A joint venture means the involvement of two or more parties with a common intention- to produce better yields from the business. In general, a joint venture is a business strategy with one goal- to reach the consumer market.
Joint ventures involve two or more businesses coming together with a certain purpose for a certain duration of time or till the project is completed. The parties involved here will work together to make the business profitable.
One of the major benefits of JVs is that each company is able to partner with the other Company on pre-decided conditions and when the Joint Venture ends, it can easily return back to its own business operations. Here share of the profit among the partners is done on the basis of how it was agreed upon in the initial contract.
Companies go for JV for these reasons:
- Access- every now and then, new businesses are emerging in the market. J&V helps businesses to access a new market that is not only competitive but profitable as well.
- Emerge- to emerge in the new market as a competitor.
- Gain- to gain scale efficiencies by combining assets and operations.
- Risk- collaborating leads to outcomes- success and failure. A success in JV results in sharing of profit among the companies while a failure in JV results in all participating companies realizing their portion of losses. In JVs one company alone doesn’t have to bear risk, here risks are shared as are the profits.