Setting up a joint venture in Asia

Background

A leading European IT company (X), specializing in innovative, AI-based software development, ERP, cloud solutions and cybersecurity, wanted to expand into the Asian market.
The focus was on Southeast Asia, given the rapid technological advances and growing demand for IT services in the region.

Objectives of the joint venture

1. Market access: understanding local markets, culture, and regulations
2. Cost savings: using local resources and labor to reduce costs
3. Technological innovation: cooperation with local partners to innovate and adapt products to regional requirements
4. Risk sharing: sharing financial and operational risks with a local partner

Partner Selection

X identified Y, an IT company in Singapore, as a potential partner.
After all, Y had a strong local network, deep market knowledge and a good understanding of regional regulations.
In addition, it had significant technical capabilities in software development and abundant resources. Structure of the joint venture

• Ownership: X took a majority interest of 60%, while Y owned 40% of the shares.
• Governance: Both parties appointed members to a joint board of directors.
  X provided the CEO, Y provided the COO.
• Financing: X provided 70% of the initial capital, Y provided the remaining 30%.
• Technology transfer: X shared its advanced technologies, while Y provided local adaptation and support.

Operational strategy

1. Location: The joint venture established its headquarters in Singapore, with operational hubs in India and Vietnam, where labor costs were relatively low and an abundance of IT talent was available.
2. Product offerings: The focus was on developing customized software solutions for the Asian market, such as mobile applications, cloud-based systems, and cybersecurity solutions adapted to local regulations and language requirements.
3. Market Approach: The joint venture focused on sectors such as financial services, healthcare, and government projects, where demand for advanced IT solutions was growing.

Overcoming challenges and risks

1. Cultural differences: Understanding and bridging differences in work culture and business etiquette was crucial.
2. Regulatory: Compliance with local laws and regulations in multiple countries was complex.
3. Competition: The joint venture faced strong competition from both local and international players.
4. Technology Integration: It was a challenge to integrate the technologies and practices of both companies.

Success Factors

1. A strong partnerwho understands the local market and regulations well
2. A flexible strategy to respond quickly to market and regulatory changes
3. A continuous investment in innovation to stay at the forefront of technological developments
4. Customer focus: understanding local customers and developing products and services that meet their specific needs

Results

After three years of activity, the joint venture was growing at an annual average rate of 15%, mainly due to successful projects in the financial and government sectors in Singapore, India, and Vietnam.
The joint venture had built a strong position in the region and was seen as a reliable partner for customized IT solutions.
Thanks to shared risk and cost savings, both partners were able to maximize their returns.