Business cooperation can take various forms, and one of them is the joint venture: here is what it is and what are the advantages of entering into such a cooperation agreement.
What is that saying like? Unity is strength.
Whether you have just developed your new business project or are now a veteran entrepreneur in the environment, you may have thought that collaborating with someone else might be an interesting way to succeed in achieving your goals.
Indeed, you have a point!
Especially when you find the resources in a partner that you lack, collaboration can become an important opportunity for growth.
Now, there are several possibilities, but here I would like to tell you about one in particular: the joint venture.
Do you know what this is all about?
It is a kind of partnership, with well-defined characteristics, that allows you to combine resources and skills (as well as, of course, share risks) with a company that is complementary to yours, in order to maximize profits or achieve your intended purpose.
Whether it is expanding, developing new products or entering new markets, the joint venture offers strong potential for success.
But let's get right into the details: forming a joint venture is a big decision, so you need to know what we are talking about.
Read on to fully understand what a joint venture is, what its characteristics are, what types exist, and why it can be so cost-effective.
What is a joint venture (JV)?
A joint venture is essentially a business arrangement between two or more parties-where those parties may be individuals, businesses or even governments.
The intent, as I told you a moment ago, is to combine one's resources to achieve a specific goal, be it a new project or any other activity, sharing the risks associated with its development (the meaning of the term is already revealed by the translation: joint means union e venture means risk).
For example, two companies may create a joint venture to develop a new product or grow each other's customer base.
A joint venture is therefore potentially advantageous when, for example, you need more resources with minimal (or no) capital input.
When working in a JV, each party is responsible for its own share of earnings, losses and expenses. Underlying this is an actual contract, which outlines the terms and establishes how the new venture will be financed and managed.
The agreement can be simple, merely outlining the basic roles and responsibilities of the partners. Or it can be more detailed, specifying everything from who will have decision-making authority to how profits will be divided. It can also have a fixed or indefinite duration.
Sometimes, more formal joint ventures require the assistance of a lawyer to ensure that all legal aspects are properly assessed and considered.
Types of joint ventures
Overall, joint ventures increase efficiency, reduce costs, and improve risk management.
Depending on the type of agreement, they can be distinguished into contractual or corporate.
They are based on a contract in which the parties identify the project, timelines, duration, allocation of rights and duties, as well as exit conditions.
They are usually formed when a specific goal needs to be achieved in a well-defined time frame that is not too long.
Again, there is an agreement between two or more companies with the intent to achieve a predetermined purpose, but this is done through the creation of a new enterprise, separate from the forming parties.
An "ad hoc" company is then established, the characteristics of which will depend on the country in which it will be based, and once the predetermined goal has been achieved, it may continue to exist, even indefinitely, or cease to exist.
In addition to these two types, joint ventures can also be distinguished by their purpose, which can be distribution, production, or research and development.
JV for distribution
Here the goal is to establish an alliance to sell or distribute their products in another market, usually abroad.
Usually, it includes a local partner that provides such products and an international one that offers contacts, marketing tools and other related services to market them.
JV for production
The purpose of a manufacturing joint venture is to produce, in whole or in part, certain products.
JV for research and development
They are created to join forces in research and development projects.
If you are interested in having some examples on this, here find a list of famous joint ventures.
Why does the joint venture pay off?
There are multiple reasons why it might prove useful to enter into a joint venture.
As a partnership, it allows you to combine your skills, knowledge, experience and expertise with those of another company, giving each of you the opportunity to work together on a joint project, sharing risks and responsibilities.
In this way, your goals of growth, expansion and increased profits become less onerous and more easily attainable.
As always, in order to enjoy the full benefits, a clear strategy must be set up and the commitment of all parties involved ensured.
That said, here are the main reasons why it may be worthwhile to form a joint venture:
#1 More resources and capacity
We have seen it before: with a joint venture, you can leverage the combination of resources to achieve what you want; by teaming up, you can grow and expand more quickly and efficiently.
For example, you might have a sound manufacturing process, while the other partner has a more solid and developed distribution structure.
#2 Less cost
Due to economies of scale, both parties involved in the joint venture can exploit their production at a lower unit cost than they would separately.
Not only that, they can share operating costs, the advertisement, marketing and promotion expenses and thus increase the ROI Of the various investments.
#3 Synergy and innovation
The two enterprises forming a joint venture each have different backgrounds, skills or knowledge: when combined, each can benefit from the other's talent.
Synergy is thus created, taking advantage of each other's strengths.
This is especially useful in a market, such as today's, that demands new and innovative products all the time, so collaboration with one or more partners encourages the emergence of new ideas.
#4 Access to new markets
If your goal is to expand into a new industry or market, even abroad, you can leverage another company's existing distribution network, with all the benefits that brings.
#5 Brand Display
The established brand of the enterprise with which you create a joint venture can be useful in gaining a competitive advantage over competitors.
His brand awareness thus becomes an incredible opportunity to grow in that market.
#6 Access to technology
Technology is one of the main reasons why most companies enter into a joint venture.
Having access to the know-how technology of another business, in fact, it saves you the investment of developing your own, thus realizing a high-quality offering and gaining time, energy and resources.
#7 Increased credibility
If you are a young company, it may take you some time to establish credibility in the market and build a solid customer base.
Forming a joint venture with a larger, better-known brand can help you quickly gain greater visibility and credibility in the marketplace.
Alternatives to joint venture
Although joint ventures may seem similar to other types of business arrangements-and the term "joint venture" is sometimes used interchangeably with others-it should be emphasized that they are a distinct and specific category.
So to avoid misunderstandings, let us quickly see how they differ from other types of collaboration:
A partnership is always an agreement between two or more parties in order to share profits and losses, provide access to capital and a wider network of contacts.
Unlike a joint venture, which can also include companies or entities, partnerships are only between two or more people.
Finally, while joint ventures are usually formed for a specific period of time, ending when the goal is achieved, partnerships generally have a long-term duration.
In a franchise, the parent company grants a license to another, granting it the right to use its name, trademark and operating methods to run a business.
It is usually based on a long-term agreement, in which the franchisee pays an initial fee to the franchisor in exchange for the right to run the business-but the franchisor still retains some control over the franchisee's business decisions.
In a joint venture, on the other hand, neither party is "in charge" and both contribute to a common goal.
Licensing is comparable to franchising in that it grants permission to use the company's name and logo in exchange for payment of a royalty.
Mergers and acquisitions
A merger is the joining of two companies to form a single corporate entity.
Alternatively, a large corporation might purchase the assets of a smaller company-and we speak in that case of acquisition.
A joint venture, on the other hand, exists to achieve a shared purpose while each party maintains its independence.
As you could see, the benefits of a joint venture are real and concrete.
A joint venture might be the right choice for you if you want to enter a new market or improve your visibility to a specific target audience.
It may be useful for you to acquire technical skills or intellectual property that you would otherwise not be able to access, or to improve advertising and marketing strategies.
I won't lie to you, though: no business venture is without risk.
Not only that, you must also be prepared to deal with some minor "disadvantages," related to the need for sharing.
Indeed, entering into a joint venture requires relinquishing a certain degree of control, the ability to manage a possible gap across corporate cultures and requires all parties involved to enter the project with the same goals and an equal degree of commitment.
In essence, the value of a joint venture depends, on the one hand, on your risk tolerance and, on the other hand, on setting a sound strategy and excellent communication.
If you decide to enter into this type of agreement, be sure to choose your partners carefully so as not to reduce the quality of your offering. Partnering with people who do not share your values can have a negative impact on the way you operate.
What about you, have you ever been part of a joint venture?
Tell about it in the comments!
Leave a Reply