A joint venture or joint venture is a business entity created in which two or more companies agree to pool their resources in order to carry out a specific task, which could be a new project or a new business function. In a joint venture each of the parties is responsible for the losses, gains and costs associated with the same.
However the joint venture it is its own entity, totally separate from the other business interests of the parties. Despite the fact that the purpose of the joint ventures whether typically for certain production or research projects, they can also be formed for an ongoing purpose.
A joint venture It differs from a merger because in the agreement made there is no transfer of ownership. The critical aspect of a joint venture It does not lie in the process itself, but in its execution. Everyone knows what to do: specifically, you need to join forces.
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The joint ventures they can take on any legal structure. To form a joint venture you can use the figure of corporations, partnerships, limited liability companies or other business entities.
Regardless of the legal structure used for the joint venture, the most important document will be the signed agreement, which establishes all the rights and obligations of the partners.
This document sets out the objectives of the joint venture, the initial contributions of the partners, the daily operations and the right to the benefits and / or the responsibility for the losses.
The key determining element, which is responsible for the failures of the joint ventures, it's the human factor. Being able to make employees comfortable with a potentially disruptive strategic alliance will be crucial to its success..
This implies that the two parties must not only understand how much they should earn from the joint venture but, more importantly, how much could they lose by not partnering.
The joint ventures The most successful are those that make a 50:50 partnership, where each party has the same number of directors, with a rotating control of the company.
The joint venture becomes a new entity with the following implications:
- It is officially separated from its founders, who could be giant corporations.
- You can contract on your own behalf or acquire rights, such as the right to buy new companies.
- It has a separate responsibility from that of its founders, except for the capital invested.
- You can sue (and be sued) in court in defense or in achieving your goals.
The joint venture it is not a permanent structure. It can be dissolved when:
- The objectives have already been met.
- The objectives were not met.
- Either party, or both parties, develop new goals.
- Either party, or both parties, no longer agree on the objectives.
- The agreed time for the joint venture has expired.
- There are legal or financial issues.
- The evolution of market conditions indicates that the joint venture is no longer appropriate or relevant.
- One of the parties acquires the shareholding of the other.
Generally, companies seek to make a joint venture for one of these reasons:
- Access a new market, particularly emerging markets.
- Get efficiencies of scale by combining assets and operations.
- Share the risk of large investments or projects.
- Access new technologies, skills and capabilities.
The joint ventures They are advantageous as mechanisms to reduce risks when seeking the penetration of new markets, and for the shared union of resources to undertake large projects.
Some countries have restrictions for foreigners to enter their market, which makes a joint venture with a local company is almost the only way to enter the country.
In some cases, a large company may decide to form a joint venture with a smaller company in order to quickly acquire critical intellectual property, technology or resources that would otherwise be difficult to obtain, even with a lot of money at your disposal.
A concept of joint venture It is only effective when there is a true will to move forward together. Not even signed contracts have value if mutual trust and acceptance of the terms are not present.
Actually, it is best not to consider a project joint venture if the motives of one of the parties are questioned by the other party. The risks involved are easy to assess:
- Loss of money.
- Waste of time.
- Gain nothing of importance in exchange for the investment.
- Deliver important technology.
- Wasting credibility.
The joint ventures they present unique problems of capital ownership, operational control, and profit (or loss) distribution. Research indicates that two out of every five joint ventures last less than four years and dissolve in discord.
Mining and drilling of oil wells are expensive projects and often two or more companies in these industries have to be combined as joint venture to exploit or drill a particular field.
In 2016 Microsoft Corporation sold its 50% stake in Caradigm, a joint venture Created in 2011 with General Electric Company (GE) to integrate Microsoft's Amalga company health information and intelligence system with a variety of GE Healthcare technologies.
Microsoft sold its stake to GE, effectively ending the joint venture. GE is now the sole owner of the company and is free to run the business as it pleases.
It is a famous example of joint venture between two big companies. They partnered in the early 2000s with the goal of being a world leader in mobile phones. After several years of operating as a joint venture, the company became the sole property of Sony.
Kellogg Company signed a joint venture with Wilmar International Limited, for the purpose of selling and distributing grain foods to consumers in China.
While Kellogg brings to the table a wide range of world-renowned products, as well as its industry experience, Wilmar offers a marketing and sales infrastructure in China, including an extensive distribution network and supply chains..
MillerCoors is a joint venture between SABMiller and Molson Coors Brewing Company, to place all of its beer brands in the US and Puerto Rico.
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