Joint Venture is a common business entity which is snowballing day in day out. That is no surprise compared to the capital necessary to start a business alone. Imagine starting a business solely with all the risks involved and limited resources. It is a venture that very few people would like to embark on. With that concept, many entrepreneurs tend to prefer joint venture. However, every business involves benefits and risks. Are you thinking of joining the joint venture company? If yes, then this is the place to be. The article will deliver all the necessary information about this business. Along with that, it will cover the advantages and disadvantages of the Joint venture.
What is a joint venture?
When the term joint venture is mentioned, people tend to confuse it with the partnership. The joint venture is a business association between two parties or more to work on a specific enterprise. The parties share returns, risks, ownership, and governance. In fact, the partnership is a type of a joint venture whereby several individuals agree to share profits, loses and so forth. Other types of the Joint venture are limited co-operation and Separate Joint Venture. Limited co-operation involves sharing business responsibilities and gains in a limited way. On the other hand, the separate joint venture is where parties own specific shares in a company. In this, the parties decide on the best way to manage the company. Read on as we highlight the advantages and disadvantages of the Joint venture.
Advantages of Joint venture
- The parties avoid total loss in case of business failure.
- Joint venture saves on business cost.
- It involves skills and resources sharing which is economical.
- Joint venture reduces unhealthy business competition.
- The business under joint venture grows faster compared to sole ownership.
- Joint venture increases the products’ capacity.
- It involves first business growing without necessarily including foreign investors.
- The joint venture is flexible.
- It is a short-term arrangement hence limited commitments.
- In case the different parties lose the common interest that brought them together, walking out of the joint venture is possible.
- With better resources and skills, joint venture always has a high chance of success.
- Different parties create stable business relationships after being in a joint venture together.
- Associating with other parties which increase your business potential.
- Some joint ventures are beyond the national level hence create more significant
- As per the agreement, you will know your shares and what to expect as your
Disadvantages of Joint Venture
- Due to opinions variation, Joint venture’s objectives are never 100% certain.
- In the case of double-dealing your business and joint venture, your company may fail in the process.
- Equal involvement is impossible at some point the parties will have to share the responsibilities.
- The terms in the joint venture are different when it comes to resources and assets.
- Management differences since different parties have unlike management cultures.
- The joint venture involves commitments and excess time which may hinder the parties from other businesses.
- Too much planning and research to come up with an agreeable deal.
- In some cases, exiting joint venture is impossible.
- Due to various parties’ involvement, providing precise information to the team is a challenge.
- Joint venture may involve unreliable parties.
- Due to influence from other parties, you may venture into unrealistic goals and expectations.
- Creating a real business partnership with different parties is challenging.
- It is prone to conflicts and disagreements since the opinion of every party counts.
- Unhealthy assessment when it comes to contribution in the business.
- Some partners with individual goals may hinder the development of a Joint
Entrepreneurs should take high-class precautions, especially when getting involved in any business. In case your interest is being part of a joint venture in future, look into these disadvantages and advantages of the Joint venture business. With that, you can make a wiser decision.
By Maureen Muriuki