Joint venture is the agreement between two companies to form a separate entity which focuses on a specific market. A company which decides to go for joint venture should keep in mind that joint venture has some advantages as well as disadvantages, let’s look at both of them –
Advantages of Joint Venture
- It helps the companies to grow in those areas where the company does not have any expertise and would have failed if it was not for joint venture.
- Joint venture can also help the company in reducing the risks which are associated with starting a new business, because if the business does not go as planned than the losses arising out of such business will be shared by both the companies and therefore a company which do joint venture has cushion in that terms.
- It also results in better utilization of the resources which company has at its disposal, because there are certain situations when the company has idle resources in terms of men, machines and materials and when the company enters into joint venture it makes sure that those idle resources are used effectively and efficiently.
- Joint venture also increases the company reach whether it is in terms of distribution channel, customers, source of raw material etc…..
Disadvantages of Joint Venture
- Joint venture does not give the management of the company complete control because the decisions are taken by both the companies and therefore it can create problems if both companies do not agree on some issues.
- It is difficult to integrate resources of companies entering into joint venture because both the companies have different policies, culture etc…. and therefore chances of joint venture becoming a success diminishes when two companies from different countries are involved.