What makes joint ventures good for business

Chris Farrell May 17, 2012

Jeremy Hobson: Rupert Murdoch’s News Corporation announced this week it’s joining forces with a Chinese movie distributor to gain more access to China’s growing market for films. Earlier this year, DreamWorks Animation announced it had formed a joint venture with a Chinese movie studio as well. These joint ventures aren’t just limited to China, nor to movie studios.

Marketplace economics correspondent Chris Farrell joins us now to explain. Good morning, Chris.

Chris Farrell: Good morning Jeremy.

Hobson: So is this something that companies are doing more now? They’re getting together with other companies and forming these joint ventures.

Farrell: I got curious about this when I saw GM took a 7 percent stake in Citroen, the European car company owned by Peugeot. And I was going, you know, I’ve seen this a lot. It is growing, and it’s growing for two major reasons. One reason is: the bad economy. Credit is tight; all of us are trying to do more with less. Just like workers are trying to do more with less, so are companies. And a joint venture is one way to do that.

Hobson: So it’s about saving money?

Farrell: That’s one aspect of it. The other aspect is: we live in a global economy. We use that term a lot, but in this global economy, U.S. companies are moving into China, right? You set up a beachhead there. Chinese companies coming here into the U.S. You want a local partner. You want a friend in the neighborhood. You want someone who kind of knows how the system works.

Hobson: Yeah, kind of reminds me of American Airlines recently got into a big partnership with Japan Airlines, which gives them access all over Asia.

Farrell: When you walk into an airport, it’s like partner, partner, partner, partner.

Hobson: Yeah, codeshare.

Farrell: Lots of joint ventures.

Hobson: Do these joint ventures end up working out? Do they last or are they just for the tough economic times?

Farrell: Well, joint ventures have kind of a bad aura. Here’s the thing: If you’re a manager, you own a company, you’re running a company — you want to acquire a company or you want to grow your own company. So the joint venture is a little bit of a compromise. However, I think there’s growing realization that in this global economy, this is the way to go, and there’s a lot more resources devoted to how do you manage them. But in general, after about four to five to six years, a lot of the times, they fizzle.

Hobson: Marketplace economics correspondent Chris Farrell, thanks as always.

Farrell: Thank you.

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