Design, Bargaining, and the Law
Chapter 13: Successful joint ventures: avoiding common joint venture pitfalls
In this book, we define a successful joint venture as one that sees success in terms of both organizational and operational management. Successful organizational management means that the JV partners have incentivized each other to contribute resources to their joint venture, avoided moral hazard, maintained a cooperative relationship in terms of controlling and operating their joint venture, and reciprocally contributed necessary capital to the joint venture as promised. Successful operational management means that the sum total of the three types of return from the joint venture (i.e., return on investment, return from transactions, and ancillary return) has met or exceeded the partner expectations. While these two types of success are related, they must be logically distinguished from each other. Conversely, joint ventures can fail due to both organizational management failure and operational management failure. This chapter will distinguish these two types of failure, consider possible causes of organizational management failure, and introduce methods of preventing and resolving any failures. The first type of joint venture failure is organizational management failure, which is a failure by the partners to incentivize each other to contribute resources to, cooperatively manage, and share control of their joint venture. An example of organizational management failure is when insufficient incentives to contribute capital in the establishment stage result in the failure of the joint venture business’s ability to actually coalesce.
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