The International Joint Venture Contract governs the relationship between two companies located in different countries, and which set up a third company, the Joint Venture, with the intention of jointly establishing an activity with its own objectives: research, marketing and distribution, manufacturing, etc. Drafting International Joint Ventures Contracts requires a five-step methodology in order to negotiate them successfully:
Step 1. Joint Venture mentality
The primary goal of Step 1 is to establish a partnership mentality. Both parties must make a conscious effort to create an environment of trust; one in which they are transparent about their high-level aspirations, specific goals and concerns.
Step 2. Co-create a shared vision and objectives
To keep expectations aligned in a complex and changing environment, both parties –nor just the one with greater power – need to explain their vision and goals for the relationship.
Step 3. Adopt guiding principles
Value-eroding friction and shading occur because one or both parties feel unfairly treated. This risk is highest when there are many unknowns about what will occur after the Joint Venture contract is signed. In Step 3, parties commit to six guiding principles that contractually prohibit opportunistic tit-for-tar moves.
The six principles are: reciprocity, autonomy, honesty, loyalty, equity and integrity. They form the basis for all International Joint Venture Contracts using vested methodology and provide a framework for resolving potential misalignments when unforeseen circumstances occur.
Step 4. Align expectations and interests
Having set the foundation for the relationship in the first three steps, parties hammer out the terms of the Joint Venture Contract. It is crucial that all terms and conditions of the formal relationship contract are aligned with the guiding principles. With the right mindset, the development of the Joint Venture Contract becomes a joint problem-solving exercise rather than an adversarial contest.
Step 5. Stay aligned
In this final step, contracting parties go beyond crafting the terms of the agreement and establish governance mechanisms that are formally embedded in the contract.
This process should be part of the drafting of International Joint Ventures Contracts whose objective is to govern highly complex relationships that demand collaboration and demand.
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