Joint Venture

A joint venture (often abbreviated JV) is a legal 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 Sony-Ericsson joint venture.

Generally, joint venture is the merging of two (or more) companies, enterprise or organization towards a more profitable, mutually beneficial and stronger entity in the market. They may have varied goals, or may lead only to one goal. Still, the merging was completed because it presented a win-win situation for both (or all) parties.

A joint venture may be of various kinds - temporary merging or permanent partnership. This is depending on the goals or projects being covered or strategies being adopted by one or more merging parties.

Organizations can also form joint ventures, for example, a child welfare organization in the Midwest initiated a joint venture whose mission is to develop and service client tracking software for human service organizations. The five partners all sit on the joint venture corporation's board, and together have been able to provide the community with a much-needed resource.

Some countries, such as the People's Republic of China, require foreign companies to form joint ventures with domestic firms in order to enter the Chinese market. This requirement often forces technology transfers and managerial control to the domestic partner.

Reasons for forming a joint venture:

Internal reasons

1. Spreading costs and risks
2. Improving access to financial resources
3. Economies of scale and advantages of size
4. Access to new technologies and customers
5. 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

Copyright 2007 Ismael D. Tabije

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