The Company In One Country Is Jointly Owned With A Local Firm
Oct 03,2007 00:00 by admin

The Company In One Country Is Jointly Owned With A Local Firm

A variation of the previous issue is the situation where an overseas firm must take on a local partner in order to operate in the country. This is often the case in Asia, for example. The potential problems in projects go beyond project management. In some cases, the local firm gains expertise and sets up a duplicate operation to make even more money by cutting out the foreign partner. In some countries it is difficult for the foreign firm to pursue remedies in the local courts. This indicates that firms should be very cautious when they embark on projects. At the heart of this is what expertise and knowledge is the foreign firm willing to transfer to the local firm?

Impact

If the project is started as a partnership like a joint venture, then there can be many cultural and political problems. The local firm may try to exert the final say on all issues. The foreign firm may seem helpless. The impact can be a failed project or one that just goes on and on. The foreign firm does not want to kill the project; the local firm gets money from the foreign partner. In one case, the obviously failed project went on for 3 years.

Prevention

The foreign firm must define the range of projects it is willing to undertake in terms of risk. Once this is completed, the next step is to define how the projects will be managed. Some specific questions include the following:

  • What will be the role of the local firm?

  • How will decisions be made?

  • Can the project be broken down in phases so that the project can be changed or killed at the end of a phase?

  • How much of the work will be performed locally?

  • How many employees of the foreign firm will be involved in the project?

  • How will the results of the project be managed?

  • How will performance of the local firm be measured and tracked?

  • How will decisions and issues be addressed?

Action

If there is a project underway and problems arise, there are only a limited number of options available. One is to kill the project. This is difficult, if not impossible, to do without loss of face. A second approach that we have employed is to change the direction of the project and scale it back. The project can be divided into local and foreign parts. The project then can be allowed to wilt away. If the project is very important, then an increased foreign presence in the project is warranted.