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Banking Terms: Joint Venture

Oct 10, 2015 10:18 IST

    A Joint venture is a business association of two or more persons or organizations to share profit and expenses of a particular business. It can be understood as ‘Temporary Partnership’. They have total control over the enterprise, including share revenues, expenses and assets. In joint Venture, Two parties are agreed upon sharing in the following aspects: -

    1. Technical service agreements
    2. Brand and franchise use agreements
    3. Management agreements
    4. Rental contracts

    A joint venture is generally formed to ensure the success of small targets/projects. But Now a day, Big organizations is also involved in such methods to fulfill their common interests.

    To prepare a joint venture, there are following decisions to be made if one wants to enter into it: -

    -      In the new Business JV: -  Both parties come together for the sake of combining existing capabilities to create a new business.

    -      In the consolidation JV: -  The value of the alliance comes from the existing businesses.

    -      In the skills transfer JV: -  Business is formed by sharing one’s critical skills.

    -      In the Co-ordination JV: - The value comes from the strengthening of the complementary capabilities of both partners.

    Advantages: There are following advantages of doing business with the formation of Joint venture:

    1. I Excess to expertise is gained without hiring more staff.
    2. Higher Risks are shared among the partners.
    3. Access to new businesses became more easy.
    4. It enables investors to enter into new , untapped markets.
    5. It reduces the cost of technologies because of sharing the existing technologies/set up of one partner.s

    Disadvantages:

    1. Making of poor tactical decisions caused the beach in the company’s relationship.
    2. Setting unrealistic & conflicting targets.
    3. Coping with different cultures, working styles & relationships

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