In a joint venture, you need a collaborative mentality to succeed as a small business owner. It would be best if you regularly worked on solutions with your staff, business partners, and investors. Sometimes you might have an excellent business idea that needs the assistance of someone else or a different organization for resources or experience. You might consider starting a joint venture with that person or business in this situation. This article will provide you with all the information you need about what a joint venture is and how they work.
What is Joint Venture?
An agreement between two or more people is called a joint venture—people or businesses jointly carry out a specific business objective. A joint venture might be set up as a distinct legal company or develop from an agreement between the parties. In contrast to a partnership, a joint venture usually lasts as long as it takes to finish the task.
What is a Joint Venture Agreement
A written joint venture agreement should contain all the partnership details. Even though a written contract is not required by law to start a joint venture, it is the best way to make sure that each partner is committed to the project and knows what is expected of them.
Similar to a partnership agreement, the contract should outline what each party will contribute to the joint venture and their obligations and share of the profits.
Overall, joint ventures might disintegrate due to disagreements between the participants without a formal agreement, just like any other kind of business collaboration, so it’s essential to take the time to develop and agree on a contract upfront.
What a Joint Venture Agreement Contains
Joint venture participants require a contract outlining the specifics of their participation. This joint venture agreement spells out the partnership’s goals and sets up all the rules needed for both parties to start their business together. This comprises ownership distributions, profit and loss information, and a termination clause. The agreement may also cover the venture’s scope, staffing, and organizational structure and how success would be measured.
What are the Examples of Joint Ventures
You need to learn from the best to properly comprehend the nature of a joint venture and make a successful contract of your own. In these examples of joint ventures, you can see how some of the most well-known companies in the world work together.
#1. PARADIGM (MICROSOFT + GENERAL ELECTRIC)
The 2011 Caradigm joint venture between Microsoft Corporation and General Electric (GE) is one of the more well-known examples of joint ventures. The Caradigm project was started to combine multiple GE health-related technologies with a Microsoft healthcare intelligence product.
#2. HULU
Hulu is another well-known example. At first, it was a partnership between NBC Universal, Providence Equity Partners, News Corporation, and The Walt Disney Company. When it first came out in 2007, Hulu was meant to stream content from these four companies and their different subsidiaries. Since then, Hulu has created its programs.
#3. STARBUCKS + BARNES & NOBLE
You’ve seen how many Starbucks locations are within Barnes & Noble stores, but did you know that’s an example of a joint venture? Starbucks sells more coffee, and Barnes & Noble offers a top-notch customer experience with its in-store cafes, so both businesses benefit.
#4. GOOGLE + FIAT CHRYSLER
In 2016, Google and Fiat Chrysler joined forces to make vehicles that can drive themselves.
Why does it function? Although a major player in technology, Google does not build cars. Its self-driving car assets more than doubled due to the Fiat-Chrysler agreement.
#5. SPOTIFY & SAMSUNG
In 2018, Samsung and Spotify agreed that Spotify could be used on Samsung devices.
After a year, they expanded their deal to include Spotify as a standard app on many Samsung phones and even gave customers a free six-month trial.
Types of Joint Ventures
between SABMILLER and MOLSON COORS in the brewing industry
Two or more businesses may take part in two primary forms of joint ventures. These joint ventures could affect just one product, an entire line of products or services, or both.
#1. A Joint Venture Based on Personnel
This kind of relationship includes both the individuals and the knowledge they contribute. On a project, there are several employees from companies A and B. Think about hiring a few programmers to make or improve an app or a few architects to fix up an old building.
#2. Joint Ventures Based on Equipment
This kind of business uses equipment or technology. For example, Company A doesn’t have the right manufacturing skills to make its new furniture line. It works with Company B, which has the hardware it needs but not enough designers. In this case, the benefits of a joint venture agreement are clear: Company A can make its invention without spending money, and Company B gets a share of the profits without paying for research and development.
What are the Advantages and Disadvantages of Joint Ventures
The benefits of this type of business partnership center on the acquisition of shared resources without a significant capital investment. This sharing of resources makes it easier for businesses to enter new markets and drives business growth scalable and low-risk.
Joint ventures offer a great deal of flexibility.
The Advantages of Joint Ventures
#1. Growth
Participants do not need to set up new corporations to produce the joint product of the venture. Also, once the initial partnership agreement is over, the partners are no longer required to work together. Each company keeps its identity and freedom and can pursue its business opportunities. Joint venture agreements simplify the business process as a result.
#2. Innovation while Lowering the Dangers Involved
A joint venture can be the best choice if you want to enter a new geographic market or raise your profile among a particular group. They are also an excellent way to access technology or intellectual property that you wouldn’t have otherwise. They can also help both businesses improve their marketing and promotion. A joint venture is nothing more than a chance to combine resources.
Disadvantages of Joint Venture
- But there could be problems with this kind of arrangement, such as the following:
- You might find it hard to work with the other company and solve problems.
- The collaborative enterprise might not succeed, wasting time, effort, money, and resources.
- Your undertaking through the joint venture may not grow as planned.
- Working with another business can make you more liable and cause other legal problems, especially if you don’t set up a separate company for the joint venture.
Joint Ventures Companies
#1. Google
The company owns Google and GlaxoSmithKline and has decided to work together to make bioelectric medicines. In 2008, The Walt Disney Company partnered with Disney ABC Television Group and NBC Universal Television Group (Comcast) to start a new business. Each company will own 45%, and the other will own 55%. The joint venture had a capital commitment of 540 million euros and ran for 7 years.
#2. Kellogg
Another well-known example of a joint venture is Kellogg and Wilmar International Limited. Kellogg International got into the industry to improve its position in the Chinese market and sell cereals and other snacks to Chinese people. When Kellogg and Wilmar joined forces, it was suitable for both companies. Wilmar International gave Kellogg International an extensive distribution and supply chain network, and Kellogg grew into new areas because of this agreement and relationship.
#3. The Walt Disney
In 2008, The Walt Disney Company partnered with Disney ABC Television Group and NBC Universal Television Group (Comcast) to start a new business. The joint venture’s goal was to make software or a website for streaming videos under the name “HULU.” This solution offers high-quality streaming for content on desktops, laptops, or mobile devices. The product was an enormous success, with an offering that reached $1 billion.
Why do Companies do Joint Ventures
The four main reasons why businesses create JVs are listed below.
#1. To Use Resources as Levers
The combined resources of the two businesses can help a joint venture reach its goal. One company may have a tried-and-true way of making things, while the other may have better ways of getting their products to customers.
#2. To Cut Expenses
Through economies of scale, the JV’s two companies can increase output at a cheaper cost per unit than they could alone. This is especially pertinent for technological advancements that are expensive to execute. A JV might also save money by splitting labor or advertising expenses.
#3. To Pool Knowledge
Two businesses or parties with different pasts, areas of expertise, or skill sets can join together to form a joint venture (JV). Each company can benefit from the talent of the other when they are united through a joint venture.
#4. Access International Markets
JVs are often used to enter a foreign market with the help of a local company. A company can set up a JV to sell goods to a local business, taking advantage of an already established distribution network to add more nations to its distribution network. Some markets don’t let foreigners in, so a joint venture with a local company is the only way to do business there.
Conclusion
When two businesses work together, each might be able to move into a new market for a relatively low cost. In truth, it makes perfect sense: Each firm brings its skills, yet the venture’s costs are shared among them. But it works best when both businesses have the same goal and are equally committed to making the joint venture work.
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