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A joint venture is an agreement between two or more individuals or entities to come together and undertake a common business project. The agreement can be for a specific period of time and each party maintains a separate business entity. The parties involved contribute capital to undertake a project and can share profits based on the share capital.
Before joining a joint venture, look at the following pros and cons to evaluate whether it’s a suitable business opportunity for you or not.
Pros:
1. Create business opportunity: Establish a business with another firm helps create a business opportunity which is otherwise unavailable.
2. Spread business risk: Business is prone to a lot of risks. Joining one or more entities in a joint venture helps to share the risks involved and costs incurred in acquiring the required resources.
3. Temporary arrangement: The parties can make a temporary arrangement to come together and undertake a particular business project.
4. Better resources: The parties will have an additional pool of resources since they come together to undertake a mutual goal.
Both parties can contribute financial resources, time and labor.
5. Business growth: Joint venture opens the business to more opportunities and this contributes to business growth as well as financial growth.
6. Overcome entry barriers: Joining your business with another to establish a new business helps the new business overcome entry barriers and other weaknesses especially when pursuing international markets.
7. Share profits: The entities involved in a joint venture can share profits based on their agreements. Each business will have a higher chance of succeeding and build its credibility.
8. New insights and expertise: Starting a joint venture gives you the opportunity to gain new insights and expertise from the other party.
9. Help build relationship and networks: Although the joint venture can only be for a specific period of time, you can build a long-term business network and relationships with the parties you engage with.
10. Flexible: In joint venture, you will share responsibilities and can only cover a fraction of duties there thus limiting the amount of time and your commitment in the venture.
Cons:
1. Lack of commitment: Lack of commitment by any party involved in undertaking a joint venture may result in failure of the common project being undertaken.
2. Different management styles: Each party involved in the joint venture have different management style, different working arrangements, and workplace culture and this may affect the operation of the new project.
3. Poor tactical decisions: A party making poor tactical decisions of the joint venture affects the desired results of the project.
4. No equal involvement: It is not possible for all the parties or entities involved in the joint venture to have equal involvement and responsibilities. Each party have their specific responsibility and this can also interfere with normal business operations of their individual entity.
5. Great imbalance: Since different parties are involved, there is a great imbalance of assets, expertise, and skills. This will have a negative impact on the effectiveness of the venture.
6. Conflicts and mismanagement: There is a high potential for conflicts between the parties involved especially if there are no clear communication lines and lack of understanding of each party’s roles in tactical decisions.
7. Time limitation: After an agreed upon time, the joint venture can come to an end and some of the entities involved in the new venture may exit from that partnership.
8. Barriers to communication: If two entities come from different cultural backgrounds, it may bring barriers is communication and cooperation in the joint venture business.
9. Conflict of interest: Parties may be involved in a conflict of interest between their official duties in the joint venture and their responsibility in their individual entities.
10. Unclear objectives: If there are unclear and non-specified business objectives, it will result in an uneven division of labor, profits, and losses within the business.
