Joint ventures and business partnerships

Joint venture advantages and disadvantages

Guide

A joint venture is a common way of combining resources and expertise of two otherwise unrelated companies. There are many benefits to this type of partnership, but it is not without risks - arrangements of this sort can be highly complex.

Advantages of joint venture

One of the most important joint venture advantages is that it can help your business grow faster, increase productivity and generate greater profits. Benefits of joint ventures include:

  • access to new markets and distribution networks
  • increased capacity
  • sharing of risks and costs (ie liability) with a partner
  • access to new knowledge and expertise, including specialised staff
  • access to greater resources, for example technology and finance

Joint ventures often enable growth without having to borrow funds or look for outside investors. You may be able to:

  • use your joint venture partner's customer database to market your product
  • offer your partner's services and products to your existing customers
  • join forces in purchasing, research and development

Another benefit of a joint venture is its flexibility. For example, a joint venture can have a limited lifespan and only cover part of what you do, thus limiting the commitment for both parties and the business' exposure.

Joint ventures are especially popular with businesses operating in different countries, eg within the transport and travel industries. Read about the different types of joint venture.

Disadvantages of joint venture

Joint ventures can pose significant risks relating to liabilities and the potential for conflicts and disputes between partners. Problems are likely to arise if:

  • the objectives of the venture are unclear
  • the communication between partners is not great
  • the partners expect different things from the joint venture
  • the level of expertise and investment isn't equally matched
  • the work and resources aren't distributed equally
  • the different cultures and management styles pose barriers to co-operation
  • the leadership and support is not there in the early stages
  • the venture's contractual limitations pose a risk to a partner's core business operations

Partnering with another business can be complex. It takes time and effort to build the right business relationship and, even then, it can be difficult to completely avoid all the issues.

Success depends on careful planning and communication. A clear agreement is an essential part of building a good joint venture relationship. Find out how to plan your joint venture relationship and create a joint venture agreement.