Joint Ventures (JVs)

A joint venture is a business association between two or more entities to form a profitable enterprise or collaborate to successfully implement a project. The interested entities pool their resources and share the risk and cost involved in the business. They work in synchronisation to ensure compliance and profitability in the new enterprise.

The entities considering a joint venture should look into some key points offered by Azalea Advisors.

1. Allows companies to enter related businesses

Joint ventures enable companies to enter related businesses by pooling their resources and expertise to meet their goals efficiently and effectively, which might not have been possible otherwise.

Joint ventures are of two types:-

a) Incorporated 

• Maybe incorporated as a Company or a Limited Liability Partnership
• Widely used by foreign investors

b) Unincorporated

• Maybe a Partnership or a Cooperation agreement/strategic alliance

Companies can enter into the following:- a) Equity strategic alliance where a joint venture has similar objectives. Here companies make equity investments into another.

b) In a Non-equity strategic alliance, two entities join hands for mutual benefit with no mandatory equity transfusion.

Benefits

• Improve short-term finances
• Gaining better insights
• Sharing financial risks
• Innovating beyond current capability

2. Joint ventures are a splendid opportunity to acquire new capacity and expertise.

 In a joint venture, companies acquire new skills that help them grow professionally and improvise their profits. They can share the technologies and expertise to create tremendous business opportunities. It further facilitates the companies to grow their business without borrowing funds from outside. With a joint venture, they can explore the market size, enhance product development, gain knowledge of new technology, and improvise their competitive skills.

3. Access to ampler resources and market

The present market scenario poses a challenge to the companies to deliver pertinent information within a stipulated time to the target clientele and the stakeholders. Joint venture helps companies to access the market potential regarding the sale and service of the product within the country or abroad. It enhances their productivity by leveraging each other’s strengths. With a joint customer base and distribution channel, companies can focus on the effective use of resources, better communication with customers, and adopting innovative networking and analytical skills.

4. A Joint venture may be carried on for a defined span or project

In a joint venture, the life span characterises the period from the point of initiation of a project to its completion or till the expiration of the project/ contract. The Span of the project depends upon the following factors:-

• Project initiation
• Project planning
• Project execution
• Project monitoring
• Project closing

It encourages the concerned parties to work together on a short-term basis without being dedicated to a long-term coalition. A joint venture is structured, depending on the goals and objectives of the parties involved:-

1. To achieve the desired results for the parties concerned
2. Managing resources to derive the best values
3. Stakeholders’ requirements may be handled efficiently

A joint venture is an efficacious tool for companies who want to expand their expertise and management skills both in the country and abroad. A joint venture nurtures the symbiotic relationship between the companies to derive maximum benefits while carefully planning and executing their resources.