What is a Joint Venture (JV)?

What are the advantages and disadvantages of a joint venture?

Pros:

The biggest benefit of a joint venture is that it lets two organizations pool knowledge, technology, and resources, even if they are usually competitors. For example, a manufacturing business could start a joint venture with a distributor. The manufacturer provides production expertise, while the distributor is skilled at moving products to market.

Joint ventures can also help businesses combine financial resources. This is helpful when the companies involved can’t afford expensive equipment, specialized technology, or labor or advertising expenses on their own.

Joint ventures also spread out risk. Each member of the enterprise shares in the potential risks and rewards of the enterprise. If it fails, each company stands to lose less than if it had started the venture alone.

In a joint venture, both businesses may be able to take advantage of economies of scale, producing goods at a lower cost per unit than they would if they worked separately.

Cons:

One of the downsides of a joint venture is that it requires input from multiple parties. Sometimes, that can lead to culture clash. If the companies involved in the venture have different management styles or organizational cultures, it can be difficult for them to work together effectively. Dealing with these differences can take a lot of time and reduce the benefits of the partnership.

Joint ventures may also reduce flexibility for their members. For example, a joint venture contract may specify precise terms for how one member can leave the venture. It may also place restrictions on each party’s activities to ensure it doesn’t cannibalize the venture’s business.

Joint ventures with competitors can also lead to concerns about rivals gaining access to information they shouldn’t. For example, if two car manufacturers open a factory together, one might accidentally get its hands on the blueprints for the other’s new vehicle models.