Here’s Why Partnerships Can Lead to Big Problems

Filed under: Global Business — August 29, 2005 @ 12:24 pm

When entering foreign markets, many firms use the partner approach. But surprisingly, so few firms pick the correct ones.

The most common American model is to find a competitor in a foreign market, approach it and try to develop a partnership. The venture can take many forms, from a traditional merger to an arm’s-length agreement to work together. Referring to a “partner” is not a sufficient definition of the relationship.

Partnerships breed problems, and we need to know why.

In one case, an American oil firm partnered with a firm based in Alberta, Canada. The purpose was to corroborate on deals in new markets. Canadian firms were obvious choices for the Americans; no language barrier, geographically desirable, transparent legal systems and some common business values.

The Canadian firm had capital and access to more funding. Additionally, the Canadians had comparable technology and a greater international outlook.

Canadians already think more globally than Americans. The country has two official languages — cereal boxes are labeled in English and in French. Most Canadians live within 50 miles of the U.S. border. American news is prominent on Canadian television and radio, and in newspapers. One of every six Canadians is an immigrant. More than 50 percent of Canadians have traveled abroad (compared with less than 10 percent for the United States).

When the Canadians landed a deal in Central Europe, the Americans (who weren’t germane to the negotiations) called the Canadians and asked, “Are we in? What is our role in this new deal?”

This question surprised and confused the Canadians. The U.S. firm committed no resources, help, money or contacts to this venture, yet were hoping to reap the rewards. The Americans were equally daunted, as they felt the Canadians would include their firm in most overseas activities.

The true logistics obviously weren’t solidified. But the main reason for failure was that the collaboration wasn’t grounded in each firm’s needs. Each company offered duplicative strengths. With each party bringing the same skills to the table, the only logical reason for the parties to connect seemed to be to form a gentleman’s alliance.

As we examine what went wrong, we need to ask: What makes a partnership successful in the first place? One of the biggest success factors is a common outlook on how the partnership will function. Additionally, a common understanding of the tasks at hand, complementary skills, and co-mingling of talent, technology and contacts are good places to start.

For instance, if the Canadians offered superior technology, yet the Americans had access to more capital, then that would be a good basis for joining. In this example, the Canadians didn’t need the Americans to help service Canadian firms, and the reverse held true for the Americans. Their only hope was to cooperate on international deals. Yet the Canadians went about this business activity on their own.

If the Canadians were better at international business development, then why did they need the Americans anyway?

Perhaps the indirectness of the Canadian culture versus the U.S. cards-on-the-table approach increased ambiguity. Perhaps the Canadian reticence versus the American aggressiveness made the Canadians think the U.S. company would present opportunities first.

So, how is a good partner chosen?

First, the partners have to research each other. They need to know each other’s strength and weakness, how easy will cooperation be, and each other’s agendas (defined by the question: What does success look like?).

Common goals and agreed-upon action plans for attaining them should be decided, negotiated, assigned and monitored. In international business, remember that most countries are hierarchical, thus, a firm would want to select another that is hierarchically well placed.

For example, professors are located near the top of Chinese society (above doctors, lawyers, factory bosses and bankers). Politicians are regarded highly in India, engineers in The Netherlands and entertainers in the United States.

By working with those at the top of their society, foreigners piggyback in on several advantages: government cooperation, existing clients, the grandfathering of licenses and Western-trained talent. The trick is to know beforehand what hierarchies exist in which countries. Then learn how to get to those desirable entities before your competitors do.

To illustrate this example, a colleague told me he had a friend who owns a local Chinese lunch restaurant yet could accomplish anything in China.

In hierarchical cultures, this simply doesn’t make sense. One would have to seriously question the connections of a man who makes an average sale of $7 for lunch, cooks for a living and has to lock up at night. While this restaurateur was Chinese, it would be impossible for him to be well-connected enough in China to do large-scale, complicated deals.

Don’t make the leap that because someone is from a given country, they can do everything you need in that country. Would you hire a Romanian dentist to act as a Romanian negotiator?

Bill Decker is the managing director of Partners International, which consults with firms on global business and creates partnerships in foreign countries. Reach him at bill(at)partnersinternational.com.

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