First, what is a joint venture?
It’s a partnership between two or more people, or between an individual and a company, or between two companies.
The purpose behind a joint venture is to help those involved to expand into new markets. As such, the key purpose is for growth.
Depending on the size and nature of the joint venture, they can be very complex in nature. Excellent communication is called for to enjoy success.
In general, joint ventures arise when both parties, or all parties, have a particular customer in mind – a shared customer in mind.
Normally, joint ventures are project-based and temporary in nature.
With regards to organizations, a joint venture can provide a highly workable solution to an acquisition or outright purchase.
It could be that the joint venture allows you to access a new market, geographically speaking.
Given that different countries cater to different laws and have different regulations, it can be a more cost-effective approach to partner together with an organization that already conducts business in your preferred country.
This way, it’s much easier to gain access to a ready-made market.
Regardless of the type of joint venture, there are, of course, advantages and disadvantages involved. Let’s look at some of those now.
Advantages of Joint Ventures
- You can gain access to fresh markets.
- The costs are either reduced or shared with your joint venture partner.
- You gain the capacity for leveraging patents and technologies that are already established.
- For LLCs and LLPs, there are potential tax benefits on offer.
- Joint ventures are easy to set up.
- There’s no great expense to access expertise that is already established.
Disadvantages of Joint Ventures
- There’s a possibility of capital and resources mismanagement. This can come about due to a lack of understanding in terms of each partner’s role.
- Because joint ventures are exclusive in nature, partner growth can be impeded. This may come about due to concessions related to non-compete or to clauses involving conflict of interest.
- If the objectives of the joint venture are not clear or not even specified, there may be unevenness in terms of who does what, in terms of profits, and in terms of losses should losses occur.
- In a joint venture, there may be a clash of management styles.
- All parties involved in a joint venture have increased risk, more liability, and greater exposure.
- There’s always going to be a potential for conflicts arising between the joint venture partners.
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