Joint Ventures 2024

Global Overview

In times of turmoil, joint ventures become increasingly relevant and it is safe to say that the geopolitical and economic landscape looks uncertain in 2024 and continues to look so beyond. The World Economic Forum’s Global Cooperation Barometer 2024, in partnership with McKinsey & Company, speaks to recent challenges, saying: “Heightened competition and conflict appear to be replacing co-operation. The result is that new power dynamics, changing demographic realities and breakthrough frontier technologies are raising the temperature on long-simmering distrust rather than fuelling opportunities for benefit.” These words offer a stark warning, but – as always with business – there remains room for optimism. The wider downward trend identified by the report, particularly around peace and security, is bucked by trade.

Business has weathered the collective storms of warfare, the associated global sanctions regime, the pandemic, supply chain disruptions, interest rates, and increasing political tensions leading to strikes and civil unrest. All of this is set against an increasing focus on environmental concerns and the wider ESG regime. While global risks to businesses continue to multiply, joint venture activity flourishes as businesses seek to collaborate, share knowledge, experience and – importantly – share risk.

Why joint venture activity remains resilient

Joint ventures present significant advantages – arguably chief among them being flexibility. A well-regulated joint venture is robustly established and contains strong provisions around governance. It seeks to identify value drivers and leverage them. It should deal with risk, funding, the ownership of assets, and – when the time comes (having regard to the often temporary nature of a joint venture) – should be capable of efficient dissolution.

Robust joint venture activity can also be attributed in part to increasing globalisation. Businesses are continuing to expand into rapidly growing, emerging markets. Often, these markets have unfamiliar regulatory regimes and other barriers to entry may exist. In certain jurisdictions, governments may require the establishment of a local office or a partnership with a local firm is a prerequisite to carry out business in the region.

As well as providing for these challenges, joint ventures allow participants to carry out business far more quickly than by organic growth. This is due to parties sharing risk, knowledge, capital, promoting innovation through collaboration, and allowing access to the resource pools of the other.

Joint ventures versus traditional M&A

It is arguable that a joint venture is a more resilient model and entails less risk than traditional M&A. The Boston Consulting Group undertook a survey in 2023 where businesses were asked to compare M&A (in its traditionally understood sense – ie, a straight sale and purchase) with a joint venture. More than half of the respondents believed that a joint venture was more relevant to them than their M&A strategy and that the current geopolitical landscape actually favours joint ventures over traditional M&A. Almost two-thirds felt that joint ventures are a more resilient vehicle for handling economic downturns than the traditional method of acquisition.

These results are not surprising. A well-established joint venture provides insulation to the joint venture participants and an ability to conduct business in markets and jurisdictions unfamiliar to the parties. Businesses can leverage the local knowledge, networks and insights of their partners. Should things not turn out as expected, an exit from the market – and possibly from the joint venture itself – is quicker, cleaner and generally far less costly than a subsequent disposal or liquidation.

The Boston survey clearly shows where the minds of executives are with regard to expansion strategy in 2024 and beyond. In particular, those in metal and mining, automotive and mobility, consumer goods, TMT, and aerospace and defence were optimistic. These are sectors that have themselves been subject to significant shifts during the past few years, driven largely by factors such as advances in technology, climate change, and the transition to renewables and geopolitical tension. In short, they need to innovate and evolve, and a joint venture provides the tools and flexibility to do so.

The purpose of this guide is to help the reader identify and navigate the practical considerations around the establishment of a joint venture. We extend our thanks to Chambers and Partners for establishing this invaluable repository of legal guides written by some of the profession’s foremost practitioners, and are grateful to have participated in the 2024 edition.