Joint Venture: Pros and Cons

Joint ventures (JV) are when two people/company collaborate to create a whole new company. There are many advantages and disadvantages to establishing a joint venture.

Some people prefer to do everything on their own, but sometimes you have to accept that you need help. Well, joint venture is a similar venture. It is when two or more people come together to work on a project together.

A joint venture is business lingo for when two or more persons join together to carry out a specific business venture and share the profits and losses of the said project. The people enter the partnership for a finite time and establish a whole new entity and contribute equally equity to the venture.

The partnership can be the basis of a new entity or company or a new project. The project or the company is dissolved when the project is completed or the entity has served its purpose.

The venture can be for one specific project only - when the JV is referred to more correctly as a consortium - or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for one-time contracts. The JV is dissolved when that goal is reached.

For a JV to be formed, there are few steps that must be followed such as defining the objectives, structure and projected form of the joint venture, including the amount of investment and financing arrangements and debt.

Having a JV offers a lot of opened doors for many companies, for example: a software company and a hardware company could create a joint venture and share their products to create a new microprocessor that has AI.

Pros/Advantages

Cons/Disadvantages

  • Access to knowledge and resources such as capital, staff and technology
  • Access to new opportunities such as new markets or greater distribution reach
  • Risks are shared
  • Assets are shared
  • Capital is shared
  • Access to experts in the field
  • Strict contract that allows all parties to know their functions
  • Access to untapped markets
  • Entering related businesses that previously presented high barriers to entry
  • Chances of success become higher
  • International joint venture eliminates the risk of discrimination
  • You can build long lasting business relationships.
  • You can increase your credibility by teaming up with other reputable, branded businesses. You can get free or discounted products and services
  • You can construct most joint venture deals with little or no money
  • You can gain new leads and customers
  • You can get discounts on products and services
  • You can offer your customers new products and services
  • You can survive a depression, recession or a slow economy
  • You can save money by sharing advertising and marketing costs.
  • Unequal contribution of the partners in knowledge, resources or investments
  • Unclear communication of objectives of the joint venture strategy
  • Lack of communication of the accountabilities of each partner
  • Difficulty in integrating operations of the two companies due to differences in work culture and management styles
  • If a party wants to leave, it might have a hard time as there a contract
  • Profit is shared
  • If company suffers a setback, all companies suffer as well
  • Venture can be used to misuse persons and expertise

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