Developing International Joint Ventures

I'm Kisam Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals. Today I'm here with Rich Shastma, VP of Corporate Development, Global Mergers and Acquisitions at General Motors. Rich is an accomplished and internationally seasoned senior corporate development executive with over 15 years of experience offering execution, valuation strategy and restructuring expertise for driving multi billion dollar growth transactions to C level executives and board of directors of industry leading manufacturers to meet their strategic objectives. Today we're going to talk about how to source, create and manage international joint ventures. How you do today Rich?

Good. How are you?

Keystone hey, I'm doing great. Maybe we can just kick off if you wouldn't mind sharing just a little bit about your background.

Sure. So I'm an international executive with General Motors and I've basically been overseas now for six years conducting business on behalf of General Motors. I've been working in the M and a space for 10 years. So I was doing few years in North America before I moved to international operations. Prior to that I have mostly a finance background. I worked in various functions in purchasing, manufacturing, sales and marketing, all in finance roles to kind of get a overall understanding of the business. And prior to working with General Motors I also have experience with Delphi Automotive, one of the largest suppliers and then also with Ford Motor Company of Canada. I'm actually Canadian and have always lived in Canada prior to international experience and just crossed the border working in Detroit at General Motors headquarters. I started there back in 2005.

So what do you do at General Motors now?

Now I'm the President of Corporate Development Global Mergers and Acquisitions for General Motors China. And that's really long term. But what it really means is I manage all of the deal activities specific for our GM China business which is our second largest market globally and manage the relationships with the joint ventures that we have established in and also look for any new type of collaborative opportunities with companies in or outside of the automotive space. Really just looking to either fill technology gaps that we have or look for new business opportunities for our China business.

Rich, can you walk me through your personal transition going from a US worker to going overseas?

Sure. So I mean it's a huge adjustment really and it's really individual from both sides, you know, commercial and business perspective, but also from a family perspective as a whole. Really kind of life changing type moment. Back in 2014 we were offered the opportunity to move to the GM International office which was then based in Singapore for a three year assignment and there was, you know, a lot of internal wrangling over whether this was the right thing to do as a family. I have a wife who was working as an engineer and then two children who were then in grade six and seven. And so really it's, you pick yourself up, move across the world and to a new role at the time. So while you're learning about culture and moving to an unfamiliar location for the first time, you're also learning about new business and how to conduct business in different parts of the world. So, you know, it's a real pivotal moment and quite an adjustment to life itself, I would say. It was probably six months before all of us really got adjusted to the new way of life and I started to get confidence in my new role and understand what I was doing. So it's really a huge change to your life to do something like that.

Yeah, I mean, I get homesick after being about a month out of the country.

Yeah, certainly. And we've tried to keep ties back with home and family in Canada by getting back a couple times a year. But we also use it as an opportunity, living in parts of the world to travel to different countries, which has been the, probably the most beneficial thing to see so many different places. While we're in Asia.

What were the biggest cultural challenges you've had?

So I think, you know, there's, there's many initially landing in Singapore, you know, they drive on the other side of the road. So basic, you know, learning how to learn. The transport system is huge. I mean, it was fairly easy moving to Singapore because they speak English there and it's pretty westernized in terms of an Asian country. So I would say the adjustment to China has been, you know, much bigger moving there where they don't speak English, at least the vast majority of people don't. You know, the food is different, the entire culture and the experience of living there is very different. So trying to find happiness in that day today and build a new social circle so that outside of work you have things to do and building a network within the work, those are all the real, the biggest challenges I think that you have to overcome. But you know, if you look at them as though they're exciting challenges and you're open to new opportunities, then it's really a gift, I think in the end to be able to have those experiences.

I like that. Viewing them as exciting challenges.

Yeah, you really have to have the mindset because inevitably there's going to be something you don't like. And there's going to be major changes, you know, just to how your life is conducted on a daily basis. Living in a different country, following their rules, you know, it's an overall, you know, pretty significant change. But again, if you're, if you're open to the positives of it, you, you learn about their culture and get experience of different foods and see people living their lives differently, you know, that's a very rewarding part of it. And I think, you know, to me, one of the greatest gifts of having done this for a few years now.

Hey, great. And I think we're going to explore some of those similar differences when doing deals as well.

Absolutely.

Hey Rich, maybe you want to kick off with. Just tell me about your favorite global transaction that you've worked on.

Yeah, so the one that's my favorite, it's for a few reasons. First of all, it was a big international ideal did while still living in North America. And it was kind of the one that catapulted me to other opportunities. So there was a proving track that we, General Motors owned in the UK called the Millbrook Proving Ground. And basically it had become surplus within our company. We weren't fully leveraging it. We have a number of test tracks around the globe. And so this place wasn't at full capacity, but it had a full test track on it. It had engineering capabilities. It also did conversions to ballistic protected vehicles. So armoring of vehicles. And so we weren't really fully leveraging this asset. And the thought was, you know, rather than winding this down, this probably presents a positive business opportunity for somebody else that can take over the track, basically, you know, still license it back to us for selected use or at least provide services to us. But then being an independent company from General Motors, it could also look for other opportunities to work with other automakers or companies outside of the automotive space. So it was a real, it wound up being a real win win where we had a positive deal from an M and a perspective and didn't have wind down cost. It was a great solution for the employees because they actually still had a career and continued work. And it was a good deal for the private MA firm that was buying it from us because they were able to grow the business significantly and then turn around a few years later and repackage it and sell it. And so to me, it was a really good experience to have a deal where it was a win win for all the parties involved. And then personally, because it was a successful deal in a big international deal under my belt, it helped open up the opportunity to go to Singapore. Ultimately, I was offered that role as a result of the success on this deal.

Wow. So good basis for the transaction won out in everybody's favor and led to more opportunities for you.

Absolutely.

So one of the biggest challenges I would expect Rich from doing international transactions is just dealing with the national government. And I'm just curious to hear about your experience with that and even how it varies between countries.

Yeah, absolutely. And anytime you're doing a transaction in a different that involves different countries, you have to be very conscious of the environment that you're working on and what type of approvals are going to take place and how long those can potentially take place. So I mean, one of the first objectives I take on when I'm doing a new deal is really what's the timeline associated with it. And obviously our senior leaders in the company want us to move as quickly as we can in an efficient manner. And quite often depending on the locale, you know, the government approvals that are required, and they're generally extensive and required in most deals that it can really have an impact on the transaction overall. So, and I would say, you know, it differs very much country to country. You know, doing transactions in a country like India, you really need to factor in a lot of time in order to go through government approvals. And you need to be prepared to be challenged as part of that process. And so it can be very burdensome as part of the deal. And you know, something that you want to make sure you've planned very well for and sometimes utilize local firms that can help with that, that have the government relationships, you know. So I use India as an example because it's one of the most bureaucratic and difficult countries to deal with conducting M and A. But you know, every country has a role. China, where I do most of my business these days, the government is, as you're all aware, is very influential and you don't take big decisions forward unless you have their buy in. And it's also important to understand what level of government is appropriate depending on the transaction. So many of the deals we do that are larger, you know, we want to make sure we have the support of the national government in China because otherwise you can waste the resources of both parties. If you go through a transaction, you get it near the end and then you don't get the appropriate government approvals. And actually there was a case like that within our company on a deal that I wasn't involved in. But a few years ago GM had tried to sell the Hummer brand to a company in China and we had the approval of provincial level type governments but it wasn't supported by the national government and ultimately the deal was basically killed as a result not having those proper government approvals in place. So that was a lesson for us and we're very careful now to make sure that we utilize the right channels to communicate effectively with government and then seek outside help if we do need that.

You've done deals with India, China, Singapore. I think you mentioned some other countries too.

Yes, Africa, a few on the continent of Africa, in England, France, Australia, South America and Brazil as well. So a number of different international transactions.

Japan, that's pretty diverse. Now a big step of that you mentioned is getting early support from that national government. Would that hold fairly true with all those different countries that you worked in?

Depending on the nature of the transaction and really the level of involvement also varies very much on the nature of the transaction. So in the automotive space, if we're doing a deal that's going to impact jobs, then clearly we want to, you know, have conversations with the national government and try and give them as much notice if we can. The simpler the transaction from a commercial perspective it is, the less you really need to, you know, think about that. So if you're doing a straight up licensing deal, you may have to work with the anti competitive body in the nation to make sure that they're going to approve this overall and generally it's pretty straightforward as long as you've followed all of the laws in place and give sufficient notice and period and allocate time for them to make a decision. So it really depends on the country they're in and the nature of the transaction. And there's been times where there hasn't been any approvals required and there have been others where that's one of the key milestones is to ensure that we get government approval.

Is there any country that's easier than the US to do deals in?

That's a difficult question to answer. I would say from my perspective Western countries are easier just because we tend to have similar systems and understand those systems and have established bodies there. So you know, from that perspective it makes it easier having a home country advantage getting things done. But I would say, you know, it really depends on the actual country you're talking about and the ease and difficulty of doing business. I find it pretty good to do conduct business in most countries that I, that I've been to. There's probably a ranking of a few companies that are more difficult than others. I wouldn't want to really, you know, convey which ones that I think they might just be personal experiences. But in general, I found it a pretty efficient process in most countries conducting business.

What I found is a big challenge is working on partnerships with other countries, businesses in other countries and the level of detail they get into. And it's almost like they come up with a million what if scenarios if this disaster happens. And you need to include all those things when negotiating terms. And I'm kind of curious what you see and maybe some of those aspects culturally when doing business with different companies in different countries.

Certainly I would say it does depend on country, but it also can be company related culture as well. So companies will have their own culture within their location. But there's certainly some places that are, you know, tend to go through more details, you know, China being one of those and Japan as well. And I think part of the their rationale behind their approach is wanting to also have a good relationship with the partner, you know, to build up towards something. So I find with American companies it's much easier to get together and you know, figure out what the teams want, communicate and get work towards a deal more quickly. Whereas if you're dealing with some of the Asian countries, they're more likely to want to slow walk things. You know, as much as they're looking through the details, they're assessing the partner and understanding is there going to be mutual level of trust that can allow us to work together. So they're evaluating the partner as well as the deal and you know, taking their time to do that. So I think there's some positives to that approach, but it can slow things down for sure.

Right. So fundamentals are essentially similar.

Yeah, I mean you take valuation methodologies, those can be applied around the globe and negotiating strategies. While there's cultural elements to it, you know, certainly there's, you can replicate what you've used in one country versus the other. You just need to understand some of the different local cultural approaches.

How do you approach dealmaking?

Well, I'd like to really focus on having a good relationship with whoever we're working with and really trying to establish trust early on. Because, you know, I have a belief that the best deals are when both parties are mutually working to achieve each other's objectives and work together to bridge gaps between each other. You know, try and be flexible where you can to help the other achieve their objective. Look for less important things to trade off. Really understand who you're dealing with. Because depending on the length of the deal. And some deals are one time and some deals are long term where you're dealing with a partner, you're going to be much more concerned about how do I feel about the partner? How can I trust them? How well do we work together? Do they trust us? You know, you want to make sure that you really understand who you're dealing with when you get into those longer term type of relationships. I also really try and be adaptive to the situation because some companies or some cultures just want to negotiate the best deal and aren't really as collaborative in that. So then you need to be a little more guarded in the level of information you share. Those aren't my favorite types of deals, but I can certainly do that if required. And so you have to be willing to change tactics. But my preferred approach is always the maximum benefit for both parties. I believe that makes the best deals.

It does. It makes sense to really think in clarity what you're actually giving to the relationship, not just what you're taking out.

Yeah, absolutely. And those type of relationships often lead to new business opportunities with the same partner. So when you're comfortable with somebody and you work well together, it can lead to even more opportunities when you have a successful one to build on a.

Good marriage, lead to more babies. It's a bad analogy. What's your advice for getting the best outcome possible out of a transaction?

Sure. So I think you need to lay out your strategy in advance. You know, very clearly. You want to learn as much about your counterpart before you get to the negotiating table. You know, trying to understand how they've interacted with other partners. You really want to understand you're negotiating bandwidth up front so that you're not regularly going back to leadership if you have to deviate from, you know, the original construct. So you want to understand what you're able to have flexibility negotiating with so that you can progress the deal forward. You want to work with your organization to push them to be flexible in areas that don't cost a lot to be flexible in order to help achieve the deal. And again, in the collaborative manner, you want to work as hard to solve your adversary's problems as hard as you work on your own. And if you do that collaboratively and you're both doing that, you'll reach the right conclusion earlier on. But again, you always need to be adaptive and ready to react to whatever the style of the partner you're working with is bringing.

I like how you emphasize knowing the areas that you can be flexible on. I think that's important to think about that ahead of times because you sort of can weigh your trade offs and know what those costs are and then also taking that perspective from the counterparty and what their challenges are going to be for the deal.

Absolutely. And if you haven't thought that out earlier, you, you end up reacting. And often it's when you react that you make the wrong decision. So it's better to be prepared to say in every negotiation, I know there's going to be something that I'm going to have to give up that I don't want to. So I need to understand what of those, what I would, you know, most likely be willing to give up. And that way you're, you're prepared for it and your leadership team is prepared for it. There aren't surprises. I mean, of course there are always going to be some surprises. That's also the beauty of conducting transact. You can't predict anything and there are always going to be problems to solve that you didn't foresee. But that's part of what makes the work exciting for me.

Right. And now taking that more of a proactive position, are you then painting different scenarios out like pretty early and saying, hey, here's a few different scenarios of terms and maybe that helps you generate those ideas in the areas you'd be flexible on or what is your approach to that?

It really depends on the specifics of the transaction and the size of it. But we, you know, there are certainly ones where we really lay out all of the different options and you know, evaluate the positives and negatives to each of them and try and determine what we think is our best strategy. But you also have to understand what the strategy of other stakeholders is going to be. So in certain instances we'll do, we'll utilize gain theory and have a full workshop with different functions and try and lay out the different scenarios, how it might play out, how our competitors might react, how our partners might react. So that's generally what we'll do with larger deals. So actually one of the reasons I'm in Detroit this week is to conduct one of those game theory workshops to play out multiple scenarios, how they might play out, and who all the stakeholders are to try and come up with the best strategy up front.

Wow, that's pretty cool. So you're actually taking a game theory approach to be able to simulate how these deals would pan out.

Yeah, exactly. Because it really using the structure of one of these workshops, it forces you to think about all of the stakeholders, how they might React how they would be impacted otherwise. There could be a tendency just to, to say, here's the objective, let's go get the deal done. But then you find out later that it's not as effective because you didn't think how other parties were going to react. So when we do this, we literally have to think about all of the stakeholders that are going to be impacted by the deal and what their objectives are and how they might behave. And that really helps us to formulate our own strategy.

Now, are you taking the same approach when you do joint ventures?

So we might, you know, we might hold a game theory workshop if we're considering setting up a joint venture, just, you know, again, to help us lay out various scenarios. But we typically reserve joint ventures for very specific types of scenarios. So for instance, our business in China, how GM sells cars, is structured through joint ventures. And that's because of the nature of the government rules that were set up years ago to say if foreign automakers want to sell vehicles in China, then you need to partner with a local company and set up a joint venture and then sell your vehicles so that those joint ventures were set up out of necessity and they continue today and they're very successful and allow us to sell vehicles. But we also, you know, when we're looking at new commercial opportunities, we explore all the different ways to handle the transaction. And if you're looking at a scenario where there's going to be a relationship long term and both parties are contributing something to the relationship, and it's pretty balanced and equal, you know, those would lend themselves often to being, to setting up a joint venture, but you want to be very careful in doing that because it's long term. And, you know, the risks or the cost of getting out of a joint venture can be very high. So you want to make sure before you go into it that you really thought out and it is the right way to set up the commercial arrangement. It's much less complex to do a licensing deal that has an expiration date or, you know, another collaboration based on contracts versus setting up an entire organization. But there's certainly times where it makes sense to do that. And we have multiple joint ventures around the globe.

Okay, so that makes sense to clarify a little bit in terms there's joint ventures, there's licensing deals you could approach, and then also just even some general contractual type of partnership. Does that sound like the different categories?

Yeah, that's. I mean, those are the bulk of the deals that we do in automotive. I mean, occasionally we have acquisitions. So you know, most people will be familiar of the cruise acquisition that GM made a few years ago for an autonomous driving unit. So we may look at technologies that we need on the outside and startups or other companies that have that capability, sometimes we'll want that in house and we'll acquire them. I've also worked on divestitures. In a business where you're competing in multiple markets, occasionally they're going to be markets that you're not successful in and you need to find a home for those assets. So there's been a number of divestitures and we really try and find companies that are going to utilize those plants to find jobs for the individuals working there or you know, the best value overall to everybody. So we do all kinds of different transactions. But you know, the bulk of my work in China at least is dedicated to licensing deals, licensing our technology to the China companies, co development arrangements where we're both jointly paying for the development of vehicles. So you know, those are the bulk of my deals in based in China, but I've done many types of transactions in the past.

Gotcha. And then to clarify a difference between a partnership and joint venture, a joint venture, you're creating a dedicated entity that you're both contributing to which would run independently. Does that sound right?

Yes. Yeah. So you're essentially creating a new company and you know, set up an ownership structure. So depending on and that can change based on who's bringing, what's the relationship. But you know, generally the starting point is a 50:50 joint venture where each partner has equal say. They generally divide up the organization then and determine what decision making rules are going to be set up by which party. And then you need to have the agreements that basically dictate how the joint venture is going to operate. Set up a board of directors that has oversight with equal voting rights. Generally if it's a 5050 setup and you want to allocate decision making responsibility to the JB itself, and then a certain level, above a certain level, you'll allocate that decision making to the board of directors. And you want to define dispute resolution up front. And you know, it's really critical how you set up that joint venture to make sure that it has the best chance of success. And so if you, if you don't have a structure in place that allows it to make decisions quickly and move well, then the business isn't going to be healthy. So you know, a lot of thought goes into establishing a JV to ensure the best chance of success.

What specifically drives the Direction for a joint venture over partnership.

I would say business needs, you know, what, what the business need. Again, the example, the China JV's requirement by law to set that up. Some other joint ventures we have around the globe. There's instances where multiple parties are contributing a lot and it's going to be a long term business that's in place. So our business that's in Egypt, for instance, is a joint venture. We have part with a partnership with Isuzu, which is a Japanese commercial vehicle company and they contribute product to that, we contribute product to that. And then there's, you know, another partner, a local partner that helps us with the distribution in the market. So in a scenario where you say I want to conduct business here for a while, I'm dependent on other partners for certain elements of it. To the extent that our interests are all aligned and we're motivated to work in the same direction, that gives the business the most chance of success. And so once you have a joint venture, everybody shares equally in the profitability, so they're equally incentivized to make sure the business is successful. So that's where you would want to a JV in place.

Okay. So I sometimes surround regulations, a long term commitment and multiple partners that are contributing to the business model. What qualities do you look for in a joint venture partner?

Well, you certainly want a company that has an established history of partnership with others and commit appropriate resources to the success of any type of partnership. So you'll want to establish partners that will be easy to work with. So partners that are transparent, that have experiences with others, that have good reputations overall in the industry and in the country. So those are some of the things we look for for initially and we'll spend a lot of time before we decide that we want to work with somebody.

Is there anything specific you could tell what's going to be good versus a bad fit?

Yeah. So if right away when you're starting to discuss things around the partnership and they're starting to negotiate before you get further than establishing the relationship, that's kind of a warning sign. If you find a company that's had a history of litigation associated with their partnerships, you know, that's a pretty good red flag. So you really. And it depends on the type of deal that you're looking at. Obviously if you're looking at a longer term partnership, then who the partner is is going to be extremely important. If you're doing a one time deal and you're not going to see them again, you still want to work with a good partner, but it's going to be less important. But it's pretty easy to tell earlier or fairly early on if it's going to be a good fit or a bad fit.

What's the process of approvals when it comes to doing these joint ventures?

The governance within General Motors, our approval process dictates that pretty much any new joint venture will need to get approved all the way up through our CEO Mary Barra. So we will have a senior leadership team that we keep abreast, that we get basically approval for the negotiating envelope early on in the process. And then we keep them aware of the progress of the transaction as we go throughout and raise issues that we need help on. But when you're setting up these type of relationships, it goes to the very senior leaders of the company for approval.

Is this similar to your MA activity?

Yeah, it's less frequent that we're actually setting up joint ventures, more often that we're managing the business and existing joint ventures. But all of the deals that we go through commercially, our delegation of authority basically applies a value to the deal and if it goes over a certain threshold, then it needs to go to the most senior leaders of the company. So some of the deals we do are multi billion dollar deals. So obviously those are going to the CEO and then if they require significant investments from the company, then those go through the very senior leaders. So I spend a lot of time with the head of General Motors China walking through the different transactions. And he'll basically keep the senior leadership team updated on the progress of those transactions. And then once they're in a completion phase, we'll go through a final approval where all of the different functions get an opportunity to review the entire agreement before we actually sign. So it's a pretty thorough process.

Where are the executives biggest concerns?

So really we to want business opportunities that we've identified multiple risks and tried to mitigate all of those risks. And you know, that we really understand the nature of the deal and are cutting the best deal that we possibly can. So there's a lot of focus on what are the financials around each deal. You know, what are the. How have you mitigated if the deal goes wrong? You know, are we able to separate it from it? Can we mitigate things that, you know, spending overall if things go wrong? What are the parameters we put in place to ensure the success of it? It's really a lot of strategic work and financial assessment and trying to ensure that we've anticipated all of the risks.

Got it. So identify those risks and even think through how you may mitigate some of those risks as they come up and make sure you got good terms.

Absolutely. I mean, I really try and push myself to identify the risks so that the questions don't get raised by someone El But I mean the leadership teams are strong so they tend to still find elements that haven't where the question hasn't been asked. But you really try and anticipate as many of those as you can. Really mitigate all of the risks that might come about.

What happens when conflicts arise in your joint ventures?

Yeah, so that's, I mean a big part of my role is really managing the day to day conflicts and we have within the business in China functionality experts that work with their partners within the joint venture and so they'll manage, you know, 90% of their day to day issues. And then when things pop up related to contracts, then they'll escalate those issues to me and I'll work with my partner within the joint venture to try and really understand what, what's causing the conflict, you know, what are the different ways to solve it, who's responsible for it. I mean, we really try and be an impartial and understand what's really happened and then find a solution. And that's a lot of role. And then obviously there are ones that I'm unable to solve at my level and then we need to escalate those issues to senior leaders. But obviously if I'm doing that too frequently, it means I'm not doing my job. So really try and take upon myself to solve the bulk of issues and only reserve real roadblocks for the most senior leaders in the company.

What type of issues would be examples of things that cause a complex conflict.

In our space. A lot of it is around interpretations of the contract and you know, what rights go along with intellectual property, licensing. So I mean a lot of what we do is license technology that's developed in the US and then license it to the partners in China. But inevitably you need to make some changes to it because the market requirements can be very different in China versus US or other markets. So there could be be disagreements on how that is approached, who's responsible for the work, what the ultimate solution is. There's disagreements and then quite often it'll get escalated to me to understand, well, what is the contractual obligation of each party and how do we resolve it from that perspective, we generally try not to rely on the contracts, we try and rely on the relationships and manage the, the problems collectively. But occasionally we still have to go back and say what was in the contract and what was the obligation of each party and are we honoring the language in there? So it really can vary the type of issues that we have to deal with.

Gotcha. So usually it's around some contractual terms and interpretation of them around that, or.

Maybe commercial terms about whether one party's been too much or too little. I mean, those inevitably come up as well. And so we, you know, try and collectively resolve multiple issues, but in a partnership manner rather than relying on contracts.

Can you walk me through setting up governance for a joint venture?

Sure. So I would say there's, you know, there's two big elements to it. One is how do you set up the organization itself and who has the decision making responsibility within the joint venture. So that's kind of the structural piece of it. When you're building the organization, you identified the key positions and whether it should be used using one of our employees working the joint venture or the partners. Or you might have oversight positions where we each have a representative there. But how you structure that organization itself really, you know, dictates how it's going to run on a day to day basis. And then layering over top of that, you'll put in the board of directors that have the oversight of the larger decisions. And those are basically, they meet a couple times a year and only deal with the more expensive negotiations that are underway or projects that are underway and resolving some of the bigger issues that we haven't been able to resolve. So that's kind of from an organizational perspective, how you set up the governance. And the other big piece is how you write it into the contracts. So you really want to establish what the rights are and make sure those are documented in both parties. You know, how the voting is conducted, what the decision making ability is of the employees in the joint venture and how much, you know, how much value they can make a decision for versus where it has to go to the board. So those, you know, there's a contractual piece in the organization structure itself and both of those need to be strong to ensure the success of the jv.

That makes a lot of sense. So really like starting a company in general, you want to make sure you have a balanced management team, but in regards to joint venture, you have different parties involved and making sure that the balance is there in terms of how they're involved with the governance.

Right. I mean, it's depending on what is the business, the joint venture going to be. You know, for us, in the instance that it's Going to engineer, manufacture and sell cars. Well, you need experts in all of the different functions that are going to support that business happening. And you'll want to set it up so that you're leveraging the strengths of both companies to do that. So again, using the China example, you want many local people in China that have input in that process because they understand the China customer the best. You'll want many US business engineers or you know, American engineers in the US that are translating the technology that we've developed in US to make sure that it effective. It's effective when it's put on the ground in China. So there's different roles that it makes more sense to have one or the other party take the lead on. And so that's part of designing is to say how do we set up this joint venture so it can be the most successful business possible? Well, that means you need the right people in the right spots with the decision making power in order to run the business on a day to day basis.

What's one thing that could go wrong if you didn't know better?

Putting the wrong person in the wrong position. So it takes a special type of person to be able to work within a joint venture with colleagues who might have competing interests and be able to play nice. So if you have somebody who's not very collaborative, not willing to be flexible and adaptive, that can often cause a lot of problem with the business not being able to run properly because there won't be trust between the partners. And as soon as you lose trust, you're in deep trouble. So you have to be very careful from an HR perspective to have the right people there.

Ironically, it's the same main problem in MA integration.

Absolutely. There are themes in deal making and then consistent across running the business.

Is there anything that you've seen as early indicators that'll make you aware of that as a potential issue?

Yes, certainly I can see it individually, even with my own company. Sometimes just identify this person is not going to be very effective in partnering, just dealing with them internally in the company. Sometimes you see that stuff early on, but generally I've found most people that do this kind of work, it's what they want to do and they bring the right dynamics to it. So I wouldn't say it's a common problem, but when you see it, you definitely see it and it can get in the way of doing business.

So if you sense it, you should be proactive about it and not let it continue to avalanche into a bigger problem.

Absolutely. Identify early and address those type of problems early because they will become bigger problems if you don't address them early on.

What's the international joint venture process look like and how would that differ from just doing something domestic?

For the most part, it's going to be pretty similar, except that you're less likely to be as familiar with the partner. Although, I mean, we tend to replicate partnerships once we've worked with an international partner. You know, try and find other ways to collaborate. But you know, the biggest differences really are do you understand the culture and what that brings where you're dealing? Do you understand the legal environment and the regulatory environment? Do you understand the local customers in that market? You know, all of those are the factors that really change it versus in the US where you don't have to be as adaptive. So it makes it definitely more complex. And then if you add in languages there and this really slows down deal making, I think that's one of the biggest difference doing international deals, things generally take longer. Sometimes you need to negotiate in a different language. So you have translators in the room that are translating live. So every statement needs to be repeated in a language and a lot gets lost in translation as well. So it really is a tiring process. It can wear you out a lot. When you're trying to negotiate in a different language, there's so much potential to think you're disagreeing even if you're agreeing or the flip side of it, think you have agreement, but you actually don't because of translation. So that adds a huge amount of complexity in doing international deals.

So sounds like a lot of communication overhead. And I would assume that this may add to the timeline of getting these deals done.

Absolutely. The international deals definitely take longer on average just because it adds those additional complexities there.

Now there's obvious communication challenges, but do you see cultural challenges or barriers that really make things difficult to getting the deal done?

Yeah, I do see those. And it manifests itself in different ways. So a few examples of that is you can bring in American and we deal with cross functional teams right. When we're setting up these deals. So we're always relying on expertise in the US from different functions. And if you're bringing in somebody to the deal that isn't used to dealing with other cultures or other companies, you know, quite honestly, they'll sometimes take unreasonable positions or their approach isn't very friendly. And so, you know, I try and before we bring those people into the deal, have internal meetings where we guide them to say, okay, it's a little bit Different. When you're conducting business with the Japanese company, for instance, the relationship becomes very important and you'll notice that you don't make much progress initially, but that's because they're very cautious. And over time, once you've built up trust with them, things will move much more quickly. But you have to get to that point. Those are the type of things that if you can plan for it and educate the people before you start, if you already have an understanding, then things can go more smoothly. But sometimes you have very little experience or I will have very little experience with the culture I'm dealing with and you try and research it and learn as you go. But again, for me, that's part of the excitement of doing international deals.

Well, I'm not too keen to steep learning curves. Could you tell me a little bit more about working with those third party people to help facilitate the transaction and like, who are they and I guess what's their approach?

Sure. So a lot of times we'll rely on international or local, I mean MA firms when we're doing international deals. Again, depending on the location and how familiar we are, if we're doing a new type of transaction and we're not exactly sure how the regulatory bodies behave, you know, we'll work with an M and a firm there that does deals in that locale and that really helps us to only have to worry about the business and not spend a lot of time or missing things by not understanding how to get things done. So I've found in transactions in a lot of places, you can do a lot as a company, but you have to be careful to not be afraid to spend the money. If you have an outside partner, that's really going to help you to protect your interest, to help anticipate issues that you don't see. Often they have connections with the right administration to tell us what the rules are and the paperwork we need to fill out and the deadlines and things like that. And trying to do that on our own, it would take much longer and we could waste a lot of money to do that. So when you have local experts that know how to do that type of stuff, that's the right time to do that. So we have a mix of using outside services or not, depending on the transaction. But we definitely do use it in the right scenario.

How do you go about finding somebody if you did want to use an outside advisor?

So we'll leverage any contacts we have in the country where we've conducted business and look for recommendations. We'll sometimes Leverage our global relationships with bigger accounting firms or otherwise if they have local offices, sometimes we'll work with them, but sometimes it's really just, you know, using contacts to find out. A company that could be just a very local company, but is really understands things and has a lot of experience doing deals. So, you know, you'll want to find those. But it's generally either it's through contacts that we already have that we locate some of the firms to utilize.

Makes sense. Okay, so, so hypothetical, semi, hypothetical. I have a technology and I'm talking to a company based out of Europe that has an adjacent technology, but maybe it doesn't make sense to license the technology for them. It seems like if we put the technologies together under a new product, new brand, that would be ideal. So our conversation is going towards a joint venture. What would be your top points of consideration when approaching that conversation with this company that we're looking to do a joint venture with?

Yes. So I mean, I would really want to understand the context of the business objectives that are trying to be achieved. So, you know, what's the time length we're talking about? Is this, you know, for the foreseeable future we're going to be working together and both contributing, you know, something to the joint venture. Is a longer scenario than 10 years. If it's unlikely that you'll want it that long, then you shouldn't use a joint venture. You should probably use another licensing arrangement. Is the joint venture going to maximize the value? Will there be enough decision making power within joint venture itself that it can conduct business and really compete as an independent company? Because really that's one of the biggest concerns when you own a joint venture is how much oversight you have into the day to day business. You know, leaders tend to want to have a lot of insight, but if you don't give enough decision making power to the JV that it takes way too long to make any decisions and then it's, you know, the entity isn't going to be able to compete. So I really want to understand the context of what are the business objectives you're trying to achieve? What does each partner want out of the relationship? How easy would it be to unwind the JV if it's unsuccessful? Those are all things that you should be asking early, before you embarked on setting up a joint venture.

If it does go down that path and things don't look successful, how do companies unwind those relationships?

Well, depending on how they set it up initially, it can go many different ways. In the most success, successful Wind downs of a joint venture, you would have thought about that initially when you're setting up the contracts to say, hey, there's a potential this thing doesn't work out or one of us might not be interested that in the future, how do we dissolve this joint venture? You can write that right into the contract. And it could be, you know, something as simple as, you know, the other party needs to give six months notice that they would like to exit the joint venture. And if they do that, the, the other party has the rights to either buy them out or agree to wind down the joint venture. You know, so if you think about up front and define how it might wind down and put that into the agreement, it makes it much simpler. If you haven't done that, it can get very muddy and you know, it can also lead to a poisoned relationship between the partners, which is what you should really try and avoid. So, so the best way to do it is try and wind it down in an orderly manner. But looking out for the interests of both partners, that's ideal. But generally when things have gone wrong in a joint venture, it isn't always harmonious. Quite often it's the relationship that causes that. So winding it down can be a very messy and lengthy process and costly.

So make sure you have a prenup.

Exactly.

Rich, tell me, what's the craziest thing you've seen in M. And.

Well, there's a few interesting ones, I guess, flown into Saudi Arabia to meet a prince in the Middle east to explore different opportunities, to collaborate. And quite honestly, I was with some more senior leaders for that trip. And as we were going into the meeting, one of them turned to me and said, okay, you be a flower pot in this meeting. And I think said, flower pot, what is that? And he said, just sit there, look pretty and don't say anything. So I found that rather, rather humorous. I've also had instances where, you know, you're doing a celebration dinner for a joint venture and especially if you're dealing with an Asian company and as part of their celebrations, alcohol is always involved and, you know, seen executive that drinks a little too much and stands up and sings in front of the entire group. So I've had some pretty entertaining moments. I've been with deals in deals where I've had armed guards with me and I have to understand where exit points are and, you know, get that type of training. Fortunately, in that deal, nothing negative happened. In fact, it was handled very positively. But it was a bit, little bit rattling to know, be in a foreign country in that situation. So I've had many different, very interesting experiences but overall really positive experience. I've learned so much about different cultures around the globe and you know, really come to appreciate ideas and different ways of doing things that by working with international businessmen and I find everybody at the end of the day is really trying to do the right thing. So it's been an overwhelming positive experience for me.

Rich, I really enjoyed hearing about your experience and appreciate taking the time to share lessons with us.

No problem. Yeah, really interesting to talk about my day to day job sometimes and get asked those type of questions. So I'm excited to be here.

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