Why exactly a joint venture is?
A joint venture is a way by which two or more parties pool their resources to get a specific task completed. Each party involved in the joint venture is responsible for the profits, losses and costs combined with it. Corporations and other business entities can all be used to form a joint venture. The three major reasons why companies form a joint venture are:
1. Leverage Resources
It refers to systematically evaluating the existing resources, analysing the need for additional resources and developing new resources in the community to address the identified needs.
2. Cost Savings
Sharing advertising or labour costs help each party involved in the joint venture to save some costs. Both parties in the joint venture can leverage their production at a lower per-unit cost than they would individually.
3. Combined Expertise
Each party has their own unique expertise and skillset that can be shared and utilised in the joint venture to cater the mutual growth.
To come to the conclusion of whether the joint venture is safe or not, let us delve into its advantages and disadvantages.
Along with an increase in productivity and upliftment in business growth, there are some more advantages to it:
- Exposure to new knowledge and expertise
- Enhanced capacity
- Sharing of risks and costs with a partner
- Access to new markets and distribution networks
There can be a likelihood of certain conflicts between the parties involved in the joint venture that may lead to some disadvantages, some of them include:
- The level of expertise and investment isn’t compatible
- Lack of communication between partners
- Each party with a different expectation from the joint venture
- A problem in the distribution of work and resources
After knowing all the pros and cons, is a joint venture safe?
There hasn’t been a straightforward answer to this. Nevertheless, the safest course in structuring a joint venture is to come as close as possible to comply with the safe harbour. Partnering with another party can be problematic and it takes time to build a decent business relationship. Not every issue can be avoided but a clear agreement with proper planning and divulgence can make a joint venture safe.