Whether you’re new in the art of business or have been an entrepreneur for some time, you’ll eventually come across the idea of becoming part of a joint venture. It may sound like a bit of complicated business talk but a joint venture is a variation on the age-old idea of a business partnership. Though, of course, it’s a lot more complicated than that.
Joint ventures are legal entities created when two or more companies pool their resources for a single goal.
As legal entities, they are similar to corporations, able to operate independently of its founding companies and has the corresponding rights as a business operation – this means it can acquire properties, has separate liabilities and assets and can sue and be sued in court. Joint ventures usually come about in the way that all partnerships usually come about – one party has something that the other wants and the other party is willing to share its resources to the benefit of both. Joint ventures are formed by small companies hoping to expand, while global companies usually does them so that they can enter a particular country’s market.
There are several advantages to joining a joint venture. The primary one is that a joint venture is a shared business – liabilities and assets are divided evenly between two or more partners. This can enable the participants to have higher profit margin for a lower amount of risk. Usually, when a business enters a new market, the risks involved can be terrifying for a new company – even larger corporations tread lightly when they enter a market. Going into a joint venture with partners can make sure that the price of failure is not devastating for the company.
Another advantage is that partnering with someone who already has the infrastructure ready for your product enables you to deliver the product faster than other businesses. Trying to build up a distribution channel is a difficult proposition. It costs money and can be subject to delays – having ready-made distribution points provided by your partner can make it easier for a company to deliver the product and helps them focus on one part of the operation. Joint ventures also carry with them the weight of the partners’ reputations – having a well-known and trusted brand backing you will often help you sell your product more.
There are, of course, disadvantages. The primary one is that all of this profitability depends on your partners’ dependability. Having unscrupulous or less-than-stellar business partners can cost you a whole lot of money. Another one is that a joint venture often involves integration and this can be difficult for both parties – culture clash and integration problems will crop up, if you’re not careful.
It sounds all complicated but the process of going into a joint venture is actually very easy. The formulation of a joint business plan is almost always the first step; it assures that all the participants are on the same page and assures them about the efficient division of work. After that, legal and binding agreements are signed to confirm the partnership and it goes forward from there.
Joint ventures are a great way to penetrate a market and I hope this brief introduction gives you the bare bones of what you need to get into one.