Cross border ventures and marriage have much in common
In many respects cross border ventures are like cross border marriages – just more complex! The complexity comes through the much wider array of stakeholders that can influence the outcomes of a cross border venture. Stakeholders can be apparent or discrete and (particularly in western cultures) can change regularly over time.
Successful relationships have similar attributes
All successful business relationships that endure over time require some similar attributes. There has to be a need – the foundation for aligning around a purpose. There has to be an aspiration – the basis for aligning around targets and defining success. There has to be mutual respect – the recognition that all parties bring something of value to the relationship.
However culture is important
However, the unique challenge of cross border ventures is being able to bridge the difference in belief systems that are embedded in the discrete cultures of companies and nation states – cultures established over years, decades and often centuries. It is culture that determines ‘how things get done around here’. Naturally when two different belief systems come together, success will only ensue if there is a willingness for both parties to ‘give a bit’ in order for a new joint belief system to form. However, with so many stakeholders to align around a new way of doing things this is easier said than done.
A case study of ‘walking in each others shoes’
This willingness to ‘give a bit’ was exemplified in a recent venture I led between an Australian headquartered multi-national and one of China’s largest State Owned Enterprises (SOE). There were three key barriers to executing the venture where creative solutions were only generated by a willingness of both parties to ‘walk in each others shoes’.
Firstly, was navigating the difference in philosophical approach between a Chinese SOE and an Australian public corporation – most relevant when considering an approach to business valuation. One aligned approach to valuation was not possible to satisfy the needs of each party’s masters. The solution was to reverse the process – the parties agreed on relative shareholding contribution to the venture upfront and then left each party to match the valuation to the agreed shareholding within their own approval systems.
Secondly, was an issue around management control. The Australian party wished to retain management control for the protection of intellectual property rights while the Chinese party needed to appear to have management control in a foreign venture in a protected industry. The solution lay in the fine print of the shareholder agreement. The Chinese party were able to demonstrate a 51/49% shareholding control but the shareholding agreement reserved critical management rights to the General Manager whose appointment was controlled by the Australian party.
Thirdly, was managing the risk to trade sanctions. The Australian party’s dependence on US money markets for its debt funding made it’s balance sheet very sensitive to the risk of sanctions to any entity of its Chinese partner. The solution lay in legal structuring of the venture where the Chinese counterparty was a minority owned public entity of the Chinese parent thereby extinguishing uncontrollable flow down sanction risk from related entities.
The secret ingredient
Achieving these outcomes didn’t happen in isolation .. or quickly. It needed dialogue and debate and a whole lot of mutual respect for the beliefs, needs and customs of each party. While respect is built over time and reinforced by consistent behaviours, in hindsight, the most impactful activities in building respect was opening my home and my family to share a meal with our business partners. It was a virtually costless activity that bought immeasurable benefits. It is about as intimate as you can get in a business context and is a powerful indicator of respect. The activity of opening your home and sharing a meal is something that transcends all cultural boundaries. Therein lies the secret ingredient to successful cross border ventures.
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