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Making Joint Ventures Successful - Top Secrets Revealed

“Talk about things that are uncomfortable while you're still friends, not after you get in a fight or in an argument with the other side.” - Ivan Golubic

On this episode, Kison speaks with Ivan Golubic, former VP Corporate Development at Goodyear. Prior to Goodyear, Ivan spent 10 years with Whirlpool, Deloitte and Ford in various finance and M&A roles. Their topic of discussion is how to make joint ventures more successful.

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Ivan Golubic

Ivan Golubic served as an executive, focusing on a strategic approach to corporate development and operational initiatives. Directed all mergers and acquisitions, joint ventures, divestiture initiatives and manages strategic partnerships, executing deals from $0.5 - $2B per year in various industries. Ivan Golubic is a Vice President Finance, Strategy and Corporate Development: M&A, JVs, Strategic Partnerships; Non-For-Profit Executive Director and BOD member.

Episode Transcript

Maybe we can kick-off with a brief description of your role at Goodyear?

During my time at Goodyear, the company went through three major phases. My job, for the last two years there was to understand how we can transition from a company that was divestiture-oriented and then restructure that into a company and processes that are serving acquisitions. 

Let’s talk about some of the reasons why joint ventures fail. 

There are various reasons. According to statistics, most joint ventures, about 60 or 70 percent of them fail within the first five years. A lot of them struggle with cultural challenges, and this is not necessarily just limited to national or regional aspects, but most of the time it’s the corporate culture and how they relate to other companies and partners. The second part about it is the strategic fit. Initially, when a joint venture is contemplated there could be one strategy, but once a strategy gets implemented, it can change.  The last one is the priority issue which comes down to a parent company putting their priorities ahead of the joint venture. Prioritizing in such a manner creates difficulties in the long-term.

What are some of the steps you think can be taken to make joint ventures more successful?

Start by defining success and then put very objective KPIs that can be measured regularly. When hitting those KPIs a lot of joint ventures operate without too much interference from the parent company. As long as the JV falls into the parameters we approach it as a success. That is followed by a strict governance process. You need to understand who is supposed to communicate with whom, how you resolve conflicts, and what is the process of addressing some of the operational items. 

I would definitely suggest hiring a key JV manager, ideally an individual who can influence the parent organization, manage the relationship and the governance of the joint venture. It is also important to have a good exit strategy in case things don’t go well, that will allow you to resolve issues and remain on good terms with the other company. This matters because even after dissolution there are still supply and similar agreements that need to be taken care of. Hiring third-party consultants to set up and provide governance structure is a good thing because they can look at everything objectively and highlight things you need to be careful about. 

How do you make sure strategies on both sides are aligned before entering into a formal joint venture?

Understanding why each party is getting into the JV is an important part. From my experience strategies can sometimes be different, but I think that is a positive thing because they are not competing against each other. To illustrate, in one of the JVs I worked on one side was interested in technology, while the other was focused on the access to the production facilities and so things worked well because each party was going after different things. The strategies of each parent will change over time, so it’s important to understand how changing the strategy will impact the JV. In the end, it’s just about making sure that you are ok with the strategy of the other side. 

What are some things in terms of putting a consideration early on to be able to address that early on in discussions? How do you put a consideration that there may be some changes in the strategy?

You can anticipate some type of scenarios or make predictions, but I think that’s where governance comes into play. It is important to think about how you can raise a question and allow for the other partner to provide enough input and yet not veto everything that you do. That goes into the governance, how the governance is structured, and can one party act outside of the JV on its own - those are the things you need to anticipate as you are forming legal agreements.  

What are the things both sides have to be aligned with before entering the JV?

They need to be aligned on objectives, on the KPIs, and governance and governance communications. Communication is crucial throughout the whole process and even when exit happens because it ensures that there is a fair way of going separate ways. Another important thing is the leadership team, which needs to be picked and trusted by both sides because that is going to give the leadership the authority to make choices. 

Can you walk me through what the ideal joint venture process looks like? 

The first important thing is that both parties are approaching this in a good faith, that their objectives are truly aligned, and that they are going into this for the right reasons. Then  I would start with defining the KPIs, the objectives of the JV, and then select the leadership team. The sooner you create the leadership team the sooner you will be able to create a unique culture for the JV. I put working on the governance after selecting the leadership team because I believe the leadership team needs to have an input on how governance is going to work.

It’s important to be clear on roles and responsibilities, define the exit strategy and the objectives of the exit strategy. I’d favor JVs that have the end date with the possibility of renewal because it allows you to put in enough time and effort into making it successful and minimizes conflict. If it doesn’t work, after the end date you can simply walk away.  

I want to hear your views on some of the surprises that you’ve encountered on JV deals that you worked on?

Probably the most interesting one that we had was performing a JV in the US. The team was very US-focused and once we started going for the antitrust approvals we realized that, because we were global competitors and we hit a certain threshold in each market, regardless of it being only a US-based JV, we had to file antitrust approvals. We had to do it in various markets, wherever we hit market share that was higher than 40 percent. This delayed us for a few weeks. We never thought we’d have to focus on the whole globe when setting very specific-marketed joint ventures.

Another example is when we had multiple JVs within a party and they wanted to exit some of them. We were put in a position to calculate how we are going to operate other JVs if one of them is dissolved. That required restructuring in the middle of a process and it threw a curveball to a whole relationship. 

Have you come across surprises that are more people-oriented or things that came out from the left field?

We had a case where we thought we were operating under a non-compete, yet one of the leaders from the other side found a loophole to create a direct competition with us, which threw us off. 

Can you give me advice on doing my first joint venture?

A JV typically doesn’t fail because it was a bad idea, but because of the ways it was executed. Spend time thinking about what could go wrong. Don’t be afraid to raise issues or potential conflicts that you can see coming up, because that’s the only way you can address and prepare for them. Even if a JV fails, remember that there was a reason why you formed a strategic relationship in the first place, and try to preserve that. Lastly, as we discussed previously, assign a manager for the JV who is high enough in the organization. You need somebody who is dedicated to the success of JV, who can really understand the objective of the JV but also understands the dynamics within your own company. 

If I am working on a JV, who are the people I would want to bring in and get involved? What that sequence would look like? 

The first I would bring is people from second-tier leadership without the CEO. You want to bring people that are very good subject matter experts that can gain respect from both parents, but who are also generalists and can do many things within the organization. JVs are typically smaller than parent organizations so a person that you bring in should be able to and will do a lot of different functions. 

I would also bring HR people in very early. You need a communications person because they will be the ones setting a culture of the JV.  Once you have leadership in place, you go and hire a CEO. I am more in favor of the team picking the leader versus having a leader picking their team because this team will be engaging with both parents on a day to day basis. 

The theme of your points sounds very parallel to acquisitions.

In many ways they are. JV is a little more complex than an acquisition simply because you know who the dominant party is. In a JV, you need to build a consensus and collaboration without having the dominant party, so it is very advisable to create an independent management team with pre-defined expectations.

The biggest problem for a JV is the need to quickly adjust to new demands because if one side demands a different report, the other side should agree with it.   If they don’t you’ll very quickly get to the discrepancy of it. When we were setting JVs there was a rule - what is provided to one parent, needs to be provided to another as well.

What are some of the factors that contribute to building trust? What are some of the factors that define trust for you?

I define trust by whether the person I am talking to has the best interests for the JV or they are in it for the best interest of a parent. It is natural for each party to represent the objectives of a parent company, but at the same time, the benefit of the JV simply needs to be at the forefront when making decisions. You can usually notice this difference in attitude very early on. My rule is, I will do you a favor that is for your benefit, as long as it doesn’t hurt me, but I expect the same thing from you as well. 

Can you walk me through some of the strategies of developing the joint venture? What are some of the scenarios to think of? 

Scenarios tend to be different. For example, one was a fragmented brand, where we looked at how we can make sure that the brand is more aligned and that we have more synergies around it. Another strategy was around distribution, where neither side was large enough to be effectively distributing the product, so therefore we ended up combining forces. It is important to know that a JV is not a regular company and that it’s created with a specific purpose. If you focus on that purpose, that objective, then a JV is a successful one.

Have you ever worked with R&D or something like a speculative type of joint venture?

R&Ds and JVs are actually quite common. There is a need for a lot of governance and a lot of cultural shifting from within the R&D organization. If I was setting today an R&D I would spend more time on culture than probably on anything else. Scientists, researchers, and engineers are very proud of their work and they want to get a lot of credit for it and are very protective of it. In a JV, that is difficult to achieve, which is why working on creating the right culture matters. 

Could you contrast a joint venture versus a partnership? 

JV is a legal or corporate structure that serves a specific purpose where two parties bring their assets together and share the outcome of those investments. Strategic partnerships are really about collaboration and having separate fruits of the labor. 

So say, for example, I am interested in expanding in a new market, but we are not capable of working with that market directly. We identified a partner that is very familiar with the market and our thought is, because of the regulations, we want to create localized software and we would look at this as a whole separate thing. From your view, am I still looking at that as a partnership or do we split it off and look at it as a joint venture and a completely separate entity that is operating locally on that market?  

What I would first ask myself is am I trying to achieve within that market. What is my appetite for sharing risks in the market? Do I trust the partner? How much control do I want to have over it? If you are willing to share the risk then I would definitely approach it as a joint venture. If you are not comfortable with the risks and you are ok with giving control to somebody else I believe it’s better to go for a strategic partnership. However, you won't share the rewards of that legal entity. With a joint venture, you should have a lot more responsibility and a lot more say for whatever happens in that particular market.    

Would it make sense to frame things as a partnership, and then potentially look at evolving it into a JV?

Absolutely. We had an example where we were planning for a JV, but once we consulted, we decided we are not fully ready for it, so we decided to go for a partnership instead. Once things develop we are going to form a joint venture.

What’s the craziest thing you’ve seen in M&A?

The one that I found crazy was when we were negotiating a deal which started as a divestiture. In the middle of the process, as we were trying to negotiate, the CEO of the company we were talking to sent a letter to a French Minister of Industry stating that the French workforce gets high wages, only does the talking but works only three hours a day. We got so much backlash in the middle of it and the number of politicians that got involved in it was insane. 

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