The Decline and Fall of Joint Ventures: How JVs Became Unpopular and Why That Could Change

The peak year for joint venture formation was 1995, which saw almost 5,700 new ventures. Since then, however, JV activity has gone into a sharp decline, with 2004 setting a new 10‐year low of just over 700 new deals, and many executives have completely dismissed joint ventures as a vehicle for growth. But is this the right conclusion? Perhaps for some companies. But for most, the answer may be to use the lessons from past failures to improve their ability to negotiate and manage joint ventures. This article offers five main pieces of advice: • Don't rely too much on experience from negotiating acquisitions. JVs require a more balanced, less competitive negotiating style that can help set the tone for a good relationship. • Don't allow the contract to dominate the relationship. If JV agreements are crafted more with the aim of building trust and achieving a shared understanding than designing explicit provisions for all contingencies, the parties will have stronger incentives to seek business solutions instead of legal remedies. • Weigh carefully the value of commitment versus the value of flexibility. Although the ability to exit a bad deal clearly has option value, there may be greater value from the stability achieved by locking oneself into a relationship. • Resist the urge for certainty in termination clauses. A “process‐oriented” approach will typically be more fair, resulting in smoother negotiations and a better working relationship, than an “outcome‐oriented” approach. • Recognize when a JV has outlived its useful life, and do something about it before value is destroyed.