Joint ventures have become very popular these days. A joint venture is a business agreement between two and in some cases several business organisations. These partnerships allow a company to enter a new geographical location and grow there on the back of the popularity of the JV partner in that market. However, there are always rewards and risks involved with any business agreement, and in this article, we will learn about some important pros and cons of a joint venture.
Pros of a Joint Venture
Allows a business to easily enter into a new market
If you are attracted to a new market because of its population or the purchasing power of the people there, a joint venture allows you to easily penetrate into that market with the help of your partner who is already established in that location. Your partner can sell or distribute your products or services and also take care of the rules and regulations applicable in that country.
You can tap the customer base of your partner
In a joint venture, a company gets the advantage of the already existing customer base of the partner. It is very difficult for a new company to make forays into a new market without spending money on large scale advertising. In a JV, the outsider partner gets the advantage of the customer base of the partner to grow and expand quickly and easily.
Risks and costs are shared
In a JV, the roles and responsibilities of both partners are clearly defined. Similarly, you can negotiate with your JV partner on the issue of costs and risks so that you don’t have to bear the cost completely if the project fails in the future.
Shared resources increase chances of success
In joint ventures, different partners bring to the table their own strengths and weaknesses. You don’t have to worry about the staff and the equipment that is arranged by your partner. Shared resources mean the business can be started with fewer resources than are required from a single owner.
Cons of a Joint Venture
Conflicts may arise over a period of time
In a joint venture, it is easy for conflicts to arise between partners. There is no single owner with full control and disputes may arise over management policies, long-term vision, and handling of capital. The gap in communication is often a culprit in the development of conflicts in a joint venture.
Even though the goals and responsibilities are clearly defined in a joint venture, there are always commitment issues levelled at each other by the partners. Differences in cultural values and work ethics play a part in perceptions and partners may get annoyed quickly because of these differences.
Difficulties in communication
There are always language and cultural barriers in a JV if the language spoken in the partner’s market is different. You may require the services of a translator, making it difficult to carry out interaction. Some policies may be allowed in one country but not in the other to slow down the business.
A Joint Venture is a lucrative business agreement for any company that wants to enter a new geographical location. However, it is prudent to understand the laws and also to find a great partner with a good understanding and great relation before setting up.