Advantages Of Joint Venture
A joint venture is business association with two or more parties merging resources for a particular purpose or project. Setting your business goal/s is the first step when entering a joint venture. Your goal may one of the following: expanding a marketing coverage, sourcing out information and business links, building credibility with a specific target market, or accessing new markets that is hard to aim in a solo business. After you have set your goals, you should look for a trusted business co-participant who shares a common goal. Third step is exchanging business concepts with your chosen co-participant. Fourth step is securing the joint venture by written agreement. You need guidance of a legal professional guidance to do this. Here are the following advantages of joint ventures:
1. Access to new technologies – If you want to enter into global markets and have a prosperous business, access to state-of-the-art technologies is very important. Joint ventures can provide a thriving or growing business with right new technologies that a solo business cannot develop due to costs or other resources constraints. Investing on new technologies offers risk but if a purchase is based on well-thought planning, failure can be avoided.
2. Cost reduction – Costs of production, distribution, technology, transportation, and other needed capabilities can be reduced with joint ventures. It is much easier to focus on product or service enhancement when you don’t worry so much about exceeding and impractical costs. If this is the case, you are most likely to expand your business eventually.
3. Provide participants the opportunity to learn – Forming an alliance allows the participants to work with other businesses in the same or related industries. This provides participants with the opportunity to learn from each other’s successes and mistakes.
4. Sharing risks – Joint ventures allow participants to exploit new opportunities. To be successful in a project, participants must have rapport and open communication. The very important role in sharing risks is the square root rule which means the success of a particular project depends on the risk preferences of the venture participants.
5. Improves market credibility, penetration and access – All businesses struggle at the start in building acceptance, penetration and access within their target market. Joint ventures allow customers to have trust and confidence on a particular project. It also helps attract more customers and improves coverage.
6. Lesser chance of your partner becoming a competitor – Since your fellow participant in a joint venture alliance have similar goals, interests, and business perspective with you, merging resources upshot to lesser chance of competition when it comes to the particular project.
7. Better market feedback – When a business is able to provide state-of-the art technologies, better market coverage, enhanced credibility and penetration, customers are able to give feedback more. Joint ventures are healthy alliances that help a business understand better their market. By allowing you to focus on developing your strengths, joint ventures provide the ability to respond more quickly and effectively to change. In some cases, joint ventures also allow you to open up to global opportunities.
Joint ventures are a form of strategic alliance that can be described as a collaborative effort in the form of legal entity like a corporation, partnership or limited liability company. The elements common to joint ventures include community interest in the subject of the undertaking, sharing profits and losses, equal right to direct and control the decision of each other and of the joint venture, and fiduciary relation between or among the parties if participants are more than two persons. Entering into joint ventures can cause additional burdens and risks, the following are the drawbacks of this strategic alliance:
Drawback of Joint Ventures
1. Loss of competitive advantage – Joint ventures, acquisitions, and alliances with an actual or potential competitor may jeopardize the cooperative advantage that a business might otherwise have developed in the absence of the relationship. As a participant, it is important for you to evaluate whether your goals and business opportunities can be achieved even without assistance of competitors or whether the price of such opportunities and goals is excessive in light of the overall business objectives of the entity.
2. Lack of control – Two or three heads is better than one, they say. But no matter how the alliance is structured, participants inevitably will lose some aspect of control over the project. In order for participants to gain, they must also give something up. If you want your business to work-out, you need to simultaneously structure the management in such a manner as to retain as much control as possible without affecting the project and carry out due diligence on the participants to ensure a level of trust amongst them. Each partner must contribute complimentary skills and resources in an ongoing relationship offering mutual benefits.
3. Governmental relations – Some joint ventures involve alliances formed with foreign entities. This kind of relationship can lead to substantial opportunities for a growing business but must also be mindful of local regulations and governmental review procedures that may affect the activities of the participants.
4. Time consuming – For some people, entering to new venture is time-consuming. Getting to know another participant also entails difficulties. If you think, adjusting to new business participant/s is tough, better drop the idea of entering a joint venture.
5. Increased managerial burden – Shared control on a business may increase management time and a risk of deadlock looms among co-venturers. Managerial burdens are heightened as the number of co-venturers increase. To avoid this kind of scenario, a business has to have a carefully drafted joint venture agreement that can minimize and even eliminate the problems twisted by shared control.
6. Loss of management autonomy – Choosing a joint venture structure entails some loss of autonomy for the co-venturers with respect to the project.
7. Co-venturers are jointly liable for each other’s negligence – Perhaps the most difficult part of a joint venture is that the law does not generally recognize joint ventures as general partnerships. This means, the selection of the joint venture business form involves exposure to liability for the wrongdoing of the other co-venturer.
October 25, 2017
October 25, 2017
August 6, 2017