making powers
- establish clear lines of communication and reporting requirements
- be clear on roles and responsibilities within the business
- ensure sources of supply and be clear on cost prices
- protect your intellectual property
- establish timelines and cash flow projections. What’s the expected breakeven point?
- know the law and jurisdiction for any disputes
- know about sources of support, funding, and grants
- create a launch plan and a timetable
- establish an exit strategy and insert necessary clauses into contracts
To create a joint venture in an overseas market you’ll need to think about the following steps.
Step 1: Identify the investment opportunity
Consider these points to help identify the investment opportunity:
- the business case for the joint venture. Analyse if it makes commercial sense, and if it is practical and affordable
- your choice of market. A final decision needs thorough research and appraisal
- a business plan for the joint venture. Define what its mission, objectives and scope will be
Step 2: Establish the overseas joint venture
Consider these points carefully when establishing the overseas joint venture:
- find the right partner. Your proposed partner should have the right capabilities, the same agenda and inspire trust and confidence. Find objective ways of checking this
- finalise the structure of the venture. Establish what funding and support you can access. You should discuss and draft an outline agreement or blueprint. Use the tips checklist above to help you
- draw up the agreement. Take independent, specialist legal advice to ensure that the agreement covers all critical issues
Step 3: Manage the overseas joint venture
Consider these points in the ongoing mangement of the joint venture:
- focus on critical success factors. What will make or break the venture? Consider how you’ll operate in a different culture
- stay on course. How can you monitor performance and continue effective and honest communication with your partner?
- maximise the returns. What can you learn, and use, from the venture?