When Joint Ventures Go Wrong

Published on 2012-09-19

Joint ventures (JVs) are again gaining in prevalence as a way of gaining market access and political connections but they have not become any easier or less risky to operate.

Joint ventures (JVs) are again gaining in prevalence as a way of gaining market access and political connections but they have not become any easier or less risky to operate. Although JVs can be successful, they are inherently difficult to manage and their failure can have serious consequences for example:

  • Loss of operational momentum
  • Loss of control
  • Costly legal and administrative procedures
  • New competition

To address these difficulties and to highlight some of the most essential considerations before, during and after a JV partnership, the Chamber hosted this seminar along with William Soileau of Pinsent Masons and John Macpherson of Control Risks.

William Soileau first spoke about the legal risks involved. While JVs require a degree of trust and commitment, it is critical to prepare for failure and plan for exit.

Some key points regarding JV establishment and operation included:

  1. One should not establish joint venture unless it makes more sense than going it alone, or when mandated by the government
  2. One must dedicate management time and resources to actively plan and manage a JV
  3. Conflict is often inevitable and you cannot expect unilateral decision making authority, but can retain ultimate authority over key decisions, and try to have your people in the pivotal management positions and if possible the Legal Representative
  4. Care and due diligence in partner selection is critical; make the partner aware of your corporate culture with regard to integrity issues; try to ensure they are principled, professional and cosmopolitan (with due regard to the added risks of lower tier cities)
  5. JV contracts and articles, and actual management/operating systems, should include a full suite of legal safeguards e.g. cross termination, return of key technology and assets
  6. Planning for technology transfer is critically important – withhold core technology and try to have control of the production manager


Using some of his case study experience, John Macpherson then outlined some of the most pertinent issues/disputes:
  • Anti-corruption clauses and allocation of profit
  • IP theft
  • Denied access to accounts, records and results
  • Threats to integrity (including health dangers)
  • Compromised supply chains

To combat these dangers, it is crucial to conduct comprehensive due diligence – both overt and investigative. Overt due diligence is nothing new but investigative is a different skill set designed to find hidden liabilities via management records, value issues and lateral discreet referencing.

When things go bad?
  • Do not breach contract even after your partner does
  • Do not ignore rumours (investigate all allegations thoroughly)
  • Keep a record of everything
  • Plan security support and stakeholder engagement

If you wish to contact our speakers directly you can get in touch with William Soileau at William.Soileau@pinsentmasons.com and John Macpherson at john.macpherson@controlrisks.com