Joint Venture can be described as a business arrangement, wherein two or more
independent firms come together to form a legally independent undertaking, for a
stipulated period, to fulfil a specific purpose such as accomplishing a task, activity or
project. In other words, it is a temporary partnership, established for a definite purpose,
which may or may not uses a specific firm name. The firms joining hands in a joint
venture are called Co-venturers, which can be a private company, Government
Company or foreign company. The co-venturers come to a contractual agreement for
carrying out an economic activity, which has shared ownership and control. They
contribute capital, pooling the financial, physical, intellectual and managerial resources,
participating in the operations and sharing the risks and returns in the predetermined
Purpose of a Joint Venture
Parties enter into joint venture contracts in order to combine strengths and increase
competitive advantage while minimizing risk. For example, a tech firm may collaborate
with a manufacturing company to bring a new high-tech idea to the marketplace. One
party provides the product expertise; the other provides the means for production.
Additionally, joint ventures provide a way for companies to enter foreign markets. For
example, a foreign company enters into a joint venture with a U.S. company for sale of
its product. The foreign company then benefits from the domestic company’s
governmental approval and business relationships in the industry. This is referred as an
“international joint venture.”
Benefits of a Joint Venture
Creating a Joint Venture provides an opportunity for the parties to benefit from one
another’s expertise. Other benefits include:
Enables the parties to offer their customers new products and services
Helps the parties to save money in operating, marketing, and advertising costs
Helps the parties save time
Helps the parties acquire new business associates and referrals
Enables the parties to gain new technological know-how or new geographical
Does not require a long-term commitment
Objectives of Joint Venture
To enter foreign market and even new or emerging market.
To reduce the risk factor for heavy investment.
To make optimum utilisation of resources.
To gain economies of scale.
To achieve synergy.
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