Joint venture is a collaboration of two or more businesses to undertake a common economic activity. A joint venture then is a partnership, a contract between to parties, or a corporation. However, the difference between business partnership and a joint venture is that a former may be established before a company is formed while the latter is a collaboration of 2 or more existing entities forming a tie.
It must be cleared though that a joint venture is still a partnership. Another important point to take note is that a joint venture can be limited to a specific time or project, or a formation of another separate entity from two business entities.
One main reason why companies joint ventures is expansion. Since one company may not be able to take the financial requirement for expanding the company, it may require another company that is willing to join alliance with it. This combines the assets, capitals, technology, and human resources of 2 companies which make the venture stronger to undertake a larger market scale. This also divides the probable risk and the rewards.
It is important to make a great consideration to financial strength. An entity may have a good financial resources but being able to tap other’s resources through a joint venture provides more leeway to expand and increase its opportunity to create better profits. Although there is a risk involve in investing in a business, returns are larger and potentially higher. Statistically, companies that entered in joint ventures have seen faster growth.
Also, joint ventures shorten the time consumed in building and learning the knowledge of the business and market expansion, productivity growth, product enhancement, and business names which are also very costly. This is why reducing the cost does not only limit to sharing assets and capitals.
Joint venture also opens the market channel of both entities to each other, making it better for both companies to access wider market crowd that equates to better profit at a lesser cost.
On the strategic side, the joint venture is also used to pre-empt an emerging company from expanding, to save the company from shutting down, or to build a relationship faster with other businesses.
For an entity who wants to introduce their business to a foreign land. An international joint venture is often more economical and wise thing to do. This is because the host company has an existing connections, technology, manpower, domestic know-how that are very vital in the success rate of any foreign company entering a foreign land.
The business world is a big playing field of large and small; strong and weak; and successful and not so successful people, group of people, companies, and corporations. Interestingly enough, they all work as one to keep this playing field in the constant move. However, like in any other playing field, an entity no matter what its size is, needs build an alliance to better increase his chances of growth. And the best way to do it is by entering in a joint venture.
As the term goes, “its a big world out there”. And indeed, the business world is not for someone with a fainted heart. But joining an alliance is not an escape route for survival; it is just a way to effectively succeed in the game where most people do not want to join.