Joint Ventures Aashay Parikh

What are Joint Ventures? It occurs when 2 or more businesses split the costs, risks, controls and rewards of a business project. In doing so, the parties set up a new legal entity. Typically, a JV between 2 firms will involve a 50:50 split of all costs, responsibilities and profits or losses Eg. Coca Cola and San Miguel, BMW with Brilliance Automobiles, Sony Ericsson

Advantages of Joint Ventures  Some benefits of mergers and acquisitions such as higher market share.  Synergy :– The pooling of experiences, skills and resources of the collaborating firms.  Spreading of costs and risk :- Financial costs, risks and losses are shared in JV, thus reducing burden on a single organization.  Entry to foreign markets :- National Laws make JVs the only option for businesses wishing to enter some foreign markets.  Relatively Cheap :- Cheaper than risking a hostile takeover. Easy to pull out.  Competitive advantages :- Companies in a JV are unlikely to compete within.  Exploitation of local knowledge :- International JVs can use each others local knowledge and reputation.  High success rate

Disadvantages of Joint Ventures  Heavy reliability on resources and goodwill of counterparts.  Possibility of dilution of individual brands.  Possibility of organizational culture clashes leading to operational problems.  Profits are split equally amongst counterparts.  Difficulties in decision making and interests for expansion etc.

Conclusion  The advantages of Joint Ventures clearly outweigh the disadvantages.  Very few hurdles to achieving the main objective, expansion and profit. Advantages Disadvantages