What is a Joint Venture (JV)?

A joint venture (JV) is a commercial enterprise in which two or more

organizations combine their resources to gain a tactical and strategic edge
in the market. Companies often enter into a joint venture to pursue
specific projects. The JV may be a new project with similar products or
services, or it may involve creating an entirely new firm with different core
business activities.

Companies initiate a JV through a contractual agreement between all

concerned parties. The profit and loss from the venture are shared by the
participants.
Top 10 Advantages of Joint Ventures

A joint venture offers several advantages to its participants. It can help a

business grow faster, increase productivity, and generate additional
profits.

1. Shared investment
Each party in the venture contributes a certain amount of initial capital to
the project, depending upon the terms of the partnership arrangement,
thus alleviating some of the financial burden placed on each company.

2. Shared expenses

Each party shares a common pool of resources, which can bring down
costs on an overall basis.

3. Technical expertise and know-how

Each party to the business often brings specialized expertise and

knowledge, which helps make the joint venture strong enough to move
aggressively in a specified direction.

4. New market penetration

A joint venture may enable companies to enter a new market very quickly,
as all relevant regulations and logistics are taken care of by the local
player. A common joint venture arrangement is one between a company
headquartered in country “A” and a company headquartered in country
“B” that wants to obtain access to the marketplace in country “A.” With the
formation of the joint venture, the companies are able to expand their
product portfolio and market size, and the country B company obtains
easy access to the marketplace in country A.

5. New revenue streams

Small businesses often face having limited resources and access to capital
for growth projects. By entering into a joint venture with a larger company
with more financial resources, the small business can expand more
quickly. The larger company’s extensive distribution channels may also
provide the smaller firm with larger and/or more diversified revenue
streams.

6. Intellectual property gains

Advanced technology is often difficult for businesses to create in-house.

Therefore, companies often enter into joint ventures with technology-rich
firms to gain access to such assets without having to spend the time and
money to develop the assets for themselves in-house. A large firm with
good access to financing may contribute their working capital strength to
a joint venture with a firm that has only limited financing capabilities, but
that can provide key technology for the development of products or
services.

7. Synergy benefits

Joint ventures can offer the same type of synergy benefits that companies
often look for in mergers and acquisitions – either financial synergy, which
lowers the cost of capital, or operational synergy, where two firms working
together increases operational efficiency.

8. Enhanced credibility

It typically takes a significant period of time for a young business to build

market credibility and a strong customer base. For such companies,
forming a joint venture with a larger, well-known brand can help them
achieve enhanced marketplace visibility and credibility more quickly.

9. Barriers to competition
One of the reasons for forming a joint venture is also to avoid competition
and pricing pressure. Through collaboration with other companies,
businesses can sometimes effectively erect barriers for competitors that
make it difficult for them to penetrate the marketplace.

10. Improved economies of scale

A bigger company always enjoys economies of scale, which again is

enjoyed by all the parties in the JV. This refers back to the notion of
operational synergy.

Risks of Joint Ventures

There are several benefits to forming a joint venture, as detailed above,

however, joint ventures can also create challenges. Forming a venture
with another business can be complex in terms of
the time and effort required to build the right business relationship. A
new JV can cause the following problems:

 The new set of partners may have different objectives for the joint
venture, and pursuing separate objectives may threaten the success
of the venture. For this reason, it is important when forming a joint
venture arrangement that the objectives of the venture be clearly
defined and communicated to everyone involved at the outset.
 Cultural mismatches and different management styles between the
two firms engaged in the JV can lead to poor integration and
cooperation, again threatening the success of the enterprise. It’s
best to pursue JV opportunities with companies that have a
corporate culture similar to that of your own company.
 Imbalance in the levels of expertise, investment, or assets brought
into the venture by the different parties may lead to problems
between the two parties. One party or the other may begin to feel
 that it is contributing the lion’s share of resources to the project and
resent a 50/50 distribution of profits. It can be avoided by frank
discussions and clear communication during the formation of the
joint venture so that each party clearly understands – and readily
accepts – its role in the JV.

When Should a Joint Venture Dissolve

Joint ventures are usually formed with certain defined objectives and are
not necessarily intended to function as a long-term partnership. Below are
some of the common reasons for dissolving a JV:

 The time period that was initially established for the joint venture to
operate has been completed, and the parties agree that there is no
further benefit to be gained from continuing the venture.
 The individual objectives of each party are no longer aligned with the
common objectives of the JV partnership.
 Legal or financial issues have arisen with one or both of the parties
that make continuing the JV no longer viable.
 No significant revenue growth has resulted from the JV, and it is
thought unlikely that worthwhile growth will result from continuing
the arrangement. In other words, the parties discover that the
benefits they had hoped to reap from the JV have not materialized
and are not likely to even if the JV were continued.
 Changes in market conditions, such as new economic policies or a
shift in political conditions, lead the JV partners to conclude that the
joint venture is no longer likely to be profitable for either party.

oint Venture Meaning

A joint venture (JV) is a business arrangement between two or more
parties. These parties are coming together and pooling their resources to
complete a specific task. The parties have joint ownership and therefore
share costs, losses, and profits.
The purpose of a joint venture is to attain a competitive edge while
minimizing risk. This is achieved by combining strengths and pooling
resources. The parties sign a joint venture (JV) agreement that
establishes the partners’ rights, obligations, initial contribution,
objectives, day-to-day operations, and profit-sharing ratio.

Table of contents

 Joint Venture Meaning

o Joint Venture Explained

o Joint Venture Examples

 #1 – General Motors and Ventec Life Systems

 #2 – SAS and Microsoft

o Joint Venture Agreement

o Types

o Advantages

o Disadvantages

o Joint Venture vs. Partnership

o Frequently Asked Questions (FAQs)

o Recommended Articles

Key Takeaways
 A joint venture (JV) is a temporary legal association of two or
more individuals or organizations to attain a particular objective.
 The collaborating parties contribute their resources (including
financial, technical, material, and human resources) to enter a
Joint Venture.
  Joint Venture (JV) Agreement: The parties mutually discuss and
agree to the terms and conditions. The collaboration has a
specific tenure and automatically terminates after the purpose of
its formation is fulfilled.

Joint Venture Explained

A joint venture (JV) is formed when two or more business
entities come together to achieve a common purpose. The idea of the
JV is to combine the strengths of each unit. Also, together the
weaknesses get subsided. Sometimes, the parties under a JV form a
new business entity altogether. In that case, they call it partnerships,
corporations, or limited liability companies. If not, these associating
business entities keep their existing identities and go for a JV
agreement.
In a joint venture, partners share resources, assets, and equity. In most
cases, the joint venture is initiated to achieve a single purpose like
research or production of a certain product. But it can also be formed
for an ongoing objective. Since a joint venture is a temporary
arrangement, the companies are not bound beyond the stipulated
period. The specific duration of collaboration is predetermined upon
mutual agreement.
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Joint Venture Examples
#1 – General Motors and Ventec Life Systems
Washington-based company Ventec Life Systems and the world-
renowned General Motors entered a joint venture agreement. The
companies collaborated to increase the availability of multi-functional
ventilators across America to aid the Covid-19 battle.

The collaborative venture developed a production facility in Indiana. In

the first month, the facility delivered 30000 units
of VOCSN (Ventilator, Oxygen Concentrator, Cough Assist, Suction
Pump, Nebulizer) to the US Department of Health and Human
Services. Ventec ramped up monthly production from 150 ventilators
to 10000 VOCSNs.
#2 – SAS and Microsoft
Microsoft Azure and SAS AI Analytics entered a joint venture
in February 2020. The collaboration developed an emergency
response system for crisis management. This comprehensive
technology-based solution was designed for disaster management
response. The system can be used during natural disasters like floods,
hurricanes, etc.

SAS efficiently forecasts hazards using historical and real-time data.

Further, it used Microsoft’s technology to automate the various
manual public services in disaster-prone areas to strengthen
communication.

Joint Venture Agreement

A joint venture (JV) agreement includes the following:

 Venture Name
 Name of the Parties
 Place and Address of Business
 Duration of Term
 Purpose
 Partners’ Capital Contribution
 Management
 Interest and Profit-Sharing Percentage
 Asset Valuation
 Tax Allocation
 Confidentiality
 Terms and Conditions
 Exclusivity
 Fiscal Year
 Nominees
 Termination of JV
 Default Terms
 Meetings
 Amendments
JV Agreements can be drafted using standard templates.

Types
Following are the different types of joint ventures (JV) classified
according to their purposes:
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1. Project-based JV: These are formed for accomplishing a

particular project. It could be the construction of a dam, road,
bridge, or completion of a research project.
2. Vertical JV: It is a collaboration between companies operating at
different levels of a supply chain to attain economies of scale.
These companies sell the same products or services.
3. Horizontal JV: This association occurs between two or more
parties operational in the same product line. It is a collaboration
among competitors.
4. Functional JV: Such a joint venture aims to exchange resources
and synergy. In doing so, it benefits all the collaborating parties.
5. Limited Co-operation: In this JV, the co-ventures get along for a
fixed contractual term to perform a particular task. This could be
for advertising and marketing an innovative product.
 6. Separate JV: Here, the parties form a new business entity to
continue the joint venture. The co-ventures become corporate
partners in the new company, each holding a percentage of
shares.

Advantages
Whenever two or more parties associate, they aim to derive some
benefit from such a collaboration; let us now discuss some of these
advantages of a joint venture (JV):

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 Facilitates Market Penetration: For many companies, joint

ventures are a medium of entering a new market, say a foreign
market.
 Access to Advanced Resources: Joint venture organizations
share their resources to reap maximum benefit and ensure
 cohesive growth. The resources could be financial, material,
technical, or personnel.
 Shared Risks and Costs: In a joint venture, the collaborating
parties bear the risks and costs as per the agreement. As a result,
the liability gets distributed.
 Builds Business Relationship: Though joint ventures are
temporary arrangements, it does result in a long-term
relationship between firms.
 Economies of Scale: This is another significant advantage of
entering a joint venture. Since the resources multiply, production
is ramped up, and the cost of manufacturing reduces.
 Improves Profitability: A JV uplifts the potential of the
collaboration. As the business efficiency increases, sales and
profit rise.
 Restricts Entry of New Firms: When existing business entities
come together, the product prices become competitive. This
further limits the scope for new entrants.

Disadvantages
Some of the most common Joint Venture (JV) limitations are as
follows:

 Resource Mismatch: In a joint venture, there are possibilities

that both the firms aren’t equally competent. Hence, while one
party reaps higher benefits by contributing less, the other
remains dissatisfied despite pooling maximum resources.
 No Equal Involvement: Often, two or more parties within the
joint venture play a small role. This can potentially lead to
discrepancies and conflicts.
  Different Cultures: Since two or more individuals or companies
come together, cultural clashes and disagreements do occur. It is
not always possible for different styles to work together.
 Lack of Communication: There can be multiple barriers like
language, demographics, distance, or a difference of opinion
causing poor communication.

Joint Venture vs. Partnership

A joint venture (JV) is a temporary collaboration of individuals or
companies for the accomplishment of a particular task. On the other
hand, a partnership is a long-term association between individuals for
producing goods or services. JV parties sign a JV Agreement, whereas
long-term partners draft a mutually accepted partnership deed or
contract.
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A Joint Venture (JV) terminates after the specific duration or task

completion. On the contrary, a partnership lasts longer for the entirety
of the business’s life span. All JV parties are liable in case of an offense
or violation. But in a partnership, only the partner at fault is held
responsible for wrongdoing.