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In today’s world, many projects are too large for any one company to
undertake as it may involve huge financial commitments. Joint ventures between
corporations are a fact of modern business. Some Joint ventures are no more than
fleeting encounters lasting only as long as it takes one partner to establish a
presence in a new market while others are a prelude to a merger of the
technologies and capabilities of two companies. Whatever may be the duration or
the objectives of various Joint ventures, being a good partner has become an
important asset for any corporation.In pursuit of profitable growth, many companies
are forming joint ventures, often in collaborations with the cross border partners. An
alternative to a traditional merger or acquisition, a cross border joint venture has
much to offer. This is particularly relevant in the global context where the ability to
create and sustain collaborations is vital in companies obtaining a significant
competitive advantage. But getting it right is as challenging as or even more
challenging than managing a successful merger. It could result in to legal conflicts
in the future if things start getting wrong.
But the advantages of having a joint venture are worth this risk. Joint ventures
specially cross border type Provide companies with the opportunity to gain new capacity
and expertise. It even Allow companies to enter related businesses or new geographic markets
or gain new technological knowledge, access to greater resources, including specialised staff.
sharing of risks with a venture partner
Joint ventures can be flexible. For example, a joint venture can have a limited life span and only
cover part of what you do, thus limiting both your commitment and the business' exposure.
In the era of divestiture and consolidation, JV’s offer a creative way for companies to exit from
non-core businesses.
Companies can gradually separate a business from the rest of the organisation, and eventually,
sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one
partner to the other.
It takes time and effort to build the right relationship and partnering with another business can
be challenging. Problems are likely to arise if:
The objectives of the venture are not 100 per cent clear and communicated to everyone
involved.
There is an imbalance in levels of expertise, investment or assets brought into the venture by
the different partners.
Different cultures and management styles result in poor integration and co-operation.
The partners don't provide enough leadership and support in the early stages.
Success in a joint venture depends on thorough research and analysis of the objectives.
Advantages of joint ventures
Joint ventures enable companies to share technology and complementary IP assets for
the production and delivery of innovative goods and services.
For the smaller organization with insufficient finance and/or specialist management skills,
the joint venture can prove an effective method of obtaining the necessary resources to
enter a new market. This can be especially true in attractive markets, where local
contacts, access to distribution, and political requirements may make a joint venture the
preferred or even legally required solution.
Joint ventures can be used to reduce political friction and improve local/national
acceptability of the company.
Joint ventures may provide specialist knowledge of local markets, entry to required
channels of distribution, and access to supplies of raw materials, government contracts
and local production facilities.
In a growing number of countries, joint ventures with host governments have become
increasingly important. These may be formed directly with State-owned enterprises or
directed toward national champions.
There has been growth in the creation of temporary consortium companies and alliances,
to undertake particular projects that are considered to be too large for individual
companies to handle alone (e.g. major defence initiatives, civil engineering projects, new
global technological ventures).
Exchange controls may prevent a company from exporting capital and thus make the
funding of new overseas subsidiaries difficult. The supply of know-how may therefore be
used to enable a company to obtain an equity stake in a joint venture, where the local
partner may have access to the required funds.
Caterpillar and Daimler/Chrysler ... and the reason for the failure ...Tom Hasslet
There are several successful joint ventures in place of companies in the US and Mexico as a result of
the NAFTA agreement.
Joint Venture between Marks & Spencer and Reliance Retail of India :