The joint venture is an agreement between one or more companies of different nationalities.
The participants, also called venturers, while remaining autonomous, commit to realizing specific common projects to achieve the set goals.
In essence, the joint venture, involves the combination of new enterprises entering the foreign market with those that are already operating there, in order to gain a competitive advantage through the use of financial resources brought by each company.
This strategy is widely used by companies that engage in global activities, as it allows for rapid access into distant markets, with limited risk.
The advantages of the joint venture
The union of companies and their resources, if well managed, can provide several benefits:
- Reduces costs: expenses are split based on how many companies operate within the joint venture;
- Easier entry into foreign markets: when one company already operates in the foreign market, it is easier for another company to enter and take fewer risks;
- The foreign partner acts as insurance: a potential negative performance in that market can be cushioned by the market knowledge of the foreign partner, ensuring the joint venture does not fail.
Some governments require a joint venture before allowing a foreign company to enter their national market.
Types of Joint Ventures
The joint venture can operate in different types depending on the agreement that the various companies make:
- Corporate joint venture: aims to carry out certain economic activities continuously and to achieve common goals through the use of resources and expertise;
- Contractual joint venture: the establishment of a cooperation agreement between partners aimed at completing a single transaction, (for example, participation in a tender) which is limited in duration;
Before signing the agreement and deciding on which type of joint venture to work on, partners take responsibility for making decisions and bearing financial risk, therefore they establish a sort of "plan B" in case of failure.
In fact, in both cases, they share profits or losses.
Why create a joint venture?
The joint venture is suitable for carrying out large-scale projects that would be too challenging for a single company to manage alone.
Thus arises a form of cooperation called joint venture, particularly suitable for carrying out precisely such large-scale projects.
It often represents a means for opening up new markets through collaboration with local partners, following long-term goals that involve the development of new products in the foreign market.
Having partners serves to compensate for one's own shortcomings, with specific knowledge: understanding and experience in the market of interest, important contacts, infrastructure, and resources.
How is a joint venture established?
A joint venture is established according to the civil code of the state where the company will be based, indeed, it is crucial to choose one's partners based on common goals of both parties. To establish a joint venture it is important to choose:
- The foundations: partner companies agree on financing and the volume of investments;
- Choice of fiscal location: choose adequate conditions for the chosen location;
- Legal forms: it is necessary to find the most suitable legal form.
Finally, the partners are required to sign a contract to establish all their respective rights and obligations.
Examples of joint ventures
Long-term cooperation between car manufacturers: BMW and Brilliance.
The partners operate in two Chinese plants where several BMW models are produced as well as in a factory dedicated to engine production.
Airplanes and trains in cooperative: Airbus and Bombardier.
The largest European airplane manufacturer Airbus and the Canadian train and airplane manufacturer Bombardier have established a cooperation, at the heart of which lies the production and trade of jets from the C series.
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