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JOINT VENTURE (JV): A VIABLE CATALYST FOR ARTIFICIAL INTELLIGENCE (AI) – Ayotomiwa P. Olufunso

BACKGROUND

“Blessed are those who are alive to witness the revelation of Artificial Intelligence in this contemporary dispensation.”

Technology is the new hurricane. In its simplest terms, it has taken over. You either toughen up and get battle-ready for this sweeping influence or risk being left behind. The wide spread of technology in the financial ecosystem through the advent of Artificial intelligence which involves Algorithms and Big Data can only be embraced as it is the future. Failure of any entity, institution, or business to admit its undeniable relevance poses the risk of its inevitable extinction.

A cursory look at the instant subject matter unveils two key terms: Joint Venture and Artificial Intelligence. The terms may be familiar to some. Regardless, they are briefly explained hereunder.

JOINT VENTURE
A joint venture (JV) is a business arrangement in which two or more parties agree to pool resources for the purpose of accomplishing specific tasks. These tasks can be new projects or other business activities. In a Joint Venture (JV), each participant is responsible for the profits, losses, and costs associated with it. However, the venture is a distinct legal entity, separate from the participants’ other business interests.1

According to Scott Allen, JV is one of the most powerful tools for being successful in today’s competitive business atmosphere.2

From the above definition, an inference seems inescapable. JV involves companies or business organizations. However, this does not in any way mean Partnership. A JV is not a Partnership. The term “Partnership” is reserved for a single business entity that is formed by two or more people. JVs involve a joinder of two or more different entities into a new one, which may or may not be a partnership. The term “consortium” may be better used to describe a JV. However, a difference should be noted. A consortium involves more of an informal project execution agreement between a bunch of different businesses than the creation of a new business entity.3

JV basically involves different companies with shared goals and objectives. These companies have separate identities aside the JV and agree to share profits, assets, equity, and risks emanating from the JV. In most cases, JV is created to achieve a single purpose, such as research or production of certain products, and when this purpose is achieved, the JV dissolves.

To provide legal backing for a JV, companies involved must execute a JV Agreement expressly stating the terms of the JV in order to foster its execution and probably, enforcement. There are quite a number of examples of JV, popular among which is “Sony” and “Ericsson”. A brief inquiry into this JV is crucial at this juncture.

Sony and Ericsson
Japanese electronics giant, Sony, has been a leading manufacturer of consumer electronics, including audio, video, and communication gadgets for decades. Along with their established manufacturing pervasiveness, Sony has had global marketing dominance in all their products, including motion pictures and music recordings. With this huge goodwill and reputation moulded by marketing expertise, they still needed an innovative technology expert to develop a healthy marketing relationship.4

Enter, the Swedish technology expert, Ericsson. Ericsson specialized in developing innovative telecommunication equipment for mobile networks. In 2001, Sony and Ericsson teamed up in a 50-50 JV now known worldwide as Sony Ericsson to develop and establish an innovative brand as the most attractive and dominant in the mobile handset industry. Their successful JV resulted in the development, production, and marketing of some of the best handheld mobile phones available today.5

Before we find ourselves developing content for Sony Ericsson, we should quickly turn attention to AI. Here we go!

ARTIFICIAL INTELLIGENCE (AI)
Artificial intelligence is a branch of computer science that aims at creating “intelligent machines”. It has become an essential part of the technology industry.6 Andrew Ng rightly said, “Artificial intelligence is the new electricity.”7 This means that just as electricity is crucial to our society, so is AI.

Historically, AI can be traced to 1956 when the term was coined by John McCarthy. AI has been around for several decades, but only took off in the last five (5) years.8 The inception of AI has led to the innovation of a self-driving cars, face recognition, web search, industrial robots, and missile guidance, amongst many others.

Currently, giant tech businesses such as Google, Facebook, IBM, and Microsoft are researching a number of Artificial Intelligence projects, including virtual assistants. They are all competing to create assistants such as Facebook’s M, or Cortana from Microsoft, or Apple’s Siri.9 The goal of AI is no longer to create an intelligent machine capable of imitating human conversation with a teletype. The use of Big Data has allowed AI to take the next evolutionary step.10 Now, the goals are to develop software programs capable of speaking in a natural language, like English, and to act as your virtual assistant.11

Many industries and are make use of AI to boost their trade and the vibrancy of their services. It is known that AI facilitates an error free work process and speeds it up to provide a pin point result.

JV BETWEEN COMPANIES AND AI COMPANIES
Artificial intelligence (AI) is engendering all kinds of breathless headlines, from being able to play Go to spotting rare cancer tumors. But how will AI impact the economy in broader terms? The answer hinges both on what AI can be used for, and the dynamics of a competitive race to adopt AI that is set to unfold between firms.12

The fact remains that competition in various parastatals all over the world has been a massive drive for the emergency adoption of AI. Certainly, with a high level of competition, the usual solution revolves around finding ways of leveraging on the unawareness, negligence, and stagnation of competitors to your advantage. A new research from the McKinsey Global Institute simulates the potential global macroeconomic impact of five powerful technologies (computer vision, natural language, virtual assistants, robotic process automation, and advanced machine learning). It reveals that AI could (in aggregate and netting out competition effects and transition costs) deliver an additional $13 trillion to global GDP by 2030, averaging about 1.2% GDP growth rate annually across the period. This would compare well with the impact of steam during the 1800s, robots in manufacturing in the 1900s, and IT during the 2000s.13

The average effect on GDP depends on multiple factors. At the industry level they include (a) the extent of AI diffusion in economies; (b) the build-up of corporate profit; and (c) labor market dynamics.14

Joint venture comes into the picture when companies and organizations hell-bent on providing the best available services to their clients and customers execute JV with an AI company so as to boost its trade and profitability. Some industries are yet to start maximizing digitalization and smart automation of rendering services. When these industries execute JV with AI companies, they tend to benefit from rampaging innovations of AI, and at the same time gain advantage over non-AI users.

An informed prediction reveals that about 70% of companies might adopt some AI technologies by 2030, up from today’s 33%, and about 35% of companies might have fully absorbed AI, compared with only 3% today.15 Furthermore, the economic impact of AI for three groups of companies were simulated: “front-runners,” “followers,” and “laggards.” The first group experiences the largest benefits from AI while the second benefits but only by a fraction of the general AI productivity uplift. The Laggards (many of them non-adopters) may witness a shrinking market share and may have no choice but exit the market in the long term.16 From this stated fact, there is a high tendency that there will be a huge difference in terms of the quality of services and returns between companies and industries who fully adopt AI and companies who will fail to adopt AI in the next couple of years.

One notable example of a JV between other companies and AI companies is that of Artificial intelligence company eVolution Networks, Mitsui, and major Chinese PV company GCL-Poly. It was stated in the JV that; AI algorithms developed by eVolution will collect vast amounts of data from grid networks, establishing patterns of behaviour and predicting demand levels in real-time. This could reshape how the grid operates, providing power companies with “a giant leap into the future with massive CAPEX (capital expenditure) and OPEX (operating expenditure) cost reduction”, the JV partners said.17

Another example of JV involving AI companies is that of Volvo and Uber; Volvo Car Group has agreed to a $300 million alliance with Uber to develop self-driving cars, the latest move by traditional vehicle manufacturers to team up with Silicon Valley firms long seen as disruptive threats to their industry.18 The partnership will see the Swedish-based carmaker, owned by China’s Geely, and ride-hailing service Uber pool resources into initially developing the autonomous driving capabilities of its flagship XC90 SUV. The investment will be roughly shared equally by the two companies.19 Uber will purchase Volvos and then install its own driverless control system for the specific needs of its ride-hailing service.20 Just in January, 2019, IBM and Vodafone launched a JV aimed at forming cloud, 5G, IoT, AI, and software defined networking to enterprise customers. In this JV, Vodafone will be leveraging on IBM’s multi cloud and its AI expertise to its business advantage.

As seen in these examples, the JV executed between the companies is hinged on the betterment of the quality of services rendered to clients and providing them with new array of products to choose from.

JV BETWEEN AI COMPANIES (“HORIZONTAL JVs”)
The term “Horizontal JVs” in this context refers to JVs between companies within the AI industry. We know that technologies often take a long time to diffuse and deliver benefits. It took more than 30 years for electricity to diffuse and enable industrial plant design that could generate significant productivity growth.21 On the contrary, it is good to note that AI is diffusing at rocket speed into all angles of the globe and penetrating various sectors of global economy compared to previous technologies. This is no magic; AI companies are consistently making conscious moves to make AI the “World’s Technology Religion”.

Some AI companies in a bid to foster the relevance and inevitability of AI in our contemporary world today are forming formidable teams. Expectedly, they would achieve this formation very effectively via JVs. An example of AI companies that have launched the JV model can be taken from February 2019. On the quest to boost AI, 4Quant and Netcetera entered into a JV, forming a distinct company named AI First. The partners are pooling their expertise into this JV and are aiming to demonstrate to Swiss firms how applications from the field of Artificial Intelligence (AI) can be optimally implemented. According to available information, AI First will focus on such issues as data science and machine/deep learning, which according to Netcetera “are an important part of the AI landscape and offer huge potential”.22 Experts at AI First can, for example, help companies to analyze data to deliver insights which can be converted into business value.23

CONCLUSION
Still think AI is a mirage or a figment of imagination? Well, such thought is the mirage itself. AI has arrived long ago and continues to intensify in its prevalent effects.24 The earlier companies (big or small) and organizations in different countries in the world acknowledged this fact, the better for each of them. Unfortunately, it is crystal clear that AI will not wait a millisecond for the “Laggards”. Proactive steps must be taken by companies to maximize the dividends AI provides to boost their trade and services and they can ultimately achieve this by the instrumentality of a Joint Venture (JV).

Endnotes

1. Marshall H. (2019) Joint Venture (Online) Available at: https://www.investopedia.com/terms/j/jointventure.asp Accessed: 24 April 2019

2. Scot A. (2019) Joint Venture 101(Online) Available at: https://www.thebalancesmb.com/joint-venturing-101-1200766 Accessed: 24 April 2019

3. Marshall H. (2019) Joint Venture (Online) Available at: https://www.investopedia.com/terms/j/jointventure.asp Accessed: 24 April 2019

4. Marshall H. (2019) Joint Venture (Online) Available at: https://www.investopedia.com/terms/j/jointventure.asp Accessed: 24 April 2019

5. Ibid

6. Technopedia: Artificial Intelligence (Online) Available at: https://www.techopedia.com/definition/190/artificial-intelligence-ai Accessed: 24 April 2019

7. Andrew Ng (2017) Impact of AI on business (online) Available at: https://medium.com/syncedreview/artificial-intelligence-is-the-new-electricity-andrew-ng-cc132ea6264 Accessed on 24th April 2019

8. Ibid

9. Keith D. Foote (2016) A Brief History of Artificial Intelligence (online) Available at: https://www.dataversity.net/brief-history-artificial-intelligence/# Accessed on 24th April 2019

10. Ibid

11. Ibid

12. Jacques Bughin and Jeongmin Seong (2018) How competition is driving AI’s rapid adoption (online) Available at: https://hbr.org/2018/10/how-competition-is-driving-ais-rapid-adoption Accessed on 26th April 2019

13. Ibid

14. Ibid

15. Ibid

16. Ibid

17. Andy Colthorpe (2018) AI player evolution joins Mitsui and GCL-Poly in grid optimization JV (online) Available at: https://www.energy-storage.news/news/ai-player-evolution-joins-mitsui-and-gcl-poly-in-grid-optimisation-jv Accessed on 26th April 2019

18. Reuters (2016) Volvo partners with Uber on self-driving cars (online) Available at: http://fortune.com/2016/08/18/volvo-uber-partner-on-self-driving-cars/ Accessed on 26th April 2019

19. Ibid

20. Ibid

21. Jacques Bughin and Jeongmin Seong (2018) How competition is driving AI’s rapid adoption (online) Available at: https://hbr.org/2018/10/how-competition-is-driving-ais-rapid-adoption Accessed on 26th April 2019

22. Artificial intelligence, Information technology, Information technology, Talent & innovation
News (2019) 4Quant and Netcetera establish firm for Artificial Intelligence (online) Available at: https://www.greaterzuricharea.com/en/news/4quant-and-netcetera-establish-firm-artificial-intelligence Accessed on 26th April 2019

23. Ibid

24. Aniruddha Murali (2019) AI: The Future of Technology and the World (online) Available at: https://towardsdatascience.com/ai-the-future-of-technology-and-the-world-86f59d0cf720 Accessed on 26th April 2019

Ayotomiwa P. Olufunso Esq.

Guest Columnist

Ayotomiwa is a legal practitioner in Lagos, he graduated from Obafemi Awolowo University. He is currently serving as an Associate and company secretary in the legal department of Diamond PFC.
He has special interest in corporate law and and real estate. He is passionate about learning and making impact in the legal community. He is an unrepentant Chelsea fan and has an undying love for good music.

3 comments

  1. Artificial Intelligence comes with so much opportunities than threats. The next century business is all about leveraging more than competing. JV is sure. Good one Mr. Ayotomiwa Esq.

    Liked by 1 person

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