A joint venture, or abbreviated as JV and sometimes called joint adventure, is a tactical union flanked by two or more parties to embark on a financial activity together. This alliance agrees to create a new entity together by both contributing equity and they then share in the revenues, expenses, and control of the enterprise.
The venture can be for one specific project only or a continuing business relationship such as the Sony Ericsson joint venture.
Organizations can also form joint ventures, for example, a child welfare organization in the Midwest initiated a joint venture whose mission is to develop and service client tracking software for human service organizations. The five partners all sit on the joint venture corporation’s board and together have been able to provide the community with a much-needed resource.
Joint ventures are more common in the oil and gas industry and often are dealt within corporations on the national and local levels. I have always seen a joint venture as something good in this kind of business industry and a very good alternative in this sector as local companies can complement their skills and technology sets while it offers the foreign company a geographical presence.
As there are good business and accounting reasons to create a joint venture (JV) with a company that has complementary capabilities and resources, such as distribution channels, technology, or finance, joint ventures are becoming an increasingly common way for companies to form strategic alliances.
There are so many reasons why companies form a joint venture:
- One of the most common internal reasons why most companies join joint ventures is the spreading of cost and risks, sometimes companies who are into new projects look for another company who is willing to undertake the same project with them. This way, companies are able to spread out the cost and the risk of failing.
- A joint venture is also a good way to improve financial access or resources, for example, your company can make a deal with non-profit organizations who can be exempted from taxes so that your project will have lesser cost and much more financial gaining.
- You can also be partners with a bank or other companies that have a much higher revenue/profit than your company.
- Economic scale is also one good advantage of having a joint venture, when you have a small company but have a very broad idea or have something new that will surely attract a large mass of sales, and your company cannot afford to stabilize such project you can go for some company who are larger when it comes to economic scale.
- Being partners with other company and joining in a joint venture also gives you access to new technologies and customers. It also gives you the much-coveted access to innovative managerial practices.
- Joining joint ventures can also influence the structural evolution of the industry. It is also a good way or pre-empting competition, like if you have a competitor and you on the same financial field and he has good strategies that work as well as your, forming a good joint venture with this company can boom into a much bigger company, meaning bigger sales and more money.
- A joint venture is also a good response to blurring industry boundaries. Joining two companies can also lead to a creation of stronger competitive units. A joint venture can speed up the time to market and improve the agility of the company when it comes to business terms.
- When a creation company likes what other companies are doing and would like to adopt it on a much more legal way, a joint venture is a good thing to do. Joint ventures help transfer technology of one company to the other.
- If your company would also like to transfer skills from other companies you can also look into joint ventures.
- Diversification is also a great reason why some company goes into joint ventures, this helps them stabilize their company growth and also make them available to different forms and types of business industry.
- Other countries may require foreign companies to form a joint venture with their local firms in order to enter a certain market. This requirement often forces technology transfer and managerial control to the domestic partner of the joint venture.