The importance of joint venture companies in business

The importance of joint venture companies in business

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Much like any other business endeavour, joint ventures have advantages and drawbacks. This post will note the most noteworthy ones.

For years, joint ventures in international business have actually culminated in mutually advantageous outcomes, and entities such as Geely and Concordium's recent joint venture is a good example on this. There are numerous reasons why companies go into joint ventures however perhaps the most important of which is to leverage resources and gain access to competence that one company may be missing. For instance, one company may have outstanding marketing and distribution channels but does not have a structured manufacturing center. By partnering with a company that has a well-established manufacturing process, both entities benefit greatly. Another reason why JVs are popular is the reality that businesses share costs and risks when embarking on a joint venture. This makes the partnership more appealing as both entities would share the expense of labour and advertising, and they both gain from lower production costs per unit by leveraging their capabilities and integrating knowledge.

There's a long list of joint ventures that covers different sectors and companies across the globe, a few of which have culminated in the development of the world's most prosperous companies. That stated, there are various types of joint ventures and picking the right one greatly depends on the goals of the entities involved and the nature of their respective organisations. For instance, project-based joint ventures are a kind of partnership that unites two entities from different backgrounds to reach a common goal. This could be a JV between an industrial entity and an academic institution or short-term collaboration here between an entrepreneur and a federal government such as Farhad Azima and Ras Al Khaimah's joint venture. Vertical joint ventures are also another popular means for expansion as these combine 2 entities that co-exist in the very same supply chain like buyers and vendors, and they provide increased growth opportunities for both parties.

Business growth is an ambitious objective that any business owner thinks about at some point throughout their professional career, nevertheless, it can be an extremely demanding and costly procedure. It is for these factors that some business owners go with joint ventures when trying to break into new markets and areas. Launching a world-class joint venture such as Telkom Indonesia and Telstra's joint venture can significantly increase the opportunities of success as partners pool their resources and connections in an effort to increase effectiveness. For instance, a company wanting to broaden its distribution to new markets and territories can benefit from partnering with regional businesses. This way, it can take advantage of a currently existing local distribution network, not to mention having access to understanding and know-how on the target audience. Beyond this, policies in certain jurisdictions restrict access to foreign companies, meaning that a JV arrangement with a regional entity would be the only way to gain admittance.

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