Joint Venture Strategies

Joint Venture Strategies

Design, Bargaining, and the Law

Zenichi Shishido, Munetaka Fukuda and Masato Umetani

Although they have the potential to create synergies, joint ventures by their nature contain inherent risk. Therefore, each partner in a joint venture needs to incentivize each other in order to maximize their own payoff. Extensive pre-contractual and post-contractual bargaining is essential. This book provides successful bargaining strategies from the point of view of each partner company. Using game theoretical framework to analyze joint venture strategy, it describes practical and legal issues that arise when creating synergies and incentive bargaining in a joint venture. With a particular focus on intellectual property law, including analysis based on many real cases, the book covers issues relating to creating synergies, corporate law issues of conflicts of interest, and antitrust law issues relating to cooperation between independent companies.

Chapter 8: Pre-contract bargaining

Zenichi Shishido, Munetaka Fukuda and Masato Umetani

Subjects: economics and finance, game theory, law and economics, law - academic, company and insolvency law, law and economics


Joint ventures are characterized by a lack of separation between ownership and management. Key management matters are therefore determined through bargaining between JV partners. The purpose, form, guiding principles, and practicalities of bargaining differ depending on the stage of a joint venture’s lifecycle. Joint venture governance also changes dynamically over a joint venture’s life. The joint venture lifecycle can be broadly divided into four stages. The first stage is the preparatory stage, where prospective JV partners discuss going into business and prepare to establish a joint venture together, ultimately closing a joint venture agreement (Section 8.2). The second stage is the establishment stage, where the partners execute a joint venture agreement giving rise to the joint venture (Section 8.3). The third stage is the operation of the joint venture. During this stage, partners monitor each other to ensure that the other is complying with its contractual obligations. The joint venture agreement is sometimes renegotiated during the third stage if the operating environment has changed since the joint venture’s inception (Chapter 10). And finally, the fourth stage is the transformation or termination of the joint venture (Chapter 12). During the preparatory stage, JV partners discuss and decide upon the joint venture’s business model, the scheme for establishing the joint venture, ways to maximize the three types of return and basic policies regarding the sharing of control and total return. They then prepare to execute the joint venture agreement.

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