Guide

Joint ventures and business partnerships

Joint venture - benefits and risks

A joint venture is a common way of combining resources and expertise of two otherwise unrelated companies. This type of partnership usually offers great advantages, but it can also present certain risks, since arrangements of this sort are generally highly complex.

Advantages of joint venture

A major joint venture advantage 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 greater resources, including specialised staff, 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 advantage 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.

Risks of joint ventures

Partnering with another business can be complex. Disadvantages of a joint venture can be significant, especially if you form a relationship with a business whose abilities or resources don't match or complement yours.

It takes time and effort to build the right business relationship and, even then, it can be difficult to completely avoid all joint venture risks. Problems are likely to arise if:

  • the objectives of the venture are not clear and communicated to everyone involved
  • the partners have different objectives for the joint venture
  • the partners bring in different levels of expertise, investment or assets into the venture
  • different cultures and management styles result in poor integration and co-operation
  • the partners don't provide sufficient leadership and support in the early stages

Success in a joint venture depends on comprehensive research and a detailed analysis of aims and objectives. For the venture to work, you should effectively communicate the business plan to everyone involved. Find out how to plan your joint venture relationship.