56. Since the objectives sought by international collaboration in commercial fisheries operations as well as the conditions under which negotiations are conducted vary substantially from case to case, it is impossible to lay down hard and fast rules for joint venture agreements. Nevertheless, there is a need to discuss, particularly for the benefit of developing countries which have had little experience in this field so far, points that should be considered in entering and conducting joint venture negotiations to ensure that agreements will be of mutual benefit to the partners and to lessen the danger of conflicts in project implementation. The Department of Fisheries of FAO is currently engaged in preparing a manuscript on criteria and guidelines for fishery joint ventures which aims at presenting a comprehensive exposition of the problems. For the purposes of this note, it will suffice to summarize some of the main considerations.
The choice of a partner
57. The choice of a partner is of crucial importance for the success of a joint venture. The problem of choosing the right partner is probably easier to solve for the partner in the capital-importing country, since many of the potential overseas partners are multinational enterprises with an internationally known history and reputation. Even if the overseas partner is relatively unknown, there are, in the major capital-exporting countries, numerous published business reference sources, not to speak of chambers of commerce, better business bureaus, and the like, which can be consulted to fill gaps in information.
58. In searching out potential partners, it is very useful to examine what other things the potential partner (especially if it is a major corporation) does, beyond the specific area of possible collaboration. By looking at the entire range of the other side's activities, and assessing them against the entire range of one's own business, both sides can obtain a clearer understanding of the other, of their goals and operations. It helps either sharpen the basic mutuality of interests or bring to light potential areas of conflict.
59. A growing number of international joint ventures in fisheries are constituted by more than two partners. The meshing of divergent interests becomes more complicated when several rather than two enterprises only are associated. The problem, however, may be solved by conferring the management responsibility on one of the parties. Distinct advantages can be gained, in individual instances, from a larger number of participants, for the following reasons: through the provision of specialized skills and services (fishery ventures with Japanese enterprises, for instance, often benefit from the participation of both widely experienced fishing companies and trading firms), the spreading of the financial burdens and business risks connected with operating the overseas venture among additional partners, and the strengthening - by the aggregation of larger resources -of the competitive position of the joint venture versus other enterprises.
The negotiation of a basic understanding
60. The parties contemplating a joint venture should try to come to a preliminary understanding. A memorandum of understanding might cover, in general terms, nature, scope, and location of activities to be carried out, duration of the partnership, financing, facilities to be utilized and management. Initially, each partner may envisage a range of activities wider than what is ultimately agreed. The foreign company, for instance, may wait to take advantage of the off-season in the fishery which is the object of the venture, to engage in other fishing or, in a tuna baitboat fishery, may want to use its boats to fish for bait to have control over bait supplies. The host government, on the other hand, may be unwilling to permit a branching out into other fisheries, since this might jeopardize the livelihood of fishermen engaged in these fisheries.
61. Host governments may want to promote joint ventures with a view toward fully integrated operations. For the development of specialized operations, e.g., involving development of a new fishery, they might prefer to engage consultant services rather than form a special partnership. The foreign company, however, may not want to agree on the establishment of local facilities which compete for supplies with facilities it already owns elsewhere or because it feels that local handling and processing would cancel out economic advantages it expects from participation in the venture.
62. The selection of areas and locations for the establishment of facilities and operations is one of the important facets of preliminary survey work. Modern management tends to evaluate the benefits and drawbacks of various sites in broad terms, using manpower, government and finance, livability (amenities for foreign staff, climate, etc.), and communications and facilities considerations as yardsticks. Some international companies have gone as far as to establish a weighted value index for these factors which they use for decision-making.
63. Where nature or government limits the areas in which joint ventures are allowed to operate, the location of facilities may be more or less predetermined. There may be, for instance, only one or two sites suitable for harbour use or construction. The stipulation in the joint venture contract of a concession area may be of benefit to the project as long as it is accompanied by certain privileges related, for instance, to exclusive operations. Where the area limitation impedes mobility, however, it may result in a net disadvantage. In one country where international joint fishery ventures have been tied to concession areas, national companies engaged in similar operations, are reported to enjoy greater freedom of action, since they have the possibility of shifting their fishing seasonally from one part of the country to another.
64. Exclusive or monopoly privileges may relate to other aspects of joint venture operations besides geography, such as rights to engage in specific activities, allocation of materials, fiscal concessions, product marketing, product distribution areas, etc. There is no categorical answer on whether or not these privileges are necessary for successful operations, justified or objectionable on moral grounds. The classical objections to monopoly, that it leads to neglect of cost savings and to abuses of power, raises prices to the public, and prevents entry of potential - more efficient, more cost-conscious - competitors, do not always apply. To induce an enterprise to assume the risks associated with the development of a new fishery, the same protection may have to be offered as for other infant industries. As far as developing countries, in particular, are concerned, there is good ground for supporting the infant industry argument as long as net social benefits are deemed greater than those which could be attained by techno-economically feasible alternative investments. Additional reasons for justifying privileges on the fishing side are connected with the common property character of marine fishery resources. Limitation of entry is today more or less generally acknowledged as one of the essential measures for rational resources management. In the absence of restrictions, vessel productivity may sink to a point where the enterprise cannot break even. This may be the main reason why potential foreign partners for joint venture operations demand protection from excessive competition.
65. There is a difference between placing a ceiling on the total number of ventures authorized and the granting of monopoly status. Clauses on fishing privileges in joint venture agreements, it is suggested, should take into account: (a) the degree of incentive required for a pioneer venture; (b) if sufficient knowledge of stock is available, the potential for economic expansion of the fishing effort, and (c) the time period for which inducements or protection need to be provided. If the duration of the venture is likely to extend from the infant to the maturity stage of the fishery, the contract may stipulate a point of time at which the matter of exclusive privileges is to be reviewed. In general, to forestall potential conflicts, all privileges with respect to operational monopolies, areas, taxes, etc., should be spelled out, and duration as well as conditions under which they become invalid carefully specified. As far as fiscal incentives are concerned, these are usually set down in the host country's investment legislation. Nevertheless, it will be desirable - or necessary, if the conditions applicable to the venture depart in some way from statutory provisions - to detail them in the contract.
66. In many joint ventures, the complementarity of interests between partners, which motivates the original decision to collaborate, is expected to be of temporary rather than permanent nature. With the passage of time, the host country partner is expected to acquire sufficient financial and skill resources to assume full responsibility for the enterprise, while the foreign partner will have achieved his business objective and will be ready to withdraw. As a rule, therefore, the joint venture contract stipulates the number of years for which the partners agree to engage and do business, sometimes adding a proviso that the contract, subject to host government approval, may be continued by mutual agreement of the partners. Often, a gradual withdrawal of the foreign partner is envisaged, with agreed dates for the transfer of parts of the equity, physical assets and management control until complete naturalization of the enterprise is achieved.
67. Setting an appropriate term for the contract is not always an easy matter, since the partners most probably have different time spans in mind in appraising requirements for satisfying their objectives. The local partner may tend to be optimistic with respect to the time it will take him to be able to stand on his own feet. Local pressure for a term that appears too short for accomplishing what the joint venture has set out to attain may make the foreign partner want to limit his commitment, insofar as it may discourage him from helping in the establishment of permanent shore facilities, or -in the extreme case - make him decide to discontinue negotiations. Setting a period that may be excessively long, on the other hand, also has its drawbacks, unless provisions for periodic review of the terms of the contract are incorporated. Without such provisions, the incentive to achieve the goals within the established terms of the business plan might be lessened.
68. Difficulties may be avoided if the other provisions of the contract (relating to capitalization, material inputs, manpower, etc.) are specific on the time periods within, which naturalization (transfer of ownership or responsibilities) is to take place. Sometimes, the term of the joint venture agreement is more or less predetermined by the duration of privileges or concessions accorded to the venture by the government, since continuation of the business without them may be unprofitable. Difficulties in reaching agreement on the nature of operations to be carried out, on financing, management, etc., are at times so insurmountable that negotiations have to be cut off before a memorandum of understanding is signed.
Drafting the terms of the contract
69. Where a basic understanding has been reached, the document is usually subject to approval by higher authority (top management of the foreign company and the government of the host country)before a detailed contract for the joint venture is drawn up. Success in matching the interests of the partners in the writing of the contract depends very much on the thoroughness of preparatory work. Often, however, the extent to which the contract meets the individual partner's aims is a reflection of relative bargaining power. Bargaining is a natural feature of any business transaction involving the transfer of goods and services (know-how and skills, fishing concessions, etc.) for which no fixed prices are established. What both sides must not forget in the bargaining process is that there are limits beyond which demands for concessions become unreasonable, when the other party will be inclined - or even forced - to break off negotiations. The art of business negotiating really is not much more than a guessing game concerning these limits. Beyond that, what is required for bargaining is flexibility, a willingness to modify one's position when terms appear clearly unacceptable to the other party, and good legal assistance to eliminate possibilities of ambiguous interpretation once agreement has been reached.
70. Some experts believe that the very best legal advice is the cheapest. According to another view, attempts to draw up fully comprehensive legal agreements between partners in different countries can lead to endless delays and frustrations. In the end, mutual trust and willingness to take some risks are needed, and no amount of legal activity will alter this.
71. The two statements are not necessarily contradictory. The degree to which reliance can be placed on mutual trust depends on success in the choice of a partner. In some instances, the field of candidates (fulfilling qualifications with respect to capital, know-how or other support they can provide) from whom to choose may be quite limited. On the other hand, the number of experienced international law firms available for negotiating a joint venture may not be large or the cost of employing them may be out of proportion to the marginal benefits that might be gained from concluding a somewhat more favourable contract. As a general rule, the importance of clear and precise phraseology and the precision of time elements as well as of spelling out, in unambiguous terms, all special conditions, exceptions relevant for the interpretation of the contract clauses, cannot be enough emphasized. Although not always unavoidable, certain phrases, e.g. as soon as practicable, will depend on results, at the market price (as long as no explanation is given on how this price is to be determined), etc., are likely to be interpreted differently by the partners and constitute, in some ways, built-in germs of conflict.
Contract clauses on material inputs
72. Joint fisheries ventures have experienced problems, or have failed in some instances, because the contracts did not define in sufficiently precise terms the type of equipment to be employed in the conduct of operations, the time schedule for its creation, provisions for the procurement of spare parts, etc. In some instances, contracts have failed to spell out arrangements for ensuring that equipment acquired by the joint venture corresponds to what has been stipulated.
73. Local partners and host governments often insist on playing a role in drawing up specifications for the physical inputs of the joint venture, as foreign partners sometimes have been blamed for providing equipment of the wrong type or of unsatisfactory quality. Where local staff with the requisite skills for the technical and financial appraisal of needs is available, this participation would seem not only appropriate but desirable; where not, the economic health of the venture may be in jeopardy from the start if a local partner's unrealistic ideas on serviceability and costs were to prevail. Lack of expertise can be made up by reliance on consultant services, which might be procured, among other means, by requesting technical assistance by international agencies. While such agencies might not be in a position to arbitrate in cases where the suitability of equipment is under dispute, they should be able, at least, to provide expert counsel.
74. Complaints by local interests with regard to facilities and machinery provided by overseas partners quite frequently relate to age or suitability for employment in the local setting (including the possibility of it being properly operated and maintained by local staff). Sometimes the motivation of foreign partners in providing secondhand equipment - or, in other cases, providing overly expensive or unnecessarily advanced or difficult-to-operate equipment - is questioned, and they are suspected of wanting to profit at the expense of local partners. There is no standard answer to the question whether, for instance, secondhand or modern fishing vessels or fish-processing equipment should be employed, since a feasibility study is required to decide what is better suited to achieve the economic and social objectives of the venture. If the products are to be competitive in the export market, and if, in the processes to be employed, opportunities for substitution of labour for material inputs are limited, circumstances may dictate the use of technically up-to-date facilities and methods. Secondhand equipment, on the other hand, often can be made available much more speedily and is likely to be much less costly. Under some circumstances, furthermore, acquisition of new equipment might be precluded by the impossibility of obtaining a foreign exchange allocation or by onerous customs duties.
75. Under normal circumstances, if the value of the assets to be contributed to the joint venture is realistically determined, and if the foreign company is sure that it can maintain a significant equity interest and stable returns from its investment over a longer period of time, there should be no problem about the equipment. There is a need to agree on provisions ensuring that the assets contributed to the joint venture are valued in accordance with commonly accepted accounting standards. It also seems desirable to have the foreign partner acquire more than a token part of joint venture shares entitled to dividends to make sure he has a genuine interest in increasing profits.
76. Procedures for establishing the value of assets, have to take into account the fashion in which they are being created. Where facilities are being constructed, the valuation procedure should include indications on how adherence to technical specifications and costs are to be checked. For already created assets that are to be transferred to the venture, the services of professional inspection and appraisal companies might be engaged. Special care has to be taken in capitalizing contributions of intangible assets, such as goodwill, because of substantial pre-emptive claims on future profits that can be established this way by the partner contributing such assets. Where assets are placed at the disposition of the joint venture on a loan basis or where, for example, fishing vessels are chartered for a given period, excessive charges against income might arise, through inflation of the loan value represented by the assets, stipulation of interest rates that are higher than those that would normally be applicable on loans of this type, and the charging of charter fees above prevailing levels. Unless commonly acknowledged standards for fixing the value of the assets or charges exist (e.g. published information on equipment prices, charter fees, etc.), advice may have to be obtained from experts or, alternatively, the partners may want to agree on the selection of a professional appraisal service.
77. Attention must also be paid to the time factor in drafting the equipment clauses of the agreement. Many contracts foresee a phased installation of facilities, with the original fishing vessel input, for example, to be increased by specified numbers of additional vessels after a certain number of years until the fleet reaches the size agreed in the investment plan. Achievement of specified results by a given point of time or fulfilment of certain conditions may be prerequisites for the completion of the investment plan, e.g., where the contract stipulates that construction of shore facilities is predicated on the results of a fishing survey that extends for an agreed time period. If the initial fishing operations are carried out with chartered vessels, the contract may indicate a time schedule for replacing them with vessels to be contributed by the foreign partner or with vessels bought with the earnings of the venture. Time schedules may be agreed also for the withdrawal of motherships and their substitution with shore facilities.
78. Specific indications of time are desirable with respect to commencement of operations or utilization of the facilities and equipment of the joint venture and the dates of transfer of ownership if a venture is to be gradually naturalized. Some contracts provide for penalties if facilities to be contributed by one of the partners are not put into operation in accordance with the agreed time schedule, in an attempt to forestall delays in delivery detrimental to the achievement of business objectives. Additional contract clauses may detail conditions applying to the expansion of facilities created on formation of the joint venture. While some agreements may say no more on that score than that the venture is entitled to expand its physical plant to a certain size, other agreements may actually obligate the foreign partner to increase, for instance, his fishing fleet investment if and when the catch per vessel reaches a certain level. This is to prevent a venture with exclusive fishing rights from not taking full advantage of opportunities to exploit an, as yet, underfished resource.
79. Some agreements place restrictions on the source of supply of assets to be originally contributed to, or in the course of operations to be acquired by, the joint venture. Host countries often have serious misgivings about contracts which obligate the venture to acquire physical inputs from one exclusive source, usually one owned or controlled by the foreign partner. If the transfer prices are high in relation to generally prevailing prices, and if the supplier's stake in joint venture profits is comparatively small, they tend to suspect the foreign company of being interested mainly in selling equipment rather than in collaborating in development activities. In a similar fashion, foreign companies may object to clauses obligating the venture to rely on local sources of supply, e.g., local shipbuilders, if there is substantial danger that the venture might not be able to absorb the additional burdens of high cost local operations and unreliable delivery.
80. Sometimes equipment provisions of joint venture contracts include restrictive clauses on utilization. Host governments, for instance, may want to make sure that certain objectives of development policy will not be neglected, by having the partners agree that a part of the fleet that is to be operated will be engaged exclusively in fishing for the home market or that a part of the landings be sold domestically. In some instances, they may make the approval of export operations, with prospects of high profits, conditional on acceptance of this clause.
81. For joint ventures that are heavily dependent on foreign-supplied equipment, provisions for the supply of spare parts and foreign assistance in maintenance are essential. Contract clauses should be as specific on this point as for the equipment itself, detailing type, quality, size of inventory, nature and location of storage parts as well as staff availability for maintenance operations.
82. Whenever one of the partners has a financial interest in material considered as important items of running costs (e.g. fuel, freight, ice), the contract should prescribe a procedure for determining quantitative needs and prices, to make sure the supplier cannot bilk the joint venture through overstocking it or through charging excessively high prices.
83. Another subject that should be covered is the role of government in ownership, procurement, control, fiscal operations, etc. If the government has a direct or indirect (through provision of loan funds) interest in the assets, it may want to take part in the choice of equipment or, as a minimum, in the verification of its technical suitability for the operations contemplated.
84. Where new facilities are being constructed for the the government may reserve its rights to insist on changes in specifications and to carry out inspections during the building period, and may want to make the granting of credits and other facilities for the venture conditional on certification by inspectors that the standards have been met.
85. The government can be expected to have a role in insurance and guarantee schemes affecting assets owned by - or Bade available through credit to - the joint venture. The agreement should identify the assets protected in this manner and describe the character, magnitude, amounts insured or guaranteed, duration, cost (insurance premiums) and collateral or surety arrangements associated with the extension of such facilities. Wherever applicable, the contract should be explicit also on special facilities offered by the government in respect to importation of equipment and materials required by the venture, indicating their character, quantities to which applicable, concessionary tariffs or exemptions, and duration of privileges. Details should be provided also in the contract, where government controls exist, on allocations of foreign exchange or of scarce materials to the joint venture.
Contract provisions relating to manpower
86. Joint venture contract provisions on manpower have to detail agreed plans for recruitment, utilization, training and, in due time, naturalization of the work force. These plans will be influenced by provisions in investment codes relating to the staff of joint ventures and by labour legislation as well as, in general, institutional factors such as trade union policies in the host countries.
87. Estimates of manpower to be recruited or assigned from the existing work force of the partners should be as specific as possible in regard to occupational and skill levels and numbers required. Time schedules for recruitment should take into account the desirability of avoiding operational bottlenecks due to non-availability of staff and, on the other hand, possible idleness because preparations for the launching of some operations have not been completed. In addition, they should pay regard to the availability of essential amenities for the staff, especially housing facilities and transportation to the work place, and to educational, recreational, and shopping facilities. Where such facilities are to be specifically created for the joint venture, the contract should provide the relevant detail.
88. Foreign and local partners may hold divergent views on manpower recruitment, especially where one or the other might stand to gain from assigning from his work force a larger number of staff or staff of higher rank or salary levels. A partner will not engage in a dumping operation and will not burden operations with excessive labour costs if he has confidence in deriving profits from the venture over the long term. Sometimes the pressures to hire staff (especially at high levels of responsibility or salary), whose employment cannot be justified on operational grounds, originate with the host government. While the partners may, for political reasons, find it impossible to resist such pressures, host governments must realize that the extra burdens they are imposing on the venture will run counter to any efforts of theirs to promote viable joint venture arrangements. Political influence on staffing, and government intervention in labour-management relations in general, are often cited among the major obstacles to expansion of joint venture operations in developing countries.
89. Statutory provisions may stipulate that local employees must constitute a specified minimum percentage of the work force or that the employment of expatriates - sometimes classified by occupational and skill level - must be limited to certain percentages, that local staff must, for equal work, receive equal pay, and that the entire work force must be naturalized within given periods of time, etc. While such limitations are generally justified, among other reasons, on grounds of a need to increase jobs for local staff or to reduce the drain on foreign exchange paid to expatriates, to avoid antagonism between co - workers as a result of unequal treatment, to accelerate transfer to local control, etc., they may lead to a loss of flexibility in operations serious enough to deter some foreign companies from entering into joint venture agreements. Such statutory provisions may disregard technical requirements, while equal pay provisions may make it difficult, if not impossible, to induce qualified expatriate staff to accept employment if local scales are to be adopted. Again, if foreign scales are to prevail, it may make the entire venture uneconomic or create an elite of local employees who are too highly compensated in relation to others performing similar work in other local enterprises.
90. Provisions reflecting either government or labour organization policies, which may be unpalatable, in some cases, to foreign partners, are restrictions on hours of work and on the dismissal of staff. Countries which have had no experience in fishing operations on an industrial scale should recognize that the peculiar nature of these operations precludes the adoption of fixed daily working hours such as followed in land-based enterprises. Curbs on - or extremely cumbersome administrative procedures connected with - the dismissal of workers also will involve sacrifices of efficiency which a joint venture cannot afford to make.
91. Quite often, friction between local and expatriate employees arises from other causes such as differences in food habits, standards of cleanliness, attitudes toward work, and different aspirations for economic improvement. These are likely to become major problems, particularly where people of various nationalities and of radically different backgrounds must work in constant close contact as, for example, on a fishing boat. Such conflicts cannot be warded off by contractual provisions. Yet, the planners of joint ventures would be unwise if they failed to consider ways and means of preventing clashes, possibly by instituting internal arrangements on board ship or in plants, by staggering shore leaves for foreign crews, and by sponsorship of activities that will encourage people of different backgrounds to get to know each other and create a team spirit.
92. Qualms about the suitability or efficiency of local labour may induce expatriate management to press for the institution of capital-intensive techniques. The latter in turn may be so complicated that opportunities for naturalization of the work force become more remote than they were originally.
93. Many multinational companies welcome a local organization that can provide staff with a knowledge of local custom and business practices. Staff redundancy problems, among others, can be dealt with more easily, they feel, than in the case of expatriate staff that may have to be reabsorbed in the parent company after repatriation. Where advisable, and where acceptable to both partners, the expert knowledge the expatriate staff is to contribute can be made available by other means. Some joint fishery ventures, for instance, with French interests, include separate technical agreements, under which overseas crew members are assigned to the ventures. In these cases, special arrangements may have to be made to continue the crews' social security protection, especially for French nationals, because of the particular character of the French system. In general, social security provisions and other conditions applying to recruitment, wages, working conditions, separation, etc. of labour, are of such importance for the running of joint ventures, and often are so complicated, that they merit detailing in a subsidiary agreement or agreements where it is necessary to differentiate between conditions applying to local and to expatriate staff or between different categories of employees.
94. Subsidiary agreements covering the employment of expatriate staff should detail, where applicable, the privileges and immunities granted under the host country legislation, home leave entitlements, transfer of funds and personal possessions between home and duty station, arrangements for housing, medical services, schooling facilities, etc., in order to provide a complete picture of working conditions, for the benefit of the staff, and, at the same time, to indicate the limits of financial and other responsibilities of the employer.
95. The subject of training has an essential place in any discussion of manpower problems. For developing countries seeking to expand their fishery industries, training opportunities for local staff are a major objective. To accomplish their purpose, the contract provisions on training should be specific on the types of training to be carried out in the joint venture operations and on the additional training facilities available locally, the number of employees (by category and skill level) to be trained, length and content of training courses, allocation of the cost of training, and responsibilities to be assumed by employees who have successfully completed their training courses. Many host governments will be prepared to lend support to training programmes by making government facilities available on a cost-free basis, by providing subsistence for trainees, and in other ways.
96. The joint venture's aim is to provide the best and most practical training at the lowest cost. On-the-job training on board ship or in processing plants is usually less expensive and produces faster results than any other form, especially for staff at levels of skill not requiring much academic instruction. Foreign companies, however, often complain that the training of unskilled cadres on the job has an adverse effect on the efficiency of, and consequently economic returns from, commercial operations. Even where they have agreed to provide on-the-job training, they often find ways and means of evading their obligations. Since the cost of providing special facilities, such as training vessels, is generally too high to be considered in a commercial venture, the partners should agree on some form of on-the-job training. The developing country will do well, in this connection, to insist on specifying in the contract the arrangements for keeping a check on the fulfilment of the obligations.
Decisions on management control
97. Both host countries and multinational companies tend to overemphasize the importance of ownership in relation to management control. A minority partner has many opportunities for frustrating the policies pursued by the majority partner if intent on so doing. If at all possible, it is better to have both partners participating in management. While the type of joint venture involved, the availability of management talents, and the size of individual capital commitments largely determine whether or not this is feasible, the sharing of management responsibilities, and the becoming acquainted with each other's problems that this entails, enhances the likelihood of the overall common interest being served more adequately.
98. To have local executives who are owners and not just professional managers is often a definite advantage. Involved means that the local part owner looks at all aspects of the business as an entrepreneur, not merely as a functional speciality.
99. The international company in turn must make sure that responsibility for joint ventures does not fall between chairs, and that they receive the kind of management support companies give their wholly owned subsidiaries.
100. Multinational companies with experience in joint fishery ventures feel strongly about the need to obtain effective local management support. Some believe that a local partner should accept management responsibilities in proportion to his equity ratio, and complain about lack of a feeling of such responsibility by local partners who tend to insist on a majority shareholding, but should leave such responsibilities as locating sources of finance, sales promotion, and other entrepreneurial and management functions, to the overseas partner.
101. Wherever a partner can claim superiority of experience or is providing equipment and technology unfamiliar to his colleagues, he will want to retain, at least for an initial period, essential management controls. This can be done by spelling out in the contract specific responsibilities assigned to him as, for example, for design and construction facilities (vessel and plant), technical management of (fishing and processing) operations, and selection of key personnel.
102. Some degree of management control may be retained, even after a majority has been converted into a minority interest, by amending the bylaws of the joint venture to give the minority holder certain rights, e.g., the right to name the managing director. Other techniques applied to help the minority holder keep an influence on management decisions, include a stipulation on the bylaws themselves, viz that they cannot be changed without a unanimous vote of the board of directors; and the issuance of two kinds of stock, both with equal dividend entitlements but one being non-voting, or issuance of stock with multiple voting rights for the minority holder, while the majority holder receives shares with single voting rights (and, possibly, preferential dividend rights). The problem of loss of managerial control may not even arise, of course, where the majority ownership is dispersed among a large number of shareholders who have little influence at the board level.
103. While there is a broad consensus that maximum advantage should be taken of a local partner's special knowledge of the local environment, opinions seem to be divided on the wisdom of fixing boundaries in all managerial decision-making. Some companies feel that the local partner should be charged with the responsibility for obtaining the fishing licence and all other necessary negotiations with the government and should also handle the hiring of local employees, all matters pertaining to their wages, status, etc., so as to avoid any occurrence of racial problems. Clearly, the local partner is best qualified to assume responsibility in these fields, although close political connections, which may be useful at the time of the negotiation of the agreement, may have drawbacks in the long run, especially in countries with a marked degree of political instability. In other instances, arrangements where the local partner looked after all problems involving local contracts, local labour, and local purchases of fishery requisites while the foreign manager looked after all operating and technical problems (e.g. the hiring of skippers, fitting-cut of vessels, product packaging, and shipping and sales operations) have not proved satisfactory, sometimes, because the local partner had no influence on sales operations.
Provisions relating to business operations
104. The contract should, as far as possible, outline particulars on how the joint venture intends to achieve its operational objectives and be specific also on relations with the host government, the foreign company, and non-affiliated private interests. Details of operational plans should be based on feasibility study information. Where such information is not yet available - as, for instance, with surveys for what are to be vertically integrated operations which have been limited so far only to the fishing sector - the contract might stipulate that plans for processing and distribution are to be incorporated at a later stage, upon completion of the necessary feasibility work. In similar fashion, expansion of operations in any one sector might be made contingent on a satisfactory assessment of results by stipulated control dates.
105. In some instances, certain phases of operations, e.g. purchasing, marketing, certain payments to government, are covered in detail in special agreements or are otherwise fixed, and projections do not present any difficulties as long as a good base for estimating catch volume exists. Catch, of course, is always the most difficult variable to take into account, especially if the venture does not have exclusive exploitation rights in a given zone and for a given period.
106. Sometimes governments find it necessary, for resources protection, to impose ceilings on the annual total catch the joint venture is permitted to take. The number of fishing vessels allowed, too, may be fixed, based on assuming their average catching capacity. Controls of this sort should be reviewed periodically so as to ensure that ceilings do not constitute, if too low, unwarranted limitations on profit-making opportunities or, if too high, do not provide adequate safeguards for the resource.
107. In a contractual venture, the relations between the partners are usually more complicated than in an equity venture. As a consequence, specific responsibilities assumed by each partner have to be spelled out in great detail and substantial additional record-keeping may be involved to determine the share in benefits and in cost burdens of each partner.
108. The equity joint venture contract also must contain clauses to ensure that transactions between the joint venture and the parent company of the foreign partner are strictly commercial. Transactions to be shunned are sales of services that may not be essential or excessive charges for them. In this class is the chartering of vessels on continued basis, although substitution by local vessels (with commensurate benefits to the host country economy outweighing eventual sacrifices in efficiency at the enterprise level) has become possible or the charging of charter fees which are significantly above world market levels. Other types of transaction are those where facilities owned by the joint venture are made available to the foreign company without - or without adequate - compensation. These situations, such as where ice, fuel, provisions, etc. are taken on locally by vessels belonging to the foreign company's home fleet, must be distinguished from those in which the joint venture or host country secures specific services (e.g. reports on fish prospecting by the foreign fleet) or, in general, benefits from the business the home fleet gives it (e.g. expenditures of the crews in the local ports).
109. Prices charged to the foreign company on sales of products produced by the joint venture also need watching for unduly high discounts, although allowances should be made for transport, handling, and marketing services rendered by the foreign company as well as for volume business. Contractual commitments by the foreign company to purchase the entire production should be examined in the light of market conditions likely to prevail over the period covered by the agreement. Having an assured outlet for total output may not be preferable to having a choice of markets, especially in a period of rising demand and prices.
110. Once an equity joint venture has acquired its separate identity as a business enterprise, its transactions with the host government should be characterized by the same arm's length relationship that should apply to its relations with the parent company of the foreign partner, as long as the joint venture is in direct local competition with other enterprises. (A company with exclusive rights, on the other hand, is from its very beginning in a privileged position and may have additional benefits conferred upon it as far as its transactions with government are concerned, that is, as long as such preferment is considered in the economic and social interest of the country). Just as, upon formation of the joint venture, the foreign partner is expected to compensate the host government, through his contribution of capital, skills and know-how, for privileges granted, the joint venture should normally be expected to pay at established prices for purchases from government stores and for special government services provided. Similarly, sales of products to the government should be made at prevailing market prices, with due regard to government services utilized in this connection and to volume transactions, as in the case of sales to the parent company of the foreign partner.
111. One of the most important services government can - but, alas, does not always -render to promote the smooth conduct of business of joint ventures, viz. efficient administrative procedures, is provided without charge. In some developing countries, agreements concluded with central government authorities have at times failed to fulfil the promoters' expectations because of inadequate or complicated and time-consuming liaison and communications with local authorities which have immediate supervisory responsibilities where the operations are located. Reduction of red tape and improved coordination of action between government agencies is probably of greater importance for a fishery joint venture than for other business enterprises, since such a business is likely to be of concern to a larger number of administrative units.
112. Contract provisions covering relations with other enterprises than the parent companies of the partners and the government relate, for the most part, to suppliers and customers and actual or potential competitors. Such contracts, thus, may specify whether or not, and if yes, under what conditions: (a) the venture is permitted to buy fish from non-affiliated vessels,(b) partners' parent companies and the local government have priority rights with respect to others in the acquisition of joint venture products, (c) fixed assets of the venture can be disposed of to others than the partners of the government, etc. Excessive or too tight restrictions may place management in a virtual straitjacket in decision-making and seriously cramp profit-making opportunities. Yet, frequently some types of limitations can be defended on sound business or political grounds. A policy of buying from non-affiliated vessels (and, conversely, neglect of affiliated vessels), to take advantage of price fluctuations, for instance, may alienate the crews of the latter because of the effect on earnings under the share system and cause serious labour difficulties. Many foreign companies consider the prospect of increasing their fish supplies as the primary incentive for entering a joint venture, and depriving them of a preferential status as buyers might lead to a loss of interest in the venture (this does not mean that parent companies should be permitted to pay less than prevailing market prices). Similarly, in the disposal of assets, as in that of equity, promoters of the joint venture may legitimately claim rights of first refusal, i.e., to be given the opportunity to buy or not before offers are made to other parties.
113. Host governments tend to intervene in the relations between the joint venture and third parties either to protect the rights of competitors or of small-scale fisheries for which they feel a social responsibility. They try to protect the business of established local interests from interference by the operations of the joint venture and, where the venture has exclusive privileges limited in time, to protect fishery resources which at a future time may be exploited by nationals of the country. A government, for these purposes, may insist on the insertion of a clause in the contract obligating the venture to respect the rights and privileges of local fishermen and pledging it not to compete within the zone where the local fishermen exercise their profession, except if the national authorities find that limited participation of the joint venture is unlikely to harm the local fishery.
114. In other instances, the joint venture may be persuaded by government insistence -or may actually spontaneously come to recognize the propaganda value of such action - to offer direct assistance to local fisheries by, for instance, supplementing its catches by purchase from local canoes or buying bait from the fishermen. Where government restricts bait fishing to local fishermen, the venture may actually find it in its own interest to give material and technical assistance to the bait fishery. In one such instance, a venture is providing nets and other equipment and is training volunteer fishermen to engage in bait fishing.