International joint ventures fail at a higher rate than most business partnerships. Even the savviest multinationals run into trouble when trying to expand into foreign markets (witness News Corporation’s decade-long struggle to establish satellite television operations in China). According to the authors — who examined the experience of nearly 100 attempts by multinationals to enter the nepotistic Brazilian telecommunications market over the last decade — one overlooked cause for this failure rate is the lack of understanding of governance issues in many foreign markets. Although American companies typically answer to individual or institutional shareholders with a clear mandate to maximize shareholder value above all other concerns, many entities in South American and Asian markets are part of larger business groups with competing, opaque goals.
Executives must pay special attention to the ownership and governance structure of companies they are considering partnering with in foreign markets.