A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants’ other business interests.
Advantages of a Joint Venture
- It provides companies the opportunity to gain new insights and expertise. Think about it; the market is now way easier for you to understand given the short-term partnership that you have forged.
- It will give you access to better resources, such as specialized staff and technology. All the equipment and capital that you needed for your project can now be used.
- It is only a temporary arrangement between your company and another.
- Both parties share the risks and costs. In case the joint-group project fails, you are not alone when bearing the costs of its failure. Because you two had volunteered to share the expenses, you both will also support the losses.
- Joint ventures can be flexible. an example of this is that a joint venture can have a limited lifespan and can only cover only a fraction of what you do, thereby limiting your commitment as well as your business’s exposure.
- In the timeline of divestiture and consolidation, a joint venture offers a creative way for companies to escape non-core businesses.
- Gradually, firms can separate their business from the rest of the organization, and then later, sell it to the other parent company. Approximately 80% of all joint ventures end in a sale, from one partner to the other.
- Your chances of success will become higher as you are already riding with a renowned brand. As a result of this, your credibility will also vastly improve.
- Even though your partnership is only for a specific goal, this move will enable you to create long-lasting business relationships.
- Despite having little to no money at your disposal, you can create more venture deals in the process.
- You get to save money by sharing advertising and marketing costs.
- International joint venture eradicates the risk of discrimination.
Disadvantages of a Joint Venture
- The objectives of a joint venture are not 100 percent clear and rarely communicated clearly to all people involved.
- There are times when flexibility is restricted. When that happens, participants have to focus on the joint venture, and their individual businesses suffer in the process.
- There is no such thing as an equal involvement. An equal pay may be possible, but not in the case of contribution. For example, Company A is working on the production process, whereas Company B is responsible for the production, and Company C is in charge of planning and implementing market strategies. Since Company A is not directly involved in the production and promotion process, the pressure is on the latter companies. It will also affect individual businesses.
- Because different companies are working together, there is a great imbalance of expertise, assets, and investment.
- A clash of cultures and management styles may result in poor co-operation and integration. People with different beliefs, tastes, and preferences can get in the way big time if left unchecked.
- Limited outside opportunities. It is very common for joint venture contracts to restrict outside activities of participant companies while working on a venture project.
- The success of a joint venture highly depends on thorough research and analysis of the objectives.
- It may be hard for you to exit the partnership as there is a contract involved.
- You will get enough leadership and support in the early stages of a joint venture and might be tempted to leave.
- There is often a severe lack of communication between partners.
- Because of the separate nature of a joint venture, it is possible that the partners do not devote 100% of their attention to the project.
- Unrealistic and unclear objectives may be set up.