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Joint Ventures

Let‘s start from the fundamental question, as to, what is joint venture? and, what the joint venture definition is.

A Joint Venture is a strategic business association or partnership, for the specified period of time, generally between two parties or companies, for achieving certain common objectives and synergic advantages, in order to prosper undaunted amidst intense national or international business competition. In a joint venture, both the parties contribute to the necessary assets, resources, experience and expertise, etc., and share the involved risks, expenses, responsibilities, and profits, in the agreed proportion. Majority of the joint ventures are structured as Limited Liability Companies (LLCs), in order to harvest the outstanding benefits of limited liability. Some famous examples of joint ventures are - Sony Ericsson, Dow Corning, Penske Truck Leasing, MillerCoors, etc.

The joint ventures are quite prominent and popular form of business structuring, for fulfilling some common objectives for survival, progress, and desired business expansion. Large business corporations popularly use this method for diversification of their products or services. Today, joint ventures are preferred forms for foreign direct investments in any targeted country, in the desired field of business or profession.

Types of Joint Ventures

As a joint venture is a strategic business alliance for a finite period of time, it can be confined to any areas or activities of a business for mutual benefits, namely, production, industrial infrastructure, packaging, distribution, marketing, advertisement, customer care, and so on. Any of these specific objectives, a joint venture can be erected, with any national or international company. Hence, the joint ventures can broadly be classified into the following categories:

  • Joint Ventures resulting from Reciprocal Arrangements
  • Joint Ventures formed through Integrated or Co-Managed Arrangements
  • And, Joint Ventures for Endorsement and Promotional Arrangements

Joint Ventures Pros and Cons

Though joint ventures are popular and successful business arrangements, not all joint ventures succeed in meeting their objectives or the requirements of stability and progress. Reports point out that only 40% of joint ventures actually survive and achieve their goals. Reasons for both these contrasting facts are made conspicuous through the following Pros and Cons of the joint venture form of business:

Pros:

  • A joint venture is a legally recognized entity, easily feasible, and quite flexible in management.
  • It can be truly and greatly beneficial from partnering with experience and efficient company, with complementary resources, abilities, and capacities, such as expertise, technology, expert professionals, distribution channels, brand image, finance, etc.
  • It offers opportunity for learning new skills, technology, business tactic, and exclusive expertise for better and more profitable business.
  • Elegant for entering into new business segment or diversifying business activities
  • The smaller or local company can easily get refined expertise and technology from the bigger one, for self-reliance and better business and profits.

Cons:

  • A joint venture is a temporary business alliance, and not a merger or acquisition, so there is possibility of covert business emulation or competition, or clashes of business goals, in between the partners.
  • Objectives and goals of the partners may differ in direction and extent.
  • Problems in administration, management, and business activities and operations, are inherent.
  • Imbalance in the level of investments, expertise, resources, assets, and intellectual property, may cause troubles to right and harmonious relationship.
  • The larger and more influential company can capture the resources, expertise, market, and the very distinct existence of the smaller company gradually.