Why Your Company Should Go With Joint Ventures

John

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• Publié par: trafficmonsters
• Publié le: 10 juin 2014
• Nombre de lectures: 4
• Langue: English

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Why Your Company Should Go With Joint Ventures

When you hear the word joint venture, it’s natural to think of a deal between two different parties, but there can in fact be more than two involved. The term “joint venture” is actually just the more common way to describe a business partnership involving several parties. The definition per Investopediais “A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.

This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests.”

While companies are often the ones most commonly involved in joint ventures, individuals can also reap the benefits of using this method to start or grow a business. The most obvious benefit is the reduction of costs and risks for each entity.

Everyone involved in a joint venture shares in the risk and rewards of the partnership. Once the joint venture is established, the assets the company owns and has agreed to be part of the joint venture can be leveraged by every member of the partnership. There are many occasions where the joint venture will only be for a specified amount of time or for a long period of time. There may also be circumstances that keep the partnership in place until a specific situation or goal is achieved.

While joint ventures are usually put in place to reduce risk, they are also often entered into so that additional benefits can be passed along to the customer. A perfect example is a situation where a company holds a patent that another company can use in order to deliver a new product.

Ordinarily, the manufacturing company would have to pay for the patent, but they may choose instead to enter into a joint venture with the patent holder for a specific amount of time. Any profits made during that period would be split as per the terms of the agreement.

There are also geographical limitations in place that can make companies seek out a joint venture. A company may want to expand into an area that has strict policies regarding foreign based businesses. They may then look to a local company that they can partner with. This is often a much better option than trying to start a new venture where restrictions in both language and business can create some real obstacles.

Another reason why a company might seek out a joint venture comes down to market access. Cracking a new market can be tough, but partnering with a company that already has the corner on that market can make it a whole lot easier. This type of venture usually involved bundling in the new product with something that the local company already offers.

A joint venture can also be entered into by a company looking for funding or a financial investment in order to expand the business or introduce a new product. Banks and other financial institutions are often more willing to lend money to joint ventures due to the reduced financial risk.

There are lots of reasons your company should consider using joint ventures. As a business using joint ventures you can leverage your partner’s resources and build your business and income. Once you can find a way to tap in to this kind of strategy, sooner or later you will reap the success.