Why joint ventures rarely succeed ? Often ignored are the behaviour,psychological, cultural, leadership factors.

Joint ventures are assumed to be a perfect and flawless match as partners pool complementary skills, assets and strategic needs that each partners cannot fill on its own. Despite all success factors, the performance of JV are sub-par or fail.  Over a period of time, revenues decline, bitter disputes erupt, and irreconcilable differences emerge—and partners, leadership and management call it quits. Partnerships fails or succeed for many obvious commercial, financial and legal reasons however there are many reasons that remain unnoticed and unacknowledged - many of them are behavioural, cultural, attitude, and leadership related.  An analogy from my experience is that all JV's and partnerships are born out of marriage of equals; their success is based on principles of mutual care, trust and respect, compromise, success and happiness. JV's like childrens have an life cycle of their own - they need to be nurtured, empowered, and trusted. Finally, JV outgrow the parents and leave their parents heritage and home but in return parents leave a strong legacy! 

Few experiences and opportunities on which I worked during my professional journey; in order to preserve identity, the names of the companies have been changed.

Promoters do not let it go and never give up, individual ego and inertia:

Biotech seed had an interesting profile in a fast growing hybrid seed technology space; it has a global presence with an extensive research, sales and marketing presence in India, Cambodia, Vietnam, Africa and North America. It received offers at a time when Monsanto and others biotech giants were acquiring technology or eliminating competition. The company received an sale offer with a valuation tag of 20x EBITDA as Monsanto would buy and eliminate all costs and also acquire the technology and global presence. JV partners could not agree on the valuation as one of the partners did not want to let it go and thought that 50x valuation was appropriate and that the partners could develop the company themselves without any external funding or expertise. The offer passed and in a few years the company went through restructuring with some pieces sold at a much lower valuation and some operations scuppered. 

This experience was in stark contrast to another experience with an entrepreneur and an angel investor that candidly maintained that ‘every investments of his was up for sale at a right price’,

Greed, envy, fear and insecurity:

BMI Inc was formed to create a supply chain foot print in the Americas. BMI hired the best talent with experience and skills. Initial investments we successfully made and business building process started. As the business started to experience success, greed started to creep into the management team and the partners experienced envy, fear and insecurity. 

The results were disastrous - conflicts became common, trust disappeared and the venture failed - everyone lost. All JV's overgrow the parent, so probably the timing for an independent team was not right!

Each partners try to outwit the other, each think that they are intellectual superior:

Ageis supply chain was an early entrant with an extensive supply chain operations in Russia; it started pan Russia operations immediately after USSR collapsed. The company has developed the network, brand, expertise, systems and people in a short period of time to the envy of many MNC companies. Ageis introduced two new partners with solid background that wanted to be part of the Russian story. Both partners seconded its best people to infuse talent however at board levels a different story played out, both partners tried to outwit each others. These senior managers received confusing signals and worked at cross purposes to the whims and fancy of the partners rather company’s interest. Everyone has a say and a decision right, no one decided and inertia crept. Teams were divided by partners to meet their own objectives, partners and teams work at cross purpose.

After operating for a few more successful years, Ageis slipped into material losses. The company finally truncated its business to a trading strategy and wound up. Absence accountability, many managers just had a jolly good time in the company after which they embarked to float their own enterprises using Ageis experience and footprints.

The value of culture, leadership and management styles is often underestimated:

Tradico, a successful trading company, embarked on a forward integration strategy and acquired a majority stake in Purecorn (JV that was finally 100% owned by Tradico) a medium sized company that premixed agricultural produce for sale to intermediary food manufacturers. Purecorn was promoters by a scientist and an engineer; the company had a strong corporate culture that focused on technology and science, innovation, customer needs, operation excellence, talent development, precision execution and delivery as key pillars for sustainable high performance, growth and profitability. Each employee would go through rigorous training and development, carry a blue handbook and swear by corporate ethics, values and mission. Purecom’s performance matrix included assessment of individual’s behaviour’s, compliance to controls, safety standards, and quality.  Purecorn’s best talent were sourced from 2nd tier science universities in smaller towns and their talent was 2nd best; they seldom hired the best. Purecorn’s international business managers and leaders came from communist or socialist countries where operational excellent and compliance was paramount i.e. China, Korea, Brazil, India, Poland, and Mexico. The company’s culture was a reflection of the promoter background and their years of training; the promoters wanted to instil a sense of operational excellence, corporate performance and empowerment.  Purecorn’s culture, which has a professional professional people oriented culture, was highly contrasting to that of the Tradico's trading culture where individual performance mattered and where profitability was important compared to to behaviour and corporate values.  

Tradico’s senior leadership quickly recognized the importance of adapting and internalizing Purecorn’s values, management practices and leadership practices for building a long term sustainable business. Over the years, the Tradico's culture was overwhelmed by Purecorn’s values, management practices and leadership practices. Today, Tradico is a successful multi-billion dollar transnational company that operates with Purecorn’s culture and value systems. Tradico found long term sustainable value in the Purecorn’s culture which is contrary to most acquisition strategy that focuses on commercial values and unlocking synergies.

Tradico leadership had the foresight and vision to learn and unlearn from Purecorn’s acquisition and implement it at Tradico. Whereas, many joint ventures fail for the very same reason that arises out of incompatibility of culture, leadership and management styles.

Partners intent, goals and commitments differ over time:

Surestarch was a joint venture that was formed with clear demarcation of roles of JV partners to ensure that each partner contributes its best to its abilities without any conflicts and that teams work for the common interest of Surestarch. All pitfalls of potential failures were managed in form, substance and spirit. Surestarch had a first 2 years of stellar performance during which the initial arrangement continued. In the meanwhile, Surestarch partners and leadership success and ensured complacency overlooked the idea of creating a culture of common interest and independent (of its partners) Surestarch. Surestarch also failed to develop strong leadership and management team; risks increased to which Surestartch could not respond. Partner’s intent, goals and commitment changed - Surestarch faltered miserably before it being restructured with a management buyout.  

The missing link and ownership between planning v/s integration and execution:

Most company have specialized investment and business development management (IBDM) teams which spend thousands of hours on getting the business strategy and plan right. IBDM teams work on everything to make it right - designing the business case and internal alignment, developing the business model and structure, negotiating deal terms, designing the operating model and launch, and overseeing ongoing operations, exit contingencies, and strong governance and decision processes. When teams that develop plans and strategies are different from the JV leadership, management and execution team. The responsibility and accountability is diffused – value and synergies identified is never captured and realized. Ownership lacks in the execution and integration team unless they the development team assumes responsibility for execution and integration.  

Topistarch was a quick fire JV acquisition in an emerging market with the blessing of senior management - IBDM was involved on feasibility study etc; the local JV partner retained 10% equity. The acquisition was done to create a footprint in the targeted market and a heavy premium was paid for acquisition. All work was done by IBDM business teams were not involved initial stage; a new business integration and execution management team was placed to unlock and consummate the potential synergies, values and business strategy. The new management did not believe in the synergies, values and business strategy that were presented by IBDM. In 2 years, the acquirer had to write off 80% of the acquisition value, change management and substantially truncate the business.

Medistart had a similar background but it became one of the most successful superbrand company in its industry. The key to success was that a business specialist was implanted at IBDM (that was involved in the JV from the beginning and finally deputed to run the business), management independence, corporate governance, partners discipline and respect for an independent business and a successful listing of the company. All partners achieved their objectives and hugely benefited from the IPO valuations and cherished the legacy that they left behind.

Stripping assets, people, culture, environmental challenges, and outdated technology is the goal.
When partners try to maximise their initial profits and cash flows by saddling the JV with high enterprise valuation, sub-optimal talent, incompatible culture, environmental challenges, and outdated technology that the has been carrying.  The final outcome is indeed disastrous on the JV’s performance, people, talent, lenders, community and environment.