Advantages of a Joint Venture

Last Updated at: September 30, 2019
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When a temporary partnership comes into existence for executing a specific business deal, it is known as a Joint Venture. In a Joint Venture form of business, the capacity for bearing the risks is greatly enhanced. This kind of business also enjoys managerial efficiency as the business runs on the skills and expertise of all the co-venturers.

A Joint Venture is a business arrangement wherein two or more parties decide to pool in their resources for a specific task. A joint venture is a sound option to minimize both risk and expenses. The joint venture agreement contains the responsibilities of the participants, the costs to be borne by each of them and the division of profits and losses. This agreement helps to clear ambiguities that may turn up, for example, if a participant comes up with an idea that results in a hike in the profits, will he be given his due above and beyond the agreed amount. It is to avoid such events that a joint venture agreement is drawn up to give clarity to the terms and conditions. It should be noted that the Venture has its own entity distinct from the particpants’ main or other business interests. Famous joint ventures are Maruti Suzuki, Hero Honda and Sony Ericsson.

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The advantages of a Joint Venture are as follows:

1. Offers each company to learn from the other i.e. sharing of knowledge
2. Enter new markets with better understanding of local demand
3. Gain better access to technology and resources, particularly staff
4. Sharing of risks with a venture partner
5. Joint ventures are flexible, in that you can decide its lifespan and what it covers, thus limiting commitment and business’ exposure.
6. You can gradually separate one business from the rest of the organisation, and eventually, sell it to the other parent company. Most joint ventures end in a sale by one partner to the other.

A joint venture is a business in which two or more parties agree to join together for doing a specific business deal with a view to sharing the profits and losses thereof in agreed proportions. The prime objective of the Joint venture is to combine the capital and skills of various persons with a motive of earning profits.

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