Joint venture

Joint venture

Joint venture is a way two companies come into a new market through the sharing of commercial resources for a short period of time. The two companies agree to make the vigorous decision to work together, with a united aim of achieving a detailed set of goals and upscale their respective bottom lines.

Through this agreement, the companies are successfully reimbursing one another’s shortfalls, while complementing one another’s strong point. The two companies share in the profits of the joint venture, while similarly absorbing the potential jeopardies involved.  There are different advantages and disadvantages of Joint ventures which may be seen.

Advantages

The companies entering into a joint venture are not required to create a new business entity under which the project is then completed, providing a degree of flexibility not found in more permanent business strategies.

Also, participating companies do not need to give up control of their businesses to another entity, nor do they have to cease ongoing business operations while the joint venture is underway. Each company is able to maintain its own identity and can easily return to normal business operations once the joint venture is complete

Distinct from mergers and acquisitions, joint ventures do not have to be permanent partnerships. Moreover, both companies keep their identities as individual companies and retain their independence, which makes it possible for each one to follow-up their individual business models outside the partnership agreement.

The two business companies usually brings specialized expertise and knowhow making it more easy to grow aggressively.

In the cases where there is a local and foreign company joint venture, penetrating the markets is easy as most if not all regulations and logistics are taken care of by the local company.

Avoiding competition and pricing pressure is one of the many reasons why joint ventures are formed. When companies combine operations, they will easily set the bar on the price and avoid unnecessary and unwanted pressure hence making profits.

 Disadvantages

One of the major disadvantages of joint venture is the failure of bo0th parties to realise that there is no such thing as equal partnership. Each one of the two companies bring on board what they can offer but not sharing everything equally.

For a joint venture to work flawlessly, a thorough research and analysis is vital. This takes time and if not done the right way, it might hart the future of the joint venture.

Communication breakdown is also another major disadvantage of a joint venture. As the two companies have their own different communication structures, it might be hard to incorporate the new venture to work flawlessly.

At the beginning of a joint venture, each company brings on board their best expertise. These might make one of the companies to relax as thinks can be taken care by the other company. This brings about overreliance hence no equal participation on the venture.

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