Joint Venture Pros and Cons
What is a joint venture? Refers to an organization in which at least two companies to individuals unite in a limited partnership. These parties usually put together their resources and efforts with the aim of achieving a specific goal. The goal is always profit-oriented. While this is a common business arrangement, it is important to understand its merits and demerits, as we shall discuss in this people.
The first advantage of a joint venture is that it brings together sets of different skills to achieve a common goal. Most companies prefer joint ventures for easy access to capital, business knowledge and technology among others. Such arrangements allow the company to enjoy improved services and production because of improved skills. Moreover, joint ventures allow access to new markets. In most cases, governments restrict foreign countries from selling their products in the country to avoid competition and taking away the local industry. However, it is possible to overcome such challenges through joint ventures as some countries like China allow companies, which have partnerships with local firms to do business. In the end, such approaches allow the country to get new products for citizens as the company enjoys the new market for its goods and services.
Furthermore, joint ventures promote diversification of risks. Through such combinations, companies not only pull their resources but also share the business risks associated with the operations of the project. It is a good approach to take especially when doing business that has high-risk levels. There are numerous companies around the world, which have never tried a new idea because of the risks associated with the move. It is an appropriate move since joint ventures enjoy flexibility and could cease to exist once you have achieved the initial objectives.
Besides these advantages, joint ventures equally have a range of demerits. For example, they suffer slow decision-making syndrome. In most cases, the structures of these joint ventures usually demand that all members take part in decision-making processes. The reason for this is inclusivity. With join ventures, no position can be taken against the wishes of other members, since they are equal partners. Because of the consultative nature of joint ventures, decision-making processes take long as everyone’s input is incorporated.
Another flipside of joint ventures is that they demand sharing of rewards and profits. Where two parties form the joint venture, each entity is entitled to an equal share of the reward regardless of the varying inputs invested. This becomes a drawback especially for firms that have the capacity and believe that they can achieve similar goals on their own. Opponents of joint ventures argue that it breeds disagreements between the parties involved. There is a possibility of conflicts because of the variations in culture, and management styles. Many joint ventures collapse before reaping any fruits because of incompatibility. For success to happen, the entities in the venture must agree on the leadership structure and key objectives. Bypassing this defeat, any success chances of any joint venture. It is paramount of the parties coming together to reach a consensus on running the joint venture before entering an agreement.
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