{"id":1846,"date":"2015-08-18T18:05:12","date_gmt":"2015-08-18T23:05:12","guid":{"rendered":"http:\/\/flevy.com\/blog\/?p=1846"},"modified":"2015-10-07T23:17:04","modified_gmt":"2015-10-08T04:17:04","slug":"joint-ventures-to-grow-revenues-reduce-costs-and-mitigate-risk","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/joint-ventures-to-grow-revenues-reduce-costs-and-mitigate-risk\/","title":{"rendered":"Joint Ventures to Grow Revenues, Reduce Costs, and Mitigate Risk"},"content":{"rendered":"<p><img decoding=\"async\" class=\"alignright size-medium wp-image-1847\" src=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2015\/08\/collab-300x90.jpeg\" alt=\"collab\" width=\"300\" height=\"90\" srcset=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2015\/08\/collab-300x90.jpeg 300w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2015\/08\/collab.jpeg 880w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/>A joint-venture is a business agreement between two (or more) parties to create a new entity, with new assets, resources and management control. The goal of the new entity is the same one as all other business endeavors: to grow revenues and\/or reduce costs and\/or mitigate risk.<\/p>\n<p><span id=\"more-1380\"><\/span>The term &#8220;joint-venture&#8221; (JV) is understood quite differently from country to country around the world. The global regions and each specific country have different laws and understanding of what constitutes a \u201cjoint venture,\u201d especially as it relates direct capital investments.<\/p>\n<p>Even within the European Union there are numerous terms for forms of JVs\u00a0<em>(Groupement d\u2019Int\u00e9r\u00eat Economique,\u00a0<\/em><em>Konzern,\u00a0<\/em><em>Uni\u00f3n Temporal de Empresas,\u00a0<\/em><em>Gemeenschappelijke Onderneming<\/em><em>\u2026)\u00a0<\/em>and each form has slightly different set of legal and common law requirements, as well as business practices involving partnering solutions.<\/p>\n<p>The so-called BRICS (Brazil, Russia, India, China, and South Africa) have been targeted for massive investments over the past twenty years, forcing their governments to update JV laws and international collaborative Agreements, mostly involving rules of engagement of capital flowing into and out of their countries.<\/p>\n<p>Most international JVs involve some form of equity investments, and public authorities in the high growth emerging markets want to ensure that most if not all eventual profits stay at home to grow the domestic economy. In India, for example, in less than a generation, foreign investment has moved from US$100M thirty years ago to nearly US$100B today. In China, foreign investments have been even more impressive.<\/p>\n<p>JVs are one form of the many collaborative frameworks which are changing the way we work in the new networked society. All forms of partnership models are proliferating at a remarkable rate in all sectors and across all geographies:<\/p>\n<ul>\n<li><strong>Strategic Alliances \u2013<\/strong> formal agreements to work together<\/li>\n<li><strong>Mergers &amp; Acquisitions \u2013<\/strong> financial control and ownership<\/li>\n<li><strong>Consortium Development \u2013<\/strong> member firm organizations<\/li>\n<li><strong>Commercial Partnerships \u2013<\/strong> selling and reselling partnerships<\/li>\n<li><strong>Multi-Channel Networks \u2013<\/strong> distribution ecosystems<\/li>\n<\/ul>\n<p>These new models of organization are being designed and implemented in all functional areas of private companies, non-profit and non-government organizations: from marketing &amp; sales to production, operations, research &amp; development, and all the back office functions.<\/p>\n<p>Collaborative architecture to design the best network partnering solution to implement for each firm is critical to success. The issues concerning the optimal value are centered on two key concepts:<\/p>\n<ul>\n<li>Open versus closed system\/platform\/processes\/membership<\/li>\n<li>Hierarchy versus flat structure\/decision-making\/organization<\/li>\n<\/ul>\n<p>International joint ventures in particular are becoming more popular, especially in capital-intensive industries such as oil and gas exploration, mineral extraction, and metals processing.<\/p>\n<p>But all sectors are implementing advanced value networks. For example, manufacturing is also a huge beneficiary of joint venture development, motivated by the lower costs of labor and overall operating expense. In this case, the basic reason for the JV is simple: to save money on production costs, especially on labor.<\/p>\n<p>Joint ventures are extraordinarily helpful to some companies in gaining access to foreign markets. Neither party may really be interested in the primary project, but they participate simply to gain access to the new market. Such projects generally represent a direct investment, which is sometimes limited by laws in the country in which the operation takes place. One of the aims of a partner in a joint venture is to have a majority interest in it; that way, it maintains control over a project. This explains why some countries do not permit foreign companies to hold majority interests in their domestic business ventures.<\/p>\n<p>What are the benefits and advantages of JVs?<\/p>\n<ul>\n<li>Grow Revenues \u2013 access to new sales opportunities &amp; markets<\/li>\n<li>Grow Capabilities \u2013 expand knowledge and expertise<\/li>\n<li>Reduce Costs \u2013 shared facilities and resources<\/li>\n<li>Mitigate Risk \u2013 explore initiatives in a safe, low-risk\u00a0structure<\/li>\n<li>Low Capital Investment \u2013 learn optimal partnering solutions<\/li>\n<li>Spin Off \u2013 transition a business unit to another firm<\/li>\n<li>Worldwide Coverage \u2013 complementary geographies<\/li>\n<li>Limited Term \u2013 test and pilot project for controlled initiatives<\/li>\n<li>New Product Development \u2013 new structure for new products<\/li>\n<\/ul>\n<p>What are the concerns and pitfalls of JVs?<\/p>\n<ul>\n<li>Governance \u2013 lack of agreed to decision-making processes<\/li>\n<li>Imbalance \u2013 investment and\/or resource perceived inequalities<\/li>\n<li>Leadership \u2013 compensation and\/or unequal recognition for JV<\/li>\n<li>Cultures \u2013 conflicting styles outside parent JV companies<\/li>\n<li>Contracts \u2013 inappropriate focus on legal and contractual issues<\/li>\n<li>Nationalization \u2013 foreign governments can preempt rule of law<\/li>\n<\/ul>\n<p>Joint Ventures are one form of collaborative frameworks which contain huge potential benefits for the parent companies who create them.<\/p>\n<p>JVs are similar to but different from acquisitions, mergers, strategic alliances and pure venture capital investments. Cooperative agreements to share technical services, for example, can adapt a JV structure without equity investments.<\/p>\n<p>Contingency planning is of course a necessary step in the formation of any joint venture. But the overall benefits, weighed against the mitigated risks and limited costs make JVs, as well as strategic alliances\u00a0and other collaborative frameworks a very attractive, flexible\u00a0business proposition.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A joint-venture is a business agreement between two (or more) parties to create a new entity, with new assets, resources and management control. The goal of the new entity is the same one as all other business endeavors: to grow revenues and\/or reduce costs and\/or mitigate risk. The term &#8220;joint-venture&#8221; (JV) is understood quite differently&hellip;&nbsp;<a href=\"https:\/\/flevy.com\/blog\/joint-ventures-to-grow-revenues-reduce-costs-and-mitigate-risk\/\" rel=\"bookmark\"><span class=\"screen-reader-text\">Joint Ventures to Grow Revenues, Reduce Costs, and Mitigate Risk<\/span><\/a><\/p>\n","protected":false},"author":59,"featured_media":1847,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[81],"tags":[915,913,914],"class_list":["post-1846","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-strategy","tag-brics","tag-joint-venture","tag-jv"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/1846","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=1846"}],"version-history":[{"count":4,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/1846\/revisions"}],"predecessor-version":[{"id":2015,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/1846\/revisions\/2015"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/1847"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=1846"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=1846"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=1846"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}