Joint Ventures

Paving the road to international markets

By Jenny Tesar

Go overseas! Be international! It seems like you get this advice every time you open a business magazine or attend an industry seminar. Indeed, some North American show organizers have been heeding the advice for decades, producing successful events from Hamburg to Hong Kong. Many others have joined the bandwagon in recent years. Still others are wondering if they, too, should jump aboard.

But it's one thing to say, "Yeah, this is for me," and quite another to actually carry it out -- particularly if your major international experience was a two-week vacation on Corfu.

If you're thinking about producing an event on foreign soil, you have three basic choices. At one end of the spectrum is creating a new show on your own, just as you do when you create a show here at home. For example, if you have a successful pizza show here, you might decide to start a similar show in Buenos Aires.

At the other end of the spectrum is the pavilion concept, in which you rent space in an already-existing foreign event. For example, you might rent space in a Buenos Aires pizza show, then break up the space into booths which you sell to members of your pizza suppliers' association. (We'll take an in-depth look at this option in the next issue of EXPO.)

Somewhere between these two choices is a third choice: forming a joint-venture partnership with another show organizer to create a new pizza show in Buenos Aires.

Before deciding which option makes the most sense, you have to answer all the same questions that you ask yourself when considering any new event. What are your objectives? What do you want to get out of it? Do you want to create a local or an international event? Who will be your exhibitors? Your attendees?

Next, you have to analyze your strengths and weaknesses in the context of the new -- for you -- marketplace. Honestly evaluate your resources. Recognize that you're going to another country. Do you know the language, the customs, the local journalists and trade associations? Are you familiar with the venues, the support systems in place there, the contractors, the procedures for direct mail and telemarketing, the patterns of distribution in the industry?

A union of strengths
The dictionary defines a venture as a risk, or gamble -- "a venturesome act." Not a bad definition for a new exposition! In a joint venture, you share this risk with a partner. Of course, you share the profits, too.

Your joint-venture partner may be located across town or across the world. The two of you may do a show in your country, the partner's country, or in a third country.

The ideal partner is one whose strengths compensate for your weaknesses. For example, Expocon Management Associates and E. J. Krause & Associates, both U.S. firms, have formed a joint venture to produce an automated data-capture show called Identimex in Mexico City. Edward "Ned" Krause points out that Expocon runs a major show in the U.S. for this industry, called I D Expo. "They know the industry extremely well, but haven't done any shows in Mexico. We don't have any expertise in the industry, but we have a subsidiary in Mexico, run by local personnel with operational and marketing expertise in that market."

Another Krause joint venture in Mexico is with Hannover Fair International, an arm of Germany's Hannover Fair Authority. This past March they held a metalworking show in Monterrey. "Hannover, which every four years hosts EMO, the world's largest machine tool show, did the marketing and sales in Europe, and brought major European participation to the show," says Krause. "We marketed the event in the U.S. and Canada, and our Mexican subsidiary handled marketing within Mexico, as well as operations."

Exposition practices in some countries differ greatly from those in the U.S. and Canada. "Many overseas venues own the expositions held within their property," points out Robert Birkfield, President of the Prescott Group. "Here we have very aggressive venues that want our shows. But if you want to hold the definitive show in a country like Germany, you had better be prepared to negotiate space with a building that owns virtually all of the shows held there. You should recognize that they are likely to treat you a little differently if they have an equity position in your operation than if you want an American-style transaction.

"Also," he asks, "what about the future? In America, it's common for a major convention facility to work on a handshake agreement, with which they will give you continuity of dates for three, five, 10 years into the future. In a number of places overseas there have been cases where people rather naively went into a facility, started a successful show, then found out that the verbal assurances they had received about the availability of future dates weren't lived up to. Their only alternative was to bring in a joint-venture partner who was able to get them future dates. And just coincidentally, that partner happened to be a division of the owner of the facility."

Identifying a partner
Finding a capable partner is your first important step toward forming a joint venture. Many resources are available for locating and helping you evaluate potential partners. Birkfeld notes that government departments and agencies can be very helpful. In the U.S., the Department of Commerce and its Foreign and Commercial Service are excellent starting points. Talk to Agriculture if you're looking for a partner for a food show, the FAA if you're planning an aerospace event, and so on.

"You have to extend your networking to an international scale," says Birkfeld. "Trade associations are critically important. In most industries, there are comparable trade associations all over the world. Assuming you have an existing domestic event, utilize your exhibitors -- many of them are probably active in the international marketplace. Network with your attendees, too -- particularly those from overseas."

Birkfeld's list also includes Chambers of Commerce, international accounting firms and law firms, the trade press and your bank -- which may have correspondent banks abroad.

You want to know a potential partner's strong points, shortcomings, track record, reputation and political clout. "The last thing you want, particularly if you're planning a major international event in a developing market that doesn't yet have a strong exhibition industry, is to have a partner with limited experience," says Krause.

When you begin to hold discussions with potential partners, you want to learn their expectations. What do they want out of a joint venture? Short-term profits? Long-term profits? Just another show on their list? Are their needs compatible with yours?

Identifying the right partner takes time and money. But Birkfeld stresses, "Every dollar you spend now will save you $5 to $10 later."

Structuring the deal
When you're ready to put together a deal for an overseas show, you'll need a lot more legal assistance than you would for a domestic one. "Good professional advice is critical," says Birkfeld. "The contract should be reviewed very carefully by an attorney with international skills. The attorney should understand law in your country and in the area in which you're going to be doing business. And you need to simultaneously look at the venture from an accounting perspective. The way in which you structure an arrangement has tax consequences, both domestically and in the other country."

Ideally, a single law firm will be able to handle all your needs. There are a number of major law firms in North America that either have their own offices in important overseas markets or work very closely with correspondents in those venues. Many have tax attorneys who have expertise in multiple-venue, multiple-country environments.

What goes into the contract? Everything! Birkfeld and Krause repeatedly stress, "Don't take anything for granted," and "Put it in writing." The more formality, the more detail, the better -- for it eliminates misunderstandings and problems later on.

Here's a list of some of the basics:

Responsibilities -- Take the checklist you use for your domestic show and prepare a document - to be signed by both parties -- that clearly defines who is responsible for each item on the list: pre-show promotion, exhibit sales in each country, hall security, attendee registration, show decorations, the show directory, etc.

Critical people -- In the international arena it's not unusual to decide to do business with a company based on one or two key individuals. "The planning horizon for an international event is much longer than for a domestic event," says Birkfeld. "If you're signing an agreement with a company but really buying the services of one or two people, realize that they may not be there in the future. Who's behind them, to deliver if they leave? If you think the firm doesn't have sufficient back-up, consider specifying in the contract that the key individuals be available for the performance of specific services.

Time span -- How long will the agreement last?

Scheduling and location -- Who has the right -- and the responsibility -- to choose the event's time and place?

Pricing -- Who sets booth prices, entrance fees, the cost of conferences, etc?

Budget -- Prepare a detailed line-item budget for each partner that includes overhead, management fees, sales commissions, a cash-flow projection, etc. Plan for periodic audits and financial reviews, preferably by a third party. "You want a clear understanding of the revenue goals and what the expense goals are for reaching a profit," says Krause. "Who is expected to bring in the revenue? Who is going to be spending the money? You can't crystal-ball this totally, but if things are carefully spelled out, you avoid some of the finger pointing if things don't go perfectly."

Insurance -- All the brokers who offer services domestically can extend them to international shows in most if not all places. But your agreement should spell out who's responsible for getting the insurance, the types of insurance to be purchased, etc.

Buy-out clause -- What if one partner doesn't want to continue in the venture? How do you end the agreement? A buy-out clause should specify the basis on which one partner can buy out the other.

Contingency plans -- What will happen if various criteria aren't met? What if one partner decides to withdraw because things aren't working out the way it had planned? What are the rights -- and liabilities -- of the other partner? "Realize that there are not only financial liabilities but also egg-on-the-face liabilities," says Birkfeld. "Let's say you have the definitive industry show in the U.S., and people worldwide view you as a credible person. Now you're dealing with a partner who has no experience and at the last minute says, 'Hey, things aren't working out, so we're pulling out.' You're the one who may experience catastrophic repercussions -- not only in the overseas show, but in your American event."

Non-compete clause -- Neither you nor your partner should be able to put on a show that competes with the joint-venture's show. Exactly what is covered can vary widely, but there should be a clear understanding of what one can and cannot do. For example, if the joint venture is putting on a broad-based international computer show in Paris, can your partner create a domestic computer show in Marseilles? Or a banking show that attracts computer manufacturers as exhibitors?

Confidentiality -- The terms of the agreement should be confidential between the two parties.

Ownership -- Ownership of an event can be split any way imaginable. "That's why, before you go into negotiations, you should know your threshold of pain," says Birkfeld. "On the one hand, everyone wants 100 percent. On the other hand, you have to keep the other party interested. That normally breaks down to an equity relationship. In many cases, ownership is split 50-50. But it could be 80-20, or even 100-0 if both parties are comfortable with the arrangement."

Birkfeld presents a possible 100-0 joint venture: "Let's assume you have very strong brand identity, which is famous throughout the world. You decide to run a show in Europe. You can deliver all the exhibitors and you have good relationships with all the European trade magazines and associations. But you want to work with a local organizer. You might say, 'I'll make you my local office and I'm going to give you a good piece of the profits, but ownership belongs only to me. I'll give you 50 percent, even 60 percent of the profits, but ownership is not negotiable.'"

Rights to profits -- There are many ways to determine -- and distribute -- profits. How do you get to the bottom line? What will be charged to the event? Any general expenses? Are you sharing a percentage of the gross, or a percentage of the profits? Who is responsible for losses? What rights does your partner have to expose you to financial responsibilities?

Resolution of disputes -- How do you handle seemingly intractable disagreements? One option is to establish a three-person committee, with a person from your organization, one from your partner's organization, and one outsider in whom both of you have confidence. Another option is to turn over the dispute to an arbitrator. If you choose this route, you have to agree on where the arbitration will take place. Let's say you're a Canadian firm, your partner is Japanese, and you're producing a show in Kuwait. Where do you arbitrate?

Trademark -- Ownership and trademark are two very different things. Many people have had majority positions in joint ventures only to find out that their partners have registered the show's trademark in the overseas country in their own name. Or someone else entirely has registered the trademark there. Or they've registered a very similar name.

"This is an extremely serious issue," says Birkfeld. "Internationally, there are a lot of trademark infringements and rip-offs. Some major countries are not signators to international pacts that address this issue. One of the first steps in looking at any market is to make sure that you can protect your mark in that country."

"You want to trademark your event both in the country where it will be held and in other countries," notes Krause. "If we do a show in Mexico, for example, we will trademark the name of the show both in Mexico and in the U.S."

Lots of potential
Obviously, joint ventures are complex undertakings, but they offer significant opportunities. "I get calls at least once a week from people who are considering or entering into new joint ventures," says Birkfeld. "It's a growing area, particularly in Mexico and South America. These markets have great potential, a potential that will increase if the North American Free Trade Agreement and other agreements go through."

Krause concurs, and also sees Asia as an important growth area during the coming years: "The greatest potential is in the emerging markets. It's more difficult to do a joint venture in a more mature market, such as Europe or the United States. The need isn't quite as acute. But this isn't to say that there aren't good joint ventures -- or good opportunities -- in these places. In fact, we're in the process right now of negotiating a joint venture here in the U.S. If two parties bring something to the table that makes sense, a joint venture can be done anywhere."

And once you've found the right partner, the two of you can go on to create additional shows. Even before working with Hannover Fair International in Mexico, E. J. Krause & Associates worked with them on developing Expocomm Moscow, which the two partners held this year for the third time.

In the end...
There's a direct relationship between the amount of time and thoughtful consideration that people put into developing a joint venture and the quality and success of the endeavor. "People who try to do this quick and dirty, those who try to take short cuts and not build relationships or understand each other's goals, those are the ones that are doomed to failure," says Birkfeld.

"The determining factor is the quality of the relationship you have with your partner, and your ability to communicate with one another," he says. "The other stuff is only in place in case there's a significant breech, or if people agree to disagree. It's like a prenuptual agreement. In the best relationships, people never look at them. They sit and gather dust in a safe deposit box."