A joint venture is when two or more businesses or people pool their resources and expertise to achieve a particular goal. The risks and rewards of the enterprise are also shared.
Reasons you might want to form a joint venture include business expansion, development of new products or moving into new markets, particularly overseas.
Your business may have strong potential for growth and you may have innovative ideas and products; however, a joint venture could give you.
1. More resources.
2. Greater capacity.
3. Increased technical expertise.
4. Access to established markets and distribution channels.
Entering into a joint venture is a major decision. This book gives an overview of the main ways you can set up a joint venture, the advantages and disadvantages of doing so, how to assess if you are ready to commit, what to look for in a joint venture partner and how to make it work.
A joint venture differs from a merger in the sense that there is no transfer of ownership in the deal.
This partnership can happen between goliaths in an industry. It can also occur between two small businesses that believe partnering will help them successfully fight their bigger competitors.
Companies with identical products and services can also join forces to penetrate markets they wouldn’t or couldn’t consider without investing tremendous resources. Furthermore, due to local regulations, some markets can only be penetrated via joint venturing with a local business.
In some cases, a large company can decide to form a joint venture with a smaller business in order to quickly acquire critical intellectual property, technology, or resources otherwise hard to obtain, even with plenty of cash at their disposal.
How does a joint venture work?
The process of partnering is a well-known, time-tested principle. The critical aspect of a joint venture does not lie in the process itself but in its execution. We all know what needs to be done specifically, it is necessary to join forces; however, it is easy to overlook the “hows” and “whats” in the excitement of the moment.
We will look at the “hows” in our review of the “Critical Factors of Success” later in this book. For the moment, let’s keep in mind that all mergers, large or small, need to be planned in detail and executed following a strict plan in order to keep all the chances of success on your side.
The “whats” should be covered in a legal agreement that will carefully list which party brings which assets (tangible and intangible) to the joint venture, as well as the objective of this strategic alliance. Although joint venture legal agreement templates can readily be found on the Internet, we suggest you seek the appropriate legal advice when entering such a business relationship.