Features of Joint Ventures
In the present competitive business scenario, companies have to maintain their edge. To do so companies have to choose options like diversification of revenue streams and products, bringing something innovative to the consumers or even entering a new market. However, during such phases, the companies may face constraints in finances, technologies or difficulties in making headway in the new market. To overcome such difficulties often two or more companies would join hands through a temporary agreement that allows them to combine their resources for the competitive edge and financial assistance. Such temporary business arrangements are called Joint Ventures. This involves several aspects called the features of Joint Venture
The important features of Joint ventures are:
Parties
Those involved in the joint venture are called co-venturer. This can be two or more.
Purpose to Create Synergies
Companies involved in joint ventures have different capabilities and expertise. By joining hands, the companies create synergies sharing their abilities. This enables the associated parties to use each other abilities to enhance efficiencies
Duration
Joint ventures are of short duration. Here two or more parties join hands to overcome certain issues. Such associations are temporary and end when the purpose is served.
Agreement
The terms of the joint ventures are executed on a written agreement signed by all parties involved. This document will state that the parties are willingly assisting each other and will contain other terms as such durations, model of association, liabilities etc.
Shared Control Over the Venture
Here each party involved will have shared control over the venture. All important aspect will be executed after mutual agreement or as per terms stated in the agreement.
Shared Resources
All involved parties will share their assets (physical and human) and their final resources for moving the project ahead. This serves to the advantage of all the parties involved since they share the financial burden and peer learning is achieved.
No Special Name of the Venture
Since the association is temporary, it does not require any special name. Parties can use their existing brands for agreeing and the venture could have a combined name of the brands.
Possibility of Innovation
As the involved organisations share their technologies and manpower for a common purpose, sharing of knowledge leads to innovations.
Sharing of Risk and Profits
This is a very important aspect of a joint venture. All businesses have their inherent risk but a new endeavour has much more risk associated with it. The profitability cannot be predicted but the risk can be assessed well in advance. In a joint venture, the associated parties are well aware of the risk and since they mutually share the financial burden, the risk is automatically shared. This cushions each party for major losses in case the venture failed. Accordingly, if profitable, the profits are shared as per pre-agreed terms.
