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