JOINT VENTURE: CHARACTERISTICS, ADVANTAGES AND EXAMPLES - DUDAS - 2024

A joint venture or joint venture is a business entity created in which two or more companies agree to pool their resources in order to carry out a specific task, which could be a new project or a new business function. In a joint venture, each of the parties is responsible for the losses, gains and costs associated with it.

However, the joint venture is its own entity, totally separate from the other business interests of the parties. Despite the fact that the purpose of joint ventures is typically for certain production or research projects, they can also be formed for an ongoing purpose.

A joint venture differs from a merger because there is no transfer of ownership in the agreement made. The critical aspect of a joint venture does not lie in the process itself, but in its execution. Everyone knows what to do: specifically, you need to join forces.

characteristics

Joint ventures can take on any legal structure. To form a joint venture, the figure of corporations, partnerships, limited liability companies or other business entities can be used.

Regardless of the legal structure used for the joint venture, the most important document will be the signed agreement, which establishes all the rights and obligations of the partners.

This document sets out the objectives of the joint venture, the initial contributions of the partners, the day-to-day operations and the right to profits and / or liability for losses.

The key determining element, which is responsible for the failures of joint ventures, is the human factor. Being able to make employees comfortable with a potentially disruptive strategic alliance will be crucial to its success.

This implies that the two parties must not only understand how much they should earn from the joint venture but, more importantly, how much they could lose by not partnering.

The most successful joint ventures are those that make a 50:50 partnership, where each party has the same number of directors, with rotating control of the company.

Implications

The joint venture becomes a new entity with the following implications:

- It is officially separated from its founders, who could be giant corporations.

- You can contract in your own name or acquire rights, such as the right to buy new companies.

- It has a separate responsibility from that of its founders, except for the capital invested.

- You can sue (and be sued) in court in defense or in obtaining your objectives.

Dissolution

The joint venture is not a permanent structure. It can be dissolved when:

- The objectives have already been met.

- The objectives were not met.

- Either party, or both parties, develop new goals.

- Either party, or both parties, no longer agree with the objectives.

- The time agreed for the joint venture has expired.

- There are legal or financial issues.

- The evolution of market conditions indicates that the joint venture is no longer appropriate or relevant.

- One of the parties acquires the shareholding of the other.

Advantage

Typically, companies pursue a joint venture for one of these reasons:

- Access a new market, particularly emerging markets.

- Obtain scale efficiencies by combining assets and operations.

- Share the risk of large investments or projects.

- Access new technologies, skills and capabilities.

Joint ventures are advantageous as mechanisms to reduce risks when seeking the penetration of new markets, and for the shared union of resources to undertake large projects.

Some countries have restrictions on foreigners entering their market, making a joint venture with a local company almost the only way to enter the country.

In some cases, a large company may decide to form a joint venture with a smaller company in order to quickly acquire critical intellectual property, technology or resources that would otherwise be difficult to obtain, even with a lot of money at its disposal..

Disadvantages

A joint venture concept is only effective when there is a true will to move forward together. Not even signed contracts have value if mutual trust and acceptance of the terms are not present.

Actually, it is better not to consider a joint venture project if the motives of one of the parties are questioned by the other party. The risks involved are easy to assess:

- Loss of money.

- Waste of time.

- Do not earn anything of importance in exchange for the investment.

- Deliver important technology.

- Wasting credibility.

Joint ventures present unique problems of capital ownership, operational control, and distribution of profits (or losses). Research indicates that two out of five joint venture agreements last less than four years and dissolve in contention.

Examples

Mining

Mining and drilling oil wells are expensive projects, and two or more companies in these industries often have to combine as a joint venture to exploit or drill a particular field.

Microsoft and General Electric

In 2016 Microsoft Corporation sold its 50% stake in Caradigm, a joint venture created in 2011 with General Electric Company (GE) to integrate the intelligence and health information system of Microsoft's Amalga company with a variety of Healthcare technologies. by GE.

Microsoft sold its stake to GE, effectively ending the joint venture. GE is now the sole owner of the company and is free to run the business as it pleases.

Sony Ericsson

It is a famous example of a joint venture between two large companies. They partnered in the early 2000s with the goal of being a world leader in mobile phones. After several years of operating as a joint venture, the company became the sole property of Sony.

Kellogg and Wilmar

Kellogg Company entered into a joint venture agreement with Wilmar International Limited, for the purpose of selling and distributing cereal foods to consumers in China.

While Kellogg brings a wide range of world-renowned products to the table, as well as its industry experience, Wilmar offers a marketing and sales infrastructure in China, including an extensive distribution network and supply chains.

SABMiller and Molson Coors

MillerCoors is a joint venture between SABMiller and Molson Coors Brewing Company, to place all of its beer brands in the US and Puerto Rico.

References

1. Investopedia (2018). Joint Venture - JV. Taken from: investopedia.com.
2. Wikipedia, the free encyclopedia (2018). Joint venture. Taken from: en.wikipedia.org.
3. Business Dictionary (2018). Joint venture (JV). Taken from: businessdictionary.com.
4. Jean Murray (2017). What is a Joint Venture and How Does It Work? The balance Small business. Taken from: thebalancesmb.com.
5. Scott Allen (2017). Business with a Joint Venture. The balance Small business. Taken from: thebalancesmb.com.