Out-Law / Your Daily Need-To-Know

Joint ventures: cultural considerations key to success

Out-Law Analysis | 22 Jun 2021 | 3:11 pm | 4 min. read

Treating diversity, inclusion and other cultural considerations seriously will help to create a single identity for your joint venture (JV), building loyalty among your people and setting you up for long term success.

By bringing together different corporate cultures, local and international expertise and a diverse mix of people, joint ventures offer significant opportunities to share skills and build innovative partnerships. Understanding and accounting for this diversity will help to foster a sense of belonging among your team and allow everyone to work towards a common goal.

The challenge

Globalisation has resulted in the creation of joint ventures by companies from all over the world. Nowhere is this more important than the Middle East, where regional workforces are often made up of global talent with a wide variety of age ranges and cultural backgrounds. At the same time, government initiatives often specify ‘local content’ requirements, ensuring foreign direct investment drives up local participation and employment.

As the region diversifies from its traditional dependence on oil and gas, transformation programmes such as Saudi Arabia’s Vision 2030 offer huge opportunities for international investment, backed by an explicit local content policy.

Where the workforce is not properly integrated, the JV risks creating a ‘two-tier’ workforce, undermining cohesion and loyalty and potentially creating friction between co-workers and putting employee retention at risk

Attempting to combine two workforces which already contain a diverse mix of employees is likely to create challenges for the JV partners where such issues have not been considered in advance. For example, where the workforce is not properly integrated, employees sourced from one JV partner or another may receive different contractual benefits: holiday allowance, parental leave and even salary. By not addressing this at the outset, the JV risks creating a ‘two-tier’ workforce, undermining cohesion and loyalty and potentially creating friction between co-workers and putting employee retention at risk.

Embedding the right culture

A considered diversity and inclusion strategy runs right through the heart of a successful joint venture. It is relevant from the general workforce right up to management, board level and the senior leadership team with day-to-day responsibility for the running of the JV.

Different JV models will structure leadership teams differently, depending on whether each partner sees its role as a practical one or as more akin to a financial investor. Establish each partners’ expectations up front, define a common purpose and work to ensure a diverse and inclusive leadership team for the JV. This should be diverse in terms of gender, background, culture and skillset, and balanced to reflect the interests of the JV as a whole rather than of the different partners. Particular care should be taken to choose the best leader for the project.

Decisions around issues such as pricing, human resources and workflow should be taken by the senior leadership team in line with the JV’s interests, with dispute resolution mechanisms built in so that conflicts are addressed internally and a united front presented to clients and external stakeholders. Making decisions in a vacuum raises the possibility of discrimination: in a restructuring we worked on recently, a group of engineers selected for potential redundancy by the Middle Eastern JV partner all came from the same geographic region, a risk that the European partner was alive to due to the relative sophistication of European discrimination laws when compared to those in the Middle East.

Consider which systems, practices and standards best fit the needs of the JV, bearing in mind the requirements of local laws. Workplace health and safety laws; environment, social and governance (ESG) considerations; and financial compliance, anti-bribery and anti-money laundering requirements differ across jurisdictions. Whether you adopt the compliance policies of one or other of the partners, or a combination based on industry best practice, this should be settled on as part of deal negotiations to avoid conflict further down the line.

Consider too the similarities and differences between the corporate values and codes of conduct of each JV partner. How are grievances and disputes resolved within each organisation, and how will these be handled by the JV? Again, ensuring formal policies are in place before work gets underway will go some way towards creating a single corporate identity and ensuring a cohesive working environment.

Organisational and people issues

Bringing a diverse team together to deliver effectively on a project is challenging for any business but can be even more challenging for a JV made up of people from different companies, different corporate cultures and different backgrounds. Policy alignment can help to set the tone of the JV and create a shared sense of purpose, regardless of whether workers are employed by the JV or assigned or seconded from one of the JV partners.

Consider, for example, policies around parental leave, which can differ widely between European and Middle Eastern businesses. While the UAE has recently enhanced minimum parental leave entitlements, new mothers are entitled to only 45 calendar days maternity leave, while European companies must provide a minimum of 14 weeks maternity leave and many offer a year or longer. Such drastically different levels of minimum benefit risks creating resentment within the workforce unless addressed by the JV.

The impact of corporate culture and different ways of working should be considered. For example, are there any practices or standards around what people regard as a typical working day? Do employees prefer to work individually or collaboratively, communicate in person or over email, and is agile working permitted or even encouraged? How do employees interact with management and the senior leadership team? Cultural differences may also be relevant to team building and social activities: religious requirements such as prayer breaks and fasting, preferences around different social activities and how alcohol is viewed may be relevant.

For some of these issues, ensuring that there is a common understanding of different approaches may be enough to bridge cultural differences – but, in some cases, it will be necessary to adopt formal policies and practices that account for them.