JOINT VENTURE

Meaning
Joint venture are partnership in which two or

more firms carry out a specific project in a selected area of business.

Reasons of JV
When an activity is uneconomical for an

organization to do alone When the risk of business is high When setting up of an organization faces hurdles such as cultural roadblocks, political, legal etc.

Characteristic of JV
Every JV has a scheduled life-cycle, which will

end sooner or later. Every JV has to be dissolved when it has outlived its lifecycle Change in the environment force the JV to be redesigned regularly

Types of JV
Between two firms of the same industry of

the same country Between two firms of different industries but of the same country Between two firms of two countries locating the business in the domestic country Between two firms of two countries locating the business in the foreign country Between two firms of two countries locating the business in third country

Reasons for the formation of JV

In some courtiers, foreign firms are allowed to operate only if they enter into a JV with a local

partner. Size of the project may be so large and one company cannot accomplish it. Then, one firm enters into a JV with another firm to accomplish the project. Some projects require multidimensional technology that no one firm possesses. Therefore, firms with different, but compatible

Cont.
technologies may join together A foreign firm with technology competence joins with a domestic firm with marketing competence.

Advantages of JV
Firms undertake JV to spread the costs JV allow the firms with expertise in different

fields to combine their knowledge and resources. JV are more useful in entering international markets. After simple exporting activities, joint ventures are usually the next step for firms entering the foreign markets.

Cont..
JV provide quick access to channels of

distribution, thus, reducing the marketing cost. JV ventures minimize the commercial/business risk to both the partners JV provides the chance to combine the strengths of two partners and utilize the opportunities provided by the environment. Thus, the JV make the impossible things possible.

Disadvantage
Rules and regulations imposed by both the governments Absence of proper coordination between/among partners Difference of culture and customs of both the partners Division of profits with other firms Loss of control of the other firm Possible conflict and blaming each other at the

time of failure

Strategic issues involved in JV

Eliminating or reducing competition by

forming a JV by the competing firm Increasing market share more than the sum of the market share of individual firm To acquire the strengths of the other firm in diversified industrial areas including technology, marketing, and management. Unfavorable business condition (or threats) in the existing industry may force the firm to join with the other firm of another industry.

Cont.
Favorable business conditions (opportunities)

in other industries may encourage the firm to form a JV with the firm of that industry.