Definition of joint venture
A joint venture is a business agreement in which the parties agree to develop for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.
Benefits of joint venture
If a multi-national company enters into a joint venture arrangement with a foreign partner, it would give the company relatively low cost access to the foreign market. Foreign government offers tax concessions to the company for bring FDI (Foreign Direct Investment) into the country, such a foreign partner could assist with the issues relating to marketing, cultural and language and dealing with government restrictions and bureaucracy. Joint venture arrangement eliminates the need to source new premises and gives easier access to foreign capital markets which would reduce any foreign currency risks.
Disadvantages of joint venture
The potential effect is on company’s reputation, especially for well-known company. Terms and conditions of the joint venture arrangement, roles and responsibilities of parties, profit sharing percentages and ownership percentages must all be discussed by legal representatives of both side of the contract to avoid the conflicts arising.
In addition, cultural differences and attitude towards risk are the major concerns for company’s management.
