Many people are unable to differentiate the difference between joint ventures and a partnership. Both have some shared similarities but totally different. A joint venture is a contract between two or more different businesses or companies, which may or may not be a partnership. In America for example, when local police work together with the FBI on a particular ‘operation’; this becomes a joint venture.
Also, you should not confuse joint venture with a Qualified joint venture, which is a specific taxation form for husbands and wives in a partnership. With this in mind, then what is joint ventures?
What Is Joint Ventures?
Joint ventures are strategic alliances or businesses arrangement where two or more parties (mainly businesses) agree to pool their resources to accomplish a particular task or form a partnership to share an intellectual property, market, knowledge, assets, and profits.
A joint venture can happen between two or more huge companies that share a particular market or different markets. It can also happen between small businesses as a way to compete with bigger companies or competitors.
Why Form A Joint Venture?
There are many reasons why businesses form a joint venture. Some of the reasons include:
• To Combine Resources
Businesses will form a joint venture to combine resources so that they can achieve a particular goal. For example, small businesses may form a joint venture as a way to compete with bigger companies.
• To Combine Expertise
Many businesses in the technical field or market usually form a joint venture only to combine expertise. This is mainly possible if one company is experienced in one area whereas the other is experienced in another field. A good example is gadgets and software. For example, like smartphone designing companies and Google for their Android OS.
• To Save Money
Companies may consider a joint venture as a way to save money. This could be on trade shows, advertising, or even trade publication.
• Local Regulations
Many companies are forming joint ventures as a way to enter into a market. However, because of local regulations, they are forced into forming joint ventures.
Forming a Joint Venture
There are generally two ways to form a joint venture, that is:
1. Informally
You can simply form a joint venture with just a handshake. This method can be the best option in situations where each business is accountable for its own way of doing business. For example, assuming that Company ‘A’ from country ‘X’ wants to expand its market share by shipping its product to Country ‘Y’, but local regulations limit this. Company ‘A’ will have to form a partnership with a local company ‘B’. However, to limit the risks, company ‘B’ will have to buy the products. This partnership will have to work like that of a wholesaler and retailer.
2. Formally
When it comes to any kind of partnership or agreement, it is always wise to have them in writing. This also applies to joint ventures. It does not matter if it is an agreement between small businesses, at the very minimum, they should have everything in writing. Generally, you should make everything formal, due to legal issues, if and when they arise.
What Is The Success Rate?
Well, even though there is no official statistic on success rate, there are few studies done by private companies. The main finding was that most joint ventures work well within the first few years. As a matter of fact, 60% of the ventures work very well within the first five years. Experts say that the biggest factor in its success rate is the Human Factor (knowledge sharing and resource integration). Financial and geographical factors are not as important.
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