Joint Ventures

Chapter 2 cont....

II. Joint Ventures: 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.

a. Project Based JV: These are Joint Ventures entered into by companies in order to accomplish a specific project.
b . Functional JV: These are Joint Ventures wherein, companies agree to share their functions and facilities such as production, distribution, marketing, etc. to achieve mutual benefit.

Motives for forming a joint venture

Internal reasons

1. Build on company's strengths
2. Spreading costs and risks
3. Improving access to financial resources
4. Economies of scale and advantages of size
5. Access to new technologies and customers
6. 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

Benefits of Joint Ventures

• Complementary Benefits
• Acquiring and Sharing Expertise
• New Business / Product Development
• Capacity Expansion

Issues in Joint Ventures

• Due Diligence
• Business Strategy
• Development of HR Strategies
• Implementation