Joint venture, also fondly referred to as JV, basically is a combination of complementary units and assets owned by different firms. The assets could be tangible (machinery, equipment) or even intangible as is considerably the case nowadays (production, branding and most importantly, technological know –how).
Joint venture helps firms in identifying new frontiers, getting knowledge, enhancing capabilities, and other resources. The tricky part with joint ventures comes in because they are owned by two or more companies that initially have different goals, styles of management. For international joint ventures, if you throw in government policies and different business practices it can be a tricky mine to wade.
There are different types of joint venture that are popularly used when incorporating joint ventures and they are vary in different countries based on different regulations and policies that each country follows or adopts. These ventures could be:
- either non-equity ventures,
- or profit-maximizing ventures.
Usually international joint ventures are the more popular choice because it brings in foreign direct investment (FDI) which are owned by local business partners with a success rate of 40%.
Although international joint ventures are preferred by some of the businesses, there are factors that play a role in successfulness of a JV like:
- which party will have the major controlling interests
- how are the combined assets to be managed
- how will cultural factors play out
- what are the desired performance levels
- governance and control of the combined assets and a host of other factors that are instrumental in determining whether the company will set off to a bold start or fold it’s wings before it has gotten the energy to ultimately fly
The reasons used for having joint venture are various, but the major ones are usually:
- Getting synergies by gaining access to the same market
- Gaining access to new markets in foreign countries
- Reducing costs
Potential barrier to joint venture success is holding back on vital information and not pulling your weight as would be desired. In addition, in international joint ventures the absence of trust and cultural differences can also lead to misunderstandings which might harm the business relationship.
In conclusion, before setting up a joint venture consider the trustworthiness and existing relationships of the partner company, as well as check its financials (potentially in form of financial due diligence).