Joint Venture Strategies
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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.
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Chapter 11: Cost-centers, profit-centers, and human capital provider autonomy

Zenichi Shishido, Munetaka Fukuda and Masato Umetani


Joint ventures are classified as either cost-centers or profit-centers. Cost-center joint ventures are typically organized to serve a cost-cutting or risk-aversion role through cost control in a segment of at least one of the partners’ value-chain functions. Merely reducing or minimizing partners’ operating costs may serve the partners’ objective to maximize profits. In contrast, profit-center joint ventures are organized with the aim of earning profits from third parties and sharing those profits between the JV partners. Profit-center joint ventures aim to increase profitability for both partners. Cost-centers’ and profit-centers’ key performance indicators are expenses and profits, respectively. JV partners use very different means of controlling these two types of joint venture to ensure effective fulfillment of the respective functions and purposes. For example, in cost-center joint ventures, control mainly revolves around relatively simple cost-cutting pressures. In profit-center joint ventures, in contrast, incentives such as autonomy granted to the joint venture’s management team are typically a key means of control. During the business-planning process, both partners should distinguish between cost-centers and profit-centers. In cost-center joint ventures, managers are generally only given responsibility and authority for cost control; profits are beyond the purview of their authority. Thus, the primary management objectives are cutting costs, establishing cost-control systems, and subsequently conducting required operations at minimal cost. Autonomy and incentives are generally not required in this setup.

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