There are many advantages and disadvantages of joint ventures you should consider before going into agreement with anyone. It’s usually beneficial when planned well with adequate communication. But that doesn’t mean it doesn’t have any risk. That’s why it’s advisable to make your researches well before rushing into it.
What is Joint Ventures?
Joint Ventures is achieved by the combination of the resources, capital, knowledge, and manpower of two different companies together. It is more like a synergy between the two to accomplish a single goal or project. It can either be with a private, public, or even international company.
Like every other business model, there are many advantages and disadvantages of joint ventures. You may also want to write a legal agreement to back up your partnership to protect yourself in case of failure. Your legal agreement should involve a legal representative each for the two partners with some other components like
- The two partners or companies involved
- Goals and Objectives of the joint venture
- Resources and financial donations each partner will make for the project including manpower allocation.
- Finances, responsibilities, and other organizations’ management contributions to be done by each.
- Possible ways to solve disputes between the two.
- Situations that the joint ventures may be terminated
- Usage of non-disclosure agreement and confidentiality to protect venture-sensitive secrets.
Having know what a legal agreement between the partners constitutes. Let’s take a look at the advantages and disadvantages of joint ventures you may incur from such decisions.
Advantages and Disadvantages of Joint Ventures
There are many benefits of operating joint ventures as a business model. Not only will there be enough resources to run the project, but it will also lift both companies’ progress. Check out the list of benefits of a joint venture.
- Joint Venture gives new experiences, opportunities, and expertise for the two company
- There are enough resources, staff, technology, and capital to achieve the main goals. Since the two companies will be contributing to it.
- Gaining a new set of market and customers will improve brand credibility
- Bearing of risks and cost by both companies equally, reducing the effects of business failure on one company.
- There’s an advantage of having your share and portion with the liberty of what to do with
- The chances of project success are huge
- It saves cost and money for both companies
- Creation of new relationship, network, and distribution channel
- It has a short term or lifespan
- Increase in productivity and performances
Disadvantages of Joint Ventures
As many benefits accompany the joint venture model, so there are disadvantages and risk that comes with it. Some of those risks include
- It takes a lot of time, effort, and energy to build the right relationship for business success
- Different expectations from the two companies may lead to the project failure
- Clash of interest, values, and management may lead to the abandonment of the project
- Inadequate communications between the two parties is a common disadvantage
- Imbalance in responsibilities and work shared as a result of the difference in skills and knowledge.
- Unreliable partner
- Unrealistic goals and objectives
From the above-listed advantages and disadvantages of joint ventures, one could infer that there are more benefits than risks. So, we advised you to make a good analysis of previous joint business ventures while making adequate planning and communication to achieve success. you should also involve a legal resort in case anything goes wrong.