The Power of Joint Ventures
Strength In Numbers

 

The Power of Joint Ventures

A joint venture is defined as a strategic alliance usually between two or more businesses to share markets, assets, expenditures and of course profits.  Joint Ventures or JV can be between people, competitors and other businesses. 

Simply speaking, a joint venture is a way of doing the saying: “If you can’t beat them, join them”.  There is no one owner of the business, there are co-owners. 

A good example of a business joint venture would be Sony Ericsson, where the Japanese based Sony partnered with Swedish company Ericsson to make mobile phones.

Entities with common products or services usually share the same market.  Forming a joint venture with a rival company gives you a bigger piece of the pie. 

The Power of Joint Ventures / The Advantages

Better technology - A joint venture can be a strategic weapon in business.  One good reason to join a JV is to gain more access to technology, human resources and market.  There may be some things that you have and other things which you don’t.  By joi.ning a JV, you immediately increase your resources.  This is especially true with technology.  Technology is dynamic; it is always changing and very competitive. 

By joining forces with another company, new technology which might not be available to your company will now be on hand.  You may gain years of research in an instant.

Risk Sharing - Another advantage of joint ventures is that you share risks with your partners.  Going into business, any business for that matter entails certain gamble.  But you allay the risk to your personal self when you enter into a joint venture because everything is shared, a partnership per se. 

More Choices - Joint ventures also give you the power of entering markets which were not previously accessible to you.  There are some governments like China and to some extent India, which do not allow foreign companies to invest directly into their countries. 

They require joint ventures for foreign businesses who wish to set up businesses in their home soil.  This is where the power of joint ventures can truly be seen.  Imagine having access to the 1 billion people in China. 

The Power of Joint Ventures / The Disadvantages

A coin has two sides.  There are disadvantages to entering a joint venture.  You have to remember that a joint venture is like a general partnership. 

Personal disagreements - So essentially everything is shared by the co-owners and if you don’t have a good working relationship with your partners or have different core values, or can’t agree on how the business is going to be ran, then joint ventures won’t work for your company.  A joint venture takes time to set up, and even though “two heads are better then one”, those heads might not work well together. 

Group consciousness differing - The problems with joint ventures are usually internal rather than external.  There are different management styles, company cultures, direction and other internal business functions. 

Joint ventures also require a significant change in your business most probably due to of the above mentioned reasons.  Getting along, agreeing on business details, leadership strategy may prove to be too big a step for some businessmen to take.  And they have a right to be wary since JV’s are not guarantees for success. 

The Power of Joint Ventures / Joint Venture Agreement

Setting up a joint venture should adequately cover all the parties involved.   A joint venture can become a powerful business tool if it satisfies everybody.  Parties should reach a joint venture agreement where objectives for the new business is clearly stated and defined. 

Financial contributions, daily management and dispute management should be included.  Should disagreements between parties arise and become irresolvable, a termination agreement together with a non disclosure clause should be stipulated and agreed upon by all concerned.


The Power of Joint Ventures / Closing Thoughts

A joint business venture is indeed a powerful business too and sounds like an easy thing to do, but it can be complicated if you and your partners don’t get along.  Before entering into a JV study your own business.  Be realistic about your strengths and weaknesses and analyze the pro’s and con’s of joining one.  Most of all, consider if you and your partners are compatible, personally and business-wise. 

For a more thorough article on Joint Ventures, please go to:
http://entrepreneurs.about.com/od/beyondstartup/a/jointventures.htm

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