What a Joint Venture entails free essay sample

Joint venture is a collaboration of two or more businesses to undertake a common economic activity. A joint venture then is a partnership, a contract between to parties, or a corporation. However, the difference between business partnership and a joint venture is that a former may be established before a company is formed while the latter is a collaboration of 2 or more existing entities forming a tie. It must be cleared though that a joint venture is still a partnership. Another important point to take note is that a joint venture can be limited to a specific time or project, or a formation of another separate entity from two business entities. One main reason why companies joint ventures is expansion. Since one company may not be able to take the financial requirement for expanding the company, it may require another company that is willing to join alliance with it. This combines the assets, capitals, technology, and human resources of 2 companies which make the venture stronger to undertake a larger market scale. We will write a custom essay sample on What a Joint Venture entails or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page This also divides the probable risk and the rewards. It is important to make a great consideration to financial strength. An entity may have a good financial resources but being able to tap others resources through a joint venture provides more leeway to expand and increase its opportunity to create better profits. Although there is a risk involve in investing in a business, returns are larger and potentially higher. Statistically, companies that entered in joint ventures have seen faster growth. Also, joint ventures shorten the time consumed in building and learning the knowledge of the business and market expansion, productivity growth, product enhancement, and business names which are also very costly. This is why reducing the cost does not only limit to sharing assets and capitals. Joint venture also opens the market channel of both entities to each other, making it better for both companies to access wider market crowd that equates to better profit at a lesser cost. On the strategic side, the joint venture is also used to pre-empt an emerging company from expanding, to save the company from shutting down, or to build a relationship faster with other businesses. For an entity who wants to introduce their business to a foreign land. An international joint venture is often more economical and wise thing to do. This is because the host company has an existing connections, technology, manpower, domestic know-how that are very vital in the success rate of any foreign company entering a foreign land. The business world is a big playing field of large and small; strong and weak; and successful and not so successful people, group of people, companies, and corporations. Interestingly enough, they all work as one to keep this playing field in the constant move. However, like in any other playing field, an entity no matter what its size is, needs build an alliance to better increase his chances of growth. And the best way to do it is by entering in a joint venture. As the term goes, it’s a big world out there. And indeed, the business world is not for someone with a fainted heart. But joining an alliance is not an escape route for survival; it is just a way to effectively succeed in the game where most people do not want to join. A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares. In European law, the term joint-venture (or joint undertaking) is an elusive legal concept, better defined under the rules of company law. In France, the term joint venture is variously translated asassociation dentreprises, entreprise conjointe, coentreprise or entreprise commune. But generally, the term societe anonyme loosely covers all foreign collaborations. In Germany, joint venture is better represented as a combination of companies (Konzern). [1] With individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are co-venturers. The venture can be for one specific project only when the JV is referred to more correctly as a consortium (as the building of the Channel Tunnel) or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for one-time contracts. The JV is dissolved when that goal is reached. Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson, Penske Truck Leasing, Norampac, and Owens-Corning. A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits. Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns. Ultimately, short term and long term successes are both important. In order to achieve this success, honesty, integrity, and communication within the joint venture are necessary. The Advantages And Disadvantages Of Entering A Joint Venture Entering a joint venture is a complex, and sometimes, time consuming process. As any type business structure, it holds a good opportunity for anyone to grow and make money fast; but just like any other business type, joint venture also holds threat to anyone who wants to enter. Discussed below are the advantages and disadvantages of entering a joint venture. Advantages of Entering a Joint Venture: †¢ Accessing additional financial resources Asset sharing is one of the best advantages about joint venture. Since, you are able to use larger funds to facilitate the production and operation of projects and products, you facilitate growth. In other words, you increase profit margin and increase your revenue potential. †¢ Sharing the economic risk with co-venturer It pays to have someone sharing the responsibility with you in case you end up in deep troubles. This is also true with joint venture. Since you are sharing assets, the risk of losing a great deal of money is divided to both parties. †¢ Widening economic scope fast – Building reputation is often difficult, not to mention time consuming and expansive. At a joint venture, you are able to widen your economic scope without spending too much money and waiting for a long time. †¢ Tapping newer methods, technology, and approach you do not have – In order to grow and expand, you need resources in the forms of methods, technology, and approach. For that matter, it would help a lot if you will be able to partner with an entity that presently has the things you don’t and the things you need. Joint venture opens up the venue for such need. †¢ Building relationship with vital contacts – Aside from economic territory, another advantage of joint venture is the ability to give you business relationships with vital contacts. This is just like automatically befriending your partners influential friend that can give you access to lots of things such as business opportunities and a pass to vital information. Disadvantages of Entering a Joint Venture: †¢ Shared profit – Since you share assets, you also share the profit. The profit of both parties usually depends on the size of the share to the venture or may be defined on the agreement. †¢ Diminished control over some important matters Operational control and decision making are sometimes compromised in joint ventures. Since there is an agreement that divides which one will take over a particular operation, the other may not be satisfied with how the things are worked out with another. This leads us to another disadvantage of a joint venture †¢ Undesired outcome of the quality of the product or project – Since one party may not have control on the supervision of the production or the execution of one part of the system, this can happen. This often leads to disputes and lawsuits. To avoid this, both parties agree on specific details about the whole operation process. †¢ Uncontrolled or unmonitored increase in the operating cost – Again, defined control over the operation may lead to this disadvantage. It is important therefore to make sure that all things are clarified on the paper before singing in the joint venture agreement. Making money by entering a joint venture is easy provided that you know exactly what you are doing. With these advantages and disadvantages presented, you are clearly aware of the things that await you.