Growth and Risk from Joint Ventures 

Film transcript: Business Leaders Survey, February 2012 - Joint ventures perspective (Marc van Grondelle)

The new 'business as usual' does not sit at all well with many of the world's largest corporates.

While our respondents rank cost efficiencies and working capital management as their top two priorities, frustrations with growth objectives lie behind the themes that they rank in third, fourth and fifth place.

In this new world order, companies now find fewer opportunities at home and seek growth overseas through successful transactions. These days, success in these markets typically demands a joint venture, exposing the business to significant business model change.

However, even major organizations are finding the traditional roles here are reversed. Instead of becoming the majority partner in the JV, bringing in the technical and management expertise, they are commonly relegated to minority partners with a reduced share of the prize.

To succeed, they need to become competent and confident in these markets. Large Western firms fall back on the people talent they have nurtured through the organizational ranks.

What they find, however, is that their people are very good at following the corporate line but have little or no experience of JVs or of operating in the emerging economies.

They struggle to adapt and impose their Western audit, governance and management practices on these difficult and often politically sensitive ventures.
Unsurprisingly, this survey tells us that respondents' focus is chiefly on frugality. Day to day, I see companies that focus on the minutiae of cost reduction in the core business but leave their expensive JVs under the supervision of often inexperienced staff.

They haemorrhage cash; a lot of cash, which frugality measures alone cannot stem.

I estimate that some of the world's largest corporations are currently exposed to having between 30 and 40 percent of their revenue, production and value tied up in JVs. Within five years it could be as much as 80 percent. It is truly disturbing.