What is Joint Venture?
A Joint Venture is a legal arrangement between two organizations. In this agreement, they combine assets, expenses, investments, etc. things to achieve a specific goal and for a specified period of time. It this, not a permanent venture. This venture is for some particular time period. If you are an entrepreneur and you are planning to do a joint venture or you want to know about the joint venture, then read this blog. Here we will briefly explain to you about the joint venture and its various aspects. So let’s begin with us.
Concept of Joint Venture
A joint venture is a process where two or more companies join their business to meet the specified goal. This type of venture happens between two different skill set companies, to get the desired output. Joint ventures are very much similar to partnerships business, but there is the only difference is that different skillset person or companies join their hand. In a joint venture agreement both the companies are ready to share the profit at a certain ratio. The ventured companies are also known as co-ventures.
When the companies join their hands to work as a unit and that will be very profitable and cost-efficient also. The main reason for the venture is to enter a new business line, target a specific type of audience, rule the market, and so on.
It is not important that joint ventures happen between only private companies, it can be private, government, and foreign companies also. It depends on the reason and situation and will of the companies who want to work under one roof. It’s a combination of the pool where companies share expenses, resources, profits, risks also. The best example of the joint venture is Maruti Ltd. of India and Suzuki Ltd. of Japan. They came together and set the new company Maruti Suzuki India Ltd and now they are ruling the market with their products and services.
6 Aspects of Joint Venture
When two or more firms came together for an agreement, to take their business to a certain level to achieve the desired goal, and get the profit.
2. Joint Control
When the venture happens then co-venture companies are having some joint control over each other companies like business assets, operations, administration, and even the venture.
3. Joint Pool of resources
When there is joint control and then there is a joint pool of resources also there. In that pool their resources like capital, manpower, technical experts, and experienced employees, which helps in large-scale production.
4. Sharing profit and loss
When the venture happens then companies sign the agreement where their ratio of profit and losses is specified. According to that ratio, they will share the profit and losses. For the short-term ventures, the calculation of the profit and loss is done at the end. When the venture is for a longer time period then calculation done annually.
5. Adopt technology
When companies join hands then the company needs to adopt new and advanced technology like techniques of production, marketing, and doing business, which decreases the overall cost and also improves quality.
Once the terms and the goal is achieved then the joint venture is complete, the agreement comes to an end, and the accounts of the companies are settled, as and when it is dissolved.
Reasons for Joint Venture
- It helps to enter foreign markets and target foreign markets and new markets.
- It helps to reduce the risk for heavy investment.
- Helps in to do the optimum utilization of resources.
- Helps to raise the economic scale of the company.
- To achieve unity
7 Advantages of Joint Venture
1. Shared investment
When a company goes for a venture then each company contributes a certain amount of capital to the project. It will depend on the terms of the arrangement in what ratio each company has to contribute.
2. Shared expenses
In the joint venture, there is a pool of expenses that has to be shared by each company. expenses ratio also depends on the ratio of the cost which they are investing.
3. Pool of expertise
Every company has some experts and experienced employees with their knowledge and with their supervision a company can do wonder. When the venture happened companies also shared their expertise to take the project to a certain level.
3. Target New Market
A joint venture may help companies to enter a new market with ease because all the legal work is taken by the local company of the area and other company an easily enjoys the market share. It will work the same for other companies also.
4. New Earning
There is a limited resource and capital for small businesses. As soon as they enter the joint venture process their area, resources and capital is increased. Sooner they will progress and expand. While using the other companies’ resources they will definitely grow and start earning more
When companies are single they have limited resources to use and as soon as they come into a joint venture they work as a team and their efficiency will also increase.
6. Gain market trust
After joining hands with the large companies small companies will be able to gain market trust and start visible in the market.
When companies join hand then is a decrease in the competitor in the market and then the prices will be increased. Like this, you will rule the market.
3 Disadvantages of Joint Venture
- When a Joint venture happens then there are chances of limit your opportunities because when a venture happens you will contrate on your work and you will not look towards companies. So sometimes you miss the opportunities will other companies give to you.
- Sometimes it is difficult to work with the new set of features because of the pressure of the JV and sometimes objectives are not cleared and venture companies are doing work in a different direction.
- When there is expertise attitude problem comes in the project, then difficult to work in that situation.