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(originally published by Booz & Company)

Managing Risk in International Joint Ventures

Executives must be aware of the ownership and governance structure of companies they are considering partnering with in foreign markets.

Title:
Innocents Abroad: The Hazards of International Joint Ventures with Pyramidal Group Firms

Authors:
Susan Perkins, Randall Morck, and Bernard Yin Yeung

Publisher:
Self-published

Date Published:
February 2008

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.

Bottom Line:
Executives must pay special attention to the ownership and governance structure of companies they are considering partnering with in foreign markets.

 

 

 

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Managing Risk in International Joint Ventures