Joint ventures are strategic partnerships between two or more entities that work toward attaining the same goal.
(article continues below)
Joint ventures could work well if both entities implement and execute their scheduled responsibilities and able to resolve conflict effectively.
Things to consider when forming a joint venture:
Sharing risks and liabilities with a partner – Sharing risks and liabilities is especially common in industries that require large amounts of capital and industries that have high product development costs. When you joint venture with another company, you minimize risk and liabilities substantially.
Product/ Service Scalability and Diversification – Two entities can pool resources and talent to reach markets globally. If your company lacks the technical design expertise needed for the development of new software, but has access to the appropriate distribution channels, forming a joint venture with the right partner can help your company acquire the expertise you need while providing your partner with access to the distribution it needs. If your company only offers one product or service and you want to add more, forming a joint venture is a great way to expand while keeping costs low.
Market Entry and Penetration – The formation of a joint venture can be the answer to an entity that lacks the financial resources and infrastructure to expand into other markets.
Location – When an American company wants to enter a foreign market such as the northern Chinese market, partnering with a local company in Beijing may be the most effective approach to penetrating that market. Breaking into a foreign market and be difficult and expensive because your company may lack the experience and knowledge of the culture and market, but with the right partner, you can substantially increase your chance of success.
Available funds – When a company lacks the funds to enter a new market or is faced with high product research and development costs, finding the right joint venture partner could be the answer to securing the necessary funding.
Marketing and Branding – If your brand is ambiguous in a certain market, teaming up with another partner is a great way to define who you are, what you do, and why you are better than the rest out there.
Barriers – When a company wants to buy another company but cannot due to the size, location restrictions, legal issues or exorbitant costs, joining forces with a competitor can be the best option for success. Additionally, joint ventures cost significantly less than complete acquisitions thereby making them less risky.