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Joint Ventures and Alliances

 

Under the pressure of ongoing globalization, joint ventures and strategic alliances have become an important means of limiting risks, decreasing costs, and increasing economies of scale and scope. Many large firms enter into worldwide alliances and joint ventures to obtain technological know-how. In addition, globalization and consumerism increasingly push small and medium-sized enterprises (SMEs) to get involved in international joint ventures, both among themselves and together with larger multi-nationals, when access to manufacturing, distribution and other assets is too difficult or costly to create internally. At the same time, these joint ventures and alliances encourage the further development of new technologies and the reduction of international barriers.

Although the benefits of joint ventures are relatively straightforward, they are highly sensitive to conflict-of-interest situations. In terms of limiting these problems, parties may choose from a range of economic and legal instruments and institutions to organize their business relationship. By contracting their way into a governance structure, they endeavour to make credible commitments that serve as a means of creating a relationship of mutual reliance. Their relationship is mainly sustained by self-enforcing ingrained norms of honesty and reputation. However, in many cases, the reliance on mutual expectations and implicit norms cannot prevent the failure of a joint venture. For instance, the majority of the alliances fail due to the lack of trust at the start and the difficulty in gaining trust midstream due to partners’ conflicting interests. To be sure, legal mechanisms and business forms may facilitate the development and implementation of trust norms, but mandatory regulations and legal requirements are sometimes detrimental to the venture’s success.

 

Lex Research Ltd has worked on contractual and valuation issues related to joint venture formation. Advisers are involved in the design of contractual techniques and other dispute resolution mechanisms for large companies and other investors.  Advice is given also on legal issues involving intellectual property, mergers and acquisition and governance conflicts. Our research also gives business managers and professionals insights about the legal tools needed to negotiate, structure and document alliances and joint ventures.