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Joint venture. How to start it, and why?


Starting a collaboration through a Joint Venture

Most market entry modes depend on a partner and how this partnership can help us to succeed in the foreign market. When this partner can highly contribute to the entry success, we can think about collaborate through a Joint Venture.  

A Joint Venture is a strategic alliance in which two or more business parties, exchange or integrate some of their resources for a specific project or another business activity, always keeping the individual legal status of each partner corporation. The most usual goals of a joint venture are to maximize operation synergies and to create or expand market opportunities. 

There are multiple options when partnering with another company in the same country or when expanding a business internationally, but why should we choose a Joint Venture as an entry method?

Why a Joint Venture?

These are the reasons why a Joint Venture can be used as a successful entry method: 

1. To combine expertise: Each partner will provide its expertise so, if both are competitive in their area, they will gain a joint competitive advantage, and therefore, they will rise in productivity and results. In case of not having time to develop capabilities from scratch when entering to the new market, they will easily improve thanks to your partner contribution. 

2. To combine resources: In case of having limited internal resources, they will improve as the other partner can provide specialized staff with the required skills and experience, as well as, appropriate technologies in house. 

3. To minimize risks: The capital contribution will be shared and the resources will be set in common, so the risk can be minimized. In case of failure, any company is alone, so the losses and possible insolvency are also shared. 

4. To finance: It is also an easier way to receive financing, in case it is needed, as the request is endorsed by two or more corporations. 

5. To build business relationships: Working next to a local corporation helps to build business relationships and networking, as well as, it helps to avoid the risk of discrimination. The local partner can provide knowledge of the regional environment, distribution network, access to premium events, suppliers’ reputation and negotiation advantages, and connection with local government. 

6. To overcome government regulations: In some countries, there is a restriction related to sole-ventures. So, if a non-local organization wants to be established in that territory, it must join a local corporation to create a new business body. 

Agreement FD

What should I keep in mind when starting a Joint Venture?

These are the reasons why a Joint Venture can be used as a successful entry method: 

Joint Venture scope definition: After finding out a good match between partners who share goals, values, business culture, and strategy, it is time to align partners’ interests and the objectives of the new company, to establish clear goals, and define the scope and limits of the Joint Venture. So, by defining what to do and what not to do, conflicts of interest can be avoided.

Responsibilities: It is important to define who bring the assets, and how to manage profits and loses.

Decision making: As the control over the Joint Venture is shared, from the situation of fixing a price can rise a problem. By creating clear protocols on decision making, we can avoid struggled situations.

Daily planning: Some practical issues must be fixed from the very beginning to create an easy-going working routine. For example, communication between organizations and human resources’ policies need to be defined.

Legal issues: Non-competition and confidentiality agreements are very significant in a Joint Venture relation. To define the termination conditions, it is also necessary in case some of the parties want to end the relationship.

Conclusions

Therefore, if the co-venturers share purposes, they are aware of the other’s business values, they take into account the possible cultural gap, and finally, they make an effort for good communication and cooperation, a Joint Venture, will be probably successful and hence, the corporations will achieve their goals and aspirations.

Joint Venture FD
Rosalía de Castro, 21
Barcelona 08025- Spain
Phone. (+34) 93 487 40 15
info@ferrer-dalmau.com