Joint venture

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A joint venture (often abbreviated JV) is an 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. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement.

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.

The phrase generally refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations such as tax and tort liability.

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[edit] When are joint ventures used?

Joint ventures are common in the oil and gas industry, and are often cooperations between a local and foreign company (about 3/4 are international). A joint venture is often seen as a very viable business alternative in this sector, as the companies can complement their skill sets while it offers the foreign company a geographic presence. Studies show a failure rate of 30-61%, and that 60% failed to start or faded away within 5 years. (Osborn, 2003) It is also known that Joint ventures in low-developed countries show a greater instability, and that JVs involving government partners have higher incidence of failure (private firms seem to be better equipped to supply key skills, marketing networks etc.) Furthermore, JVs have shown to fail miserably under highly volatile demand and rapid changes in product technology.[citation needed]

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

[edit] 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

[edit] Examples

[edit] External links

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