por The joint ventures They are a type of association that occurs expressly between two or more companies to contribute their resources to achieve a common goal, with the commitment to share profits or losses, in addition to the reciprocal right of control or management of said companies.
Starting a joint venture provides several clear benefits that would otherwise be difficult to access. During the operation of such a company, each party involved receives new circumstances to invest. This can improve market prospects and allows for a better understanding of the industry, which in turn provides an opportunity for growth and innovation.
Similarly, each partner has access to new resources. These can include a lifetime connection, as well as introductions to new providers and other external support, such as support from a more advanced customer service team.
In both cases, joint ventures allow companies to share their resources, which can have a huge impact on all partners involved, teaching them new ways to operate and providing a valuable connection.
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Characteristics of joint ventures
create synergy
Two or more parties establish a joint venture to be able to bring out the qualities that each party has. One company may possess a special feature that the other company may lack. Similarly, the other company will have some advantage that the first cannot get.
These organizations create a mixed company to be able to form a synergy for a greater good, using an economy of scale.
Share risks and rewards
In a typical joint venture agreement between two or more companies, which may be from the same country or even from different nations, there are many variations in terms of culture, technology, geographical advantages and disadvantages, target audience and many more factors to highlight.
Therefore, the risks and rewards related to the activity for which the joint venture agreement is made must be shared between the parties, as decided and entered into in the legal agreement.
Access to new markets
When one organization enters into a joint venture with another, a vast market opens up with great potential for growth and development.
For example, when a US organization creates a joint venture with another based in Brazil, the US company will have the advantage of accessing vast Brazilian markets with diversified options.
At the same time, the Brazilian company has the advantage of accessing the United States markets, which are geographically dispersed and have good payment capacity.
Production cost
When two or more companies come together, one of the most important motivations is to be able to provide the products with the best possible price. This can be done when the cost of production can be reduced or the cost of services can be managed.
A joint venture aims at this only to provide the best products and services to its consumers.
brand name
For the mixed company, a brand different from those of the parties can be created. This helps to give a distinction and recognition to that brand.
When the joint venture is formed, one of the companies may use the commercial reputation of another of the companies in order to obtain an advantage over the other competitors.
access to technology
One rather interesting reason for organizations to form a joint venture is technology. Advanced technology in conjunction with a company that produces high-quality goods saves a lot of time, energy, and resources.
Without having to make a large additional investment to create an existing technology, access to the same technology can only be done when the companies enter into a joint venture.
Marketing can be done with various innovative platforms and technological gradation will help to make good products at an efficient cost.
Examples of joint ventures
Microsoft and General Electric: Caradigm
In 2016 Microsoft sold its 50% stake in Caradigm, a joint venture it had created in 2011 with General Electric.
This joint venture was established to integrate Microsoft’s Amalga enterprise healthcare data and intelligence system, along with a variety of General Electric healthcare technologies.
Microsoft subsequently sold its entire interest in the joint venture to General Electric, thus effectively ending the alliance. General Electric is now the sole owner of the company, having the freedom to continue business as it wishes.
Google and Glaxo & Smith
Google and Glaxo & Smith decided to enter into a joint venture agreement to produce bioelectric medicines. The ownership ratio of this company is 45% to Google and 55% to Glaxo & Smith. The mixed company committed itself with a capital of 540 million euros.
Sony Ericsson
It is another example of a joint venture between two large companies. In this case, they partnered in the early 2000s with the goal of being a global leader in smart mobile phones and devices.
After several years of operating as a joint venture, this company eventually became wholly owned by Sony, which acquired Ericsson’s mobile manufacturing division.
NBC Universal and Walt Disney
The joint venture was created in 2008. The goal of this joint venture was to create a video streaming app with a website called “HULU”.
This product provides quality content that is transmitted through laptops or mobile phones. The product became a huge success, with an offer covering up to $1 billion.
Uber and Volvo
The objective of the joint venture is to produce driverless cars. The ownership ratio of the company is 50% and 50%. On the other hand, the value of the business was $350 million, according to the agreement signed in the joint venture.
Kellogg and Wilmar
Kellogg was seeking to enter the Chinese market and expand its presence to sell cereals and snack foods to consumers in China. Joining with Wilmar thus resulted in a profitable synergistic relationship for both companies.
Wilmar provided an extensive distribution and supply chain network to Kellogg, and on the other hand Kellogg was able to break into new territory with this deal.
Other examples
– MillerCoors is a joint venture between SABMiller and Molson Coors Brewing Company in order to see all its beer brands in the United States and Puerto Rico.
– BMW and Toyota cooperate on research into hydrogen fuel cells, vehicle electrification and also ultralight materials.
– Drilling oil wells is an expensive proposition. Therefore, often two companies in this industry will partner as a joint venture to drill in a particular area.
References
Arun Singh (2020). Joint Ventures. Euromoney. Taken from: euromoney.com.
Educba (2019). Joint Venture Example. Taken from: educba.com.
Tutor2u (2020). Joint Ventures. Taken from: tutor2u.net.
Toppr (2020). Joint Venture. Taken from: toppr.com.
Marshall Hargrave (2020). Joint Venture (JV). Taken from: investopedia.com.