Joint venture

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For the Kottonmouth Kings album, see Joint Venture (album).

A joint venture (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Fuji Xerox joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement.

The phrase generally refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations such as tax and tort liability.

Contents

[edit] When are joint ventures used?

Joint ventures are not uncommon in the oil and gas industry, and are often cooperations between a local and foreign company (about 3/4 are international). A joint venture is often seen as a very viable business alternative in this sector, as the companies can complement their skill sets while it offers the foreign company a geographic presence. Studies show a failure rate of 30-61%, and that 60% failed to start or faded away within 5 years. (Osborn, 2003) It is also known that joint ventures in low-developed countries show a greater instability, and that JVs involving government partners have higher incidence of failure (private firms seem to be better equipped to supply key skills, marketing networks etc.) Furthermore, JVs have shown to fail miserably under highly volatile demand and rapid changes in product technology.[citation needed]

Some countries, such as the People's Republic of China and to some extent India, require foreign companies to form joint ventures with domestic firms in order to enter a market.

[edit] Brokers

In addition, joint ventures are practiced by a joint venture broker, who are people that often put together the two parties that participate in a joint venture. A joint venture broker then often make a percentage of the profit that is made from the deal between the two parties.

[edit] Reasons for forming a joint venture

Internal reasons

  1. Build on company's strengths
  2. Spreading costs and risks
  3. Improving access to financial resources
  4. Economies of scale and advantages of size
  5. Access to new technologies and customers
  6. Access to innovative managerial practices

Competitive goals

  1. Influencing structural evolution of the industry
  2. Pre-empting competition
  3. Defensive response to blurring industry boundaries
  4. Creation of stronger competitive units
  5. Speed to market
  6. Improved agility

Strategic goals

  1. Synergies
  2. Transfer of technology/skills
  3. Diversification

[edit] Reasons for dissolving a joint venture

  1. Aims of original venture met
  2. Aims of original venture not met
  3. Either or both parties develop new goals
  4. Either or both parties no longer agree with joint venture aims
  5. Time agreed for joint venture has expired
  6. Legal or financial issues
  7. Evolving market conditions mean that joint venture is no longer appropriate or relevant

[edit] Examples

[edit] See also

[edit] External links

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