An brief explanation of what to consider when creating joint ventures to expand exports. This article is part of "A Basic Guide to Exporting", provided by the U.S. Commercial Service, to assist companies in exporting.
Last Published: 10/20/2016
In some cases, joint ventures provide the best manner of obtaining foreign trade income. International joint ventures are used in a wide variety of manufacturing, mining, and service industries, and they frequently involve technology licensing by the U.S. company to the  joint venture. 

Host country laws may require that a certain percentage (often 51 percent or more) of manufacturing or mining operations be owned by nationals of that country, thereby limiting U.S. companies’ local participation to minority shares of joint ventures. Despite such legal requirements, principals in a U.S. company may find it desirable to enter into a joint venture with a foreign company to help spread the high costs and risks frequently associated with foreign operations. The local partner will likely bring to the joint venture its knowledge of the customs and tastes of local consumers, an established distribution network, and valuable business and political contacts.

There are some possible disadvantages to international joint ventures. A major potential drawback, especially in countries that limit foreign companies to minority participation, is the loss of effective managerial control. As a result, you may experience reduced profits, increased operating costs, inferior product quality, exposure to product liability, and environmental litigation and fines. U.S. companies that wish to retain effective managerial control will find this issue important in negotiations with the prospective joint venture partner and the host government.

Because of the complex legal issues frequently raised by international joint-venture agreements, you should seek legal advice from qualified U.S. counsel before entering into such an arrangement.

U.S. companies contemplating international joint ventures should consider retaining experienced counsel in the host country, as well. Since the interests of a prospective partner may not always coincide with your own, relying on a potential partner in a joint venture to negotiate host government approvals and to give advice on legal issues could put you at a disadvantage. Qualified foreign counsel, however, can be very helpful in obtaining government approvals and providing ongoing advice regarding the host country’s intellectual property, tax, labor, corporate, commercial, antitrust, and exchange control laws.
Do you have a strategy to protect your company’s intellectual property (IP)?
  • A foreign company can appropriate your intellectual property in its home country before your company has even marketed in that country—or in the United States.
  • The processes for applying for intellectual property protection differ from country to country. Although effective IP management should be a key element of every business strategy, it is essential for companies doing business internationally.
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Joint Ventures