Sunday, April 5, 2020

Joint ventures are the future

Joint Ventures have been lauded as the business model of the future that would assist local businesses to become regionally and globally competitive so as to be able to face the challenges posed by globalization.

Speaking at a workshop on “joint ventures as a way to assist local businesses in becoming regionally and globally competitive” organized by the Botswana Exporters and Manufacturers Association in Francistown, business consultant, Michael Mothobi, of the University of Botswana, said that JVs have battled for popularity in the private sector, and their successes have been too few and far apart as illustrated by the defunct government borehole syndicates.

He said JVs are common in more advanced economies ÔÇô especially among the SMMEs ÔÇö and they have proved to be very successful along the lines of the diversification of the economic base.
However, he said that people go into JVs for different reasons but stated that foreign investors are mostly attracted by the fact that the citizen participant may have already established the relationship and other basic requirements. At the same time, citizen investor on the other hand might be attracted by the new technology and new business practices that the JV partner may bring, among other things.

The objective of the workshop was to help individuals and businesses that are contemplating to initiate JV relations to understand and cope with some of the advantages and disadvantages of the business model.

“The workshop is aimed at assisting Botswana businesses to become regionally and globally competitive, profitable and sustainable by entering into JVs mainly but not solely with outsider participants,” Mothobi said.

A more recent example, he said, is Debswana which is a long standing 50/50 partnership between De Beers and the Botswana government. JVs owe their existence in this country to factor endowment. Mineral exploration, for example, requires vast amounts of capital, technology and expertise which most developing countries do not have. It follows, therefore, that more advanced multinational companies would form JVs with developing governments and thus assume presence in their national economy.

He said the developing countries are presently experiencing resuscitation in their share of world trade due to the increased demand for raw materials and commodities. However, Botswana’s non-traditional export oriented companies have failed to take full advantage of these developments, especially the preferential treatment available under the African Growth Opportunities Act.

Though presenters at the workshop lauded JVs as the business model of the future, they also cautioned that, if not properly planned and implemented, they can be an insurmountable pitfall. Mothobi warned that JVs tend to be laborious if they are between participants of different countries as participants have to deal with issues of travel and communication which arise because of the need for partners to familiarize themselves with the economic environment of the country in which they want to invest. Other factors that also pose challenges in multinational JVs include legal complications where the two partners may be from countries that have different business legislation which may affect their businesses in future.

Mothobi added that establishing JVs can be challenging to participants and their professional advisors as JVs are characterized by interplay of commercial, financial, technical and legal factors that are sometimes difficult to separate. He urged participants to have the benefit of multi disciplinary advice and legal background as well as to research thoroughly before going into JVs. Local businesses were also urged to have a clear business strategy and legal backing and to shy away from rushing into JVs solely for profit motives. They were encouraged to research on their potential partners and be greatly involved in the formulation of the JV business plan. They were also urged to ensure that they are part of the decision making process so that they can always protect their investments and also to formulate exit strategies that they would employ if the JV fails.

Organisations, like BEDIA and BDC, are also looking to strategize their policies towards facilitating a better environment for local businesses to go into JVs. Brian Mosenene of BEDIA said that his organization has established offices in South Africa and London and they are looking to open more international bureaus through which they can assist local businesses looking for partners in foreign countries. “We are ready to help in researching about potential partners and facilitating dialogue and meetings between potential partners,” he said.

He, however, criticised that local businesses do not use such facilities but only come to BEDIA when they have been swindled. He added that his organization has shifted focus to sustainable projects that are geared towards beneficiation of natural resources. Such industries include glass whose requisite resources like silica and limestone are available locally and value addition to leather.

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