Why are Joint Ventures Becoming So Popular?

The creation of joint ventures is not a fashionable trend, it is a survival mechanism in the conditions of tough modern competition with the rapid development of transnational corporations and know-how. In this article, we will consider the mechanism of joint venture deals.

What is a joint venture?

Joint ventures are a relatively new organizational and social form of international entrepreneurship, in which common ownership is created for material and financial resources used to perform production, scientific, technical, foreign trade, and other functions.

A joint venture is characterized by several features:

  • the pooling of capital belonging to persons participating in it;
  • joint financing and management to achieve a certain economic result;
  • the joint bearing of risks and losses, as well as joint participation in income and their distribution.

At the same time, great importance is attached to the fact that a joint venture is also an association of subjects of law, individuals, and legal entities, aimed at cooperation in some commercial event for a long time.

Some experts also emphasize the urgency, the purposeful nature of the joint venture, understanding it as an agreement on joint activities between two or more business entities to achieve a specific goal or participate in a project that can be successfully implemented as a result of combining resources or technology.

Besides, the joint venture is not an organizational and legal form of a legal entity, but can only be created in one of the organizational and legal forms if the co-investors decide to pool their capital in the form of a legal entity. Thus, a joint venture acts as a collective category that unites any types of legal and non-legal entities, as well as contractual forms of joint activities, the participants of which are foreign and national investors on an equal footing.

Why do businesses choose joint venture strategy?

There are many reasons for founding a joint venture. In most cases, the motives are based on strategic considerations. So, they are as follows:

  • Through a joint venture, the companies involved can concentrate on their respective strengths and efficiently open up new markets.
  • A knowledge transfer takes place between the companies, which can open up completely new possibilities.
  • The entrepreneurial risk is spread over several shoulders, so that it is lower for the individual.
  • The financial expenses are also often lower. As a result, goods and services can be offered more cheaply in many cases. This also results in a competitive advantage that should not be neglected.

Overall, it can be seen that cooperation companies are often much better positioned than their competitors.

The process of implementing the joint venture

As practice shows, signing a competent, carefully calibrated agreement to create a joint venture does not guarantee success. After signing the agreement on the creation of a joint venture, the most difficult stage begins – its implementation, which requires the ability to build competent relationships between partners among themselves, the joint venture created, and groups within the joint venture.

The implementation of strategic plans in long-term joint ventures, as a rule, begins with small projects, when choosing which the main criterion is a great chance of success and instant financial payback. At the same time, there can be several such small projects; for their full implementation, pilot teams are formed with the obligatory participation of both parties, which also significantly contributes to the rapprochement of partners and the achievement of mutual understanding. In this way, partners gradually get used to each other and synchronize procedures and management systems.