Google the phrase "troubled joint venture," and you get pages and pages of hits.
Why (apart from a journalistic weakness for handy labels) should this be? The governance challenge when two companies team up -- a great argument-starter whenever corp dev professionals talk about JVs -- is surely one factor. Decisions inevitably take longer with two parties involved.
But there's more going on.
Rarely a first choice as a strategic tool, JVs are usually formed because there seems no better way to solve a tough business problem. Sometimes the problem is one of market access. BP plc's deal with TNK and Group Danone SA's experience in China with Wahaha Group Co. Ltd.
notwithstanding, these kinds of JVs do have a reasonable track record; lots of multinationals have used them to get established in developing markets, often buying them out as the local rules change.
But JVs formed in response to challenges posed by technological change or ferocious competition (or both) have not fared as well. That's what we're seeing with two of the JVs in the news this week: Fujitsu-Siemens, which Siemens AG now reportedly
wants to exit, and Sony-BMG, where Sony Corp. is
buying out Bertelsman AG.
When Fujitsu Ltd. and Siemens combined their computer operations to form Fujitsu-Siemens in 1999, their
stated ambition was to move from a pro forma fifth-place position in PCs, servers and enterprise systems into the top three. Hasn't happened; in PCs they've even
fallen below fifth, according to Gartner. In the years since the JV was formed, there has been a lot to keep up with: IBM Corp. selling its PC operations to China's Lenovo Group Ltd., Hewelett-Packard Co. getting the Compaq Computer Corp. deal to work and using retail channels to overtake Dell Inc., and so on.
Sony-BMG was of course intended as an answer to the profound challenges digital music poses for the recorded music industry. But not a very good one, as it turns out. Now the hope is that Sony, with sole control, will be able to streamline decision-making and harness the business more effectively to its hardware platforms.
That raises the question of why Bertelsman didn't just sell out to Sony in the first place. The price would have been a lot higher than the one it just got, and maybe the operation would even have navigated the tumult of the last four years more effectively. Likewise, it's reasonable to wonder if the combined computer operations of Siemens and Fujitsu Ltd. wouldn't have done better under a single, more focused owner.
It's hard to know everything that went into these JV decisions, and it may be that simpler solutions just weren't available. Still, they hold a lesson for those contemplating joint ventures in the future. Before you set up an inherently complicated organization to tackle an especially tough problem, get comfortable that you're really going to be tackling the problem, and not just postponing it. -
Kenneth Klee
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Juergen Lasowski
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China has a very apt homily about joint ventures: Same bed, different dreams. My experience is that two things usually lead to joint ventures going bad. The first is different dreams, with one or both sides failing to really try to discern the dream of the other. The second big problem is when one side believes it will have more control than it really will. This usually arises from either a misconception about the JV contract or the laws of the applicable country re joint ventures or because one side actually believed the oral representations from the other side that were contrary to the contract and/or the law.