Joint Venture – Meaning, 4 Examples, Types, Joint Venture Advantages And Disadvantages
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To what extent have you explored the concept of joint ventures and their advantages for businesses? Joint ventures strive to gain a competitive advantage while mitigating risks by leveraging strengths and pooling resources. This blog will comprehensively elucidate the intricacies of joint ventures and present an illustrative example.
Joint Venture Definition
A joint venture is a collaborative agreement between two or more parties where they pool their available resources to achieve a specific objective. The main idea behind a joint venture is to leverage the strengths of each party involved while mitigating individual weaknesses.
Sometimes, the parties may establish a completely new business entity, such as a partnership, corporation, or limited liability company. Alternatively, existing entities may retain their identities and form a joint venture agreement.
In a joint venture, partners share resources, assets, and equity. Typically, joint ventures are formed to accomplish a singular purpose, such as conducting research or manufacturing a particular product.
However, they can also be established for ongoing objectives. Since joint ventures are temporary, the companies involved are not bound beyond the predetermined period of collaboration. The parties involved mutually agree upon the joint venture’s specific duration.
Joint Venture Examples
1. General Motors and Ventec Life Systems
Ventec Life Systems, a company based in Washington, and the globally renowned General Motors joined forces through a joint venture agreement. Their collective aim was to enhance the availability of versatile ventilators throughout the United States to combat the challenges posed by Covid-19.
Through this collaborative venture, a production facility was established in Indiana. Within the initial month, the facility successfully delivered 30,000 units of the VOCSN system (which combines a ventilator, oxygen concentrator, cough assist, suction pump, and nebulizer) to the US Department of Health and Human Services. Ventec significantly scaled up its monthly production from 150 ventilators to 10,000 units of the VOCSN system.
2. SAS and Microsoft
In February 2020, Microsoft Azure and SAS AI Analytics formed a joint venture to create an emergency response system focused on crisis management. This collaborative effort resulted in a technology-driven solution tailored for effective disaster management response. The system was designed to be utilized during various natural disasters, including floods, hurricanes, and similar events.
SAS leveraged its expertise in forecasting hazards by analyzing historical and real-time data. Microsoft’s technology was employed to automate manual public services in disaster-prone areas, enhancing communication and overall response capabilities.
3. Starbucks and PepsiCo
For over two decades, starting in 1994, Starbucks and PepsiCo have been collaborating on producing and distributing ready-to-drink coffee beverages. The North American Coffee Partnership (NACP) joint venture has created well-received products such as Starbucks Frappuccinos and Starbucks Doubleshot Espresso.
As a result of this partnership, both companies have experienced amplified market presence, heightened brand recognition, and enhanced profitability.
4. Shell and Cosan
In 2010, Royal Dutch Shell and Cosan, a Brazilian company specializing in bioethanol, sugar, and energy production, established a joint venture named Raízen. The primary focus of this collaboration was to develop sustainable and competitive biofuels. By combining Shell’s proficiency in fuel distribution with Cosan’s expertise in sugar and ethanol production, the joint venture aimed to leverage the strengths of both companies.
Since its inception, Raízen has emerged as one of Brazil’s leading bioenergy producers. This achievement has significantly expanded the market presence of both Royal Dutch Shell and Cosan, resulting in increased profitability for both entities. The joint venture has effectively capitalized on the growing demand for sustainable fuel alternatives, allowing them to thrive in the bioenergy sector.
Types Of Joint Ventures
The following are the types of joint ventures:
1. Project-based JV:
These entities are established to achieve specific projects, which may involve constructing a dam, road, or bridge or completing a research project.
2. Vertical JV
It involves a cooperative partnership between companies operating at various levels within a supply chain, aiming to achieve economies of scale. These companies offer similar products or services.
3. Horizontal JV
This collaboration occurs among two or more parties operating within the same product line. It involves a cooperative effort among competitors.
4. Functional JV
This type of joint venture aims to facilitate the exchange of resources and create synergies among the participating parties. By doing so, it brings benefits to all the collaborators involved.
5. Limited Co-operation
In this joint venture, the co-ventures come together for a specified contractual period to undertake a specific task. This task may involve advertising and marketing an innovative product.
6. Separate JV
The involved parties establish a new business entity to sustain the joint venture. The co-ventures transition into corporate partners within the newly formed company, each holding a proportionate share of the company’s ownership.
Joint ventures Advantages
below are the advantages of joint ventures
- Joint ventures serve as a means to enter a new market, particularly a foreign market.
- Joint venture organizations collaborate and pool their resources to maximize benefits and achieve cohesive growth. These resources can encompass financial, material, technical, or personnel assets.
- The participating parties assume the risks and costs within a joint venture according to the agreed-upon terms. Consequently, the liability is distributed among them.
- it helps build long-term business relationships.
- A joint venture enhances the potential of the collaboration, leading to increased business efficiency, higher sales, and improved profits.
- When existing business entities join forces through a joint venture, it creates a competitive pricing environment for their products. As a result, the scope for new entrants in the market becomes more limited.
Joint Venture Disadvantages
These are the advantages of joint ventures.
- In a joint venture, it is possible that the participating firms may not possess equal levels of competence or expertise.
- Frequently, within a joint venture, certain parties may have a smaller role or involvement, potentially resulting in discrepancies and conflicts.
- Cultural clashes and disagreements can arise when individuals or companies from different backgrounds join a joint venture. It is not always feasible for different styles and approaches to seamlessly integrate and work together.
Joint Venture vs Partnership
A joint venture (JV) is a temporary collaboration between individuals or companies to achieve a specific task. In contrast, a partnership involves a long-term association between individuals to produce goods or services. Joint venture parties formalize their arrangement through a JV Agreement, while long-term partners establish a mutually agreed-upon partnership deed or contract.
A joint venture terminates upon the completion of the designated duration or task, whereas a partnership extends for the entire lifespan of the business. In a joint venture, all parties involved are jointly liable in the event of an offence or violation. Conversely, only the partner responsible for the wrongdoing is held accountable in a partnership.
