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International: Joint-Venturing Tips

A quick look at an unusual plan used by a company when it found it needed an overseas partner.
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When Peter H. Tracy, president of Micropatent, a patent-information service in East Haven, Conn., decided he needed an overseas partner to sell MicroPatent's CD-ROMs to foreign subscribers, he devised an unusual two-stage approach.

"I knew we needed to start out with a joint venture, because we were a new company and completely lacked a foreign distribution network. But I also wanted us to be able to quickly bring those international operations in-house -- which meant we needed a joint venture with an exit strategy attached."

Stage one, back in 1989, consisted of negotiating a five-year contract with a British publisher. "We reserved North American distribution rights for ourselves and gave the British company distribution rights everywhere else." MicroPatent received a royalty on every overseas sale; by the time the contract expired, last year, royalties had contributed about $1 million to the company's $6 million in annual sales.

Stage two involved MicroPatent's recent assumption of international-marketing responsibilities. "Our British publisher tried to persuade us to extend the contract -- which was tempting," notes Tracy. "But in recent years, we'd moved into different markets, especially on the Internet, and we believed we'd be better off by ourselves."

The transition worked smoothly because Tracy had planned his company's exit strategy up front. "We were prepared because we always insisted that our partner give us the name of each new customer it signed up for us." In return, MicroPatent will pay its former partner a reduced royalty for the next three years "on any of its customers that stay with us."

MicroPatent has only one regret, says Tracy: "The Asian market is so big and it's growing so rapidly that I think we'd have been better off negotiating two of those arrangements, one with a European partner and one with an Asian company. But now we're ready to tackle Asia by ourselves as well."

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