ILMA Compoundings March 2018 - 23

Offshore opportunities are also quite feasible, as joint
ventures can occur between companies based anywhere
in the world. "The joint venture is certainly a common
arrangement for ILMA members doing business offshore -
they will work with a company from England or Germany
to sell a product," Leiter said. "I can think of plenty examples where U.S.-based ILMA members have gotten into
joint ventures with European partners and done especially
well as a result."

Is it worth the risk?
Like almost any business strategy, entering into a joint
venture comes with some measure of risk. It is important to
keep in mind that joint ventures can experience the same
pitfalls that any company could experience entirely on its
own, but there are steps to take that can moderate that risk.
"Run down the list of different kinds of risk," Leiter recommends to any ILMA member considering entering into
a joint venture agreement. "Then, my question becomes:
Are those risks manageable? Can I transfer the risk to some
third party, like insurance? Are there other things I can do to
mitigate the risk?"
Product liability is one area to consider if a joint venture
is created specifically to produce a new product. "You're
selling some particular kind of lubricant that goes into manufacturing equipment; that piece of equipment might cost
$5 million," Leiter said by way of example. "If that lubricant fails, and the equipment fails and has to be replaced or
repaired, who picks up the tab?"
Similarly, product loss is a risk in most manufacturingbased joint ventures. "I put 100,000 gallons of a component into your facility which later burns down," Leiter said.
"Is there insurance for that? Typically, one of the parties
involved should show that they have insurance to cover
product-loss risk when establishing the joint venture before
this type of scenario occurs."
There's also the issue of risk to intellectual property.
"Company A might tell Company B they have developed
something really neat, and they agree to establish some type
of joint venture to sell that really neat product all around
the country," Leiter explained. "And it turns out you've appropriated someone's formula. Again, the question becomes:
Can I manage the risk through insurance or some other
mechanism?"
Even with these risks in mind, Leiter says, joint ventures
are worth it.
"To the extent that joint ventures are common within the
lubricants industry, the ILMA members I've worked with
have found the practice is worth it," he said. "Given the
number of these arrangements alone, it would be safe to say

"To the extent that joint ventures are
common within the lubricants industry,
the ILMA members I've worked with
have found the practice is worth it."
- Jeff Leiter
they make sound business sense. You recognize, especially
on the contractual side, that it's just that - an agreement."
Leiter recommends that any ILMA member company
"speak with counsel to totally understand the various ins
and outs of their proposed joint venture. My bottom line:
These things work - just always make sure you know what
the strategy is in case you have to get out. Always have an
exit strategy in mind."
Joint ventures will continue to offer lubricant manufacturers a low-risk and cost-effective way to produce a
product that isn't feasible to produce alone, or to embark on
a research-and-development endeavor that simply wouldn't
be possible without the help of another company. Those
benefits are just the beginning, though.
"Joint ventures, if well-planned and well-structured," Patterson confirmed, "can be an excellent way to gain access to
new markets or distribution channels; expand your offerings;
utilize talent outside of your organization; reduce procurement or capital expenditure costs; or share the risks and
benefits of research and development, just to name a few."
Moul is a freelance writer based on the East Coast. He can be reached at
717-451-1301 or mouljames@gmail.com.

ILMA Compoundings March 2018

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