Meaning of Joint Venture
Joint Venture is a contractual relationship between two or more parties agreed to acquire their resources for the successful completion of a specific tasks. All the concerned parties are responsible for profit and loss of the venture also the cost related to it. Like as other business entity it is also totally separated from its participants. Starting a new venture involves tremendous risk and challenges and some strategies ought to be built with the anticipated challenges for starting a new venture.
Types of Joint Ventures
Although dictionary meaning of venture of is hazard, it lasts for a long period of time after meeting all kinds of risk associated with it. Joint venture is not an enterprise like going concern it last for a finite period only. Some of the most common types of joint venture are discussed here –
- Marketing Joint Venture: In this case two or more marketing companies joint hands to promote the product or services equally. They enjoy the benefit of cost cutting by combining their advertisement and promotional expenditure. Most of the multinational companies implement this approach to get competitive advantages against their competitor and enjoying an extra mileage.
- Insider & Outsider Joint Venture: When any one member of the enterprise will have an access to all information of the joint venture then it is called insider joint venture. In case of the outsider joint venture each venturer is in the charge of a particular task related to the venture and the venturer’s duty is limited to that only.
- Separate Joint Venture: To carry forward a particular contract one separate joint venture can be started with the existing platform. Each venturer will have an own share and defined work portfolio. This is very flexible in nature and also fruitful.
Features of Joint Venture
Salient features of joint venture are as follows:
- Common Agreement: Joint venture comes into force after an agreement between two or more firms and which is usually done to pursue specific objective.
- Joint Control: Joint venture is controlled evenly by the co-venturers. The assets, administration and operation of the business are controlled jointly by the co-venturers.
- Pooling of Resources: Required resources from capital to expertise of the entire organisation for large scale production are pulled by the organisation from open market.
- Profit Sharing: If the venture will continue for a long term then profit and loss of the venture are shared by the co-venturer as an agreed ratio, otherwise the same is shared among them at the end of the venture.
- Adoption of New Technology: The main motto of the joint venture is to capture the latest know how, the best techniques of production and marketing of a particular product or services. Co-venturer are generally wish to get the latest know how to improve the productivity which leads the reduction of cost and enhance the overall profitability of the organisation.
- Dissolution of Venture: Once the purpose of the venture is fulfilled the agreement between the co-venturers comes to an end and joint venture is dissolved after settlement of co-venturer’s account.
- Nothing at the End: Any stock at the end of the venture, if remaining is either disposed off or taken over by the venturer. The balance of other assets, after all liabilities of the venture are paid off, are shared by the co-venturer at the end.
Challenges To Start A New Venture
- Finance: The biggest challenge of the co-venturer is obtaining finance from the market to start a new venture. Most of the financial institution have complicated the terms and conditions of issuing loan from the bank after some financial debacle in the market. So find the parallel source of finance from friends’ relatives and others are a tough challenge to the co-venturer. The very next challenge in the field of finance is reaching the break even, maintaining cash flow, touching bottom line, reducing cost.
- Human Resource: After finance, the next challenge is finding skilled human resources for running the business efficiently. Recruiting proper human resources from the mass and providing training, appraising performance giving wages and salary for motivating the work force is not an easy task for the organisation. Organisation may face the unexpected challenge to solve the grievances ofsexual harassment, labour turnover and works man compensation due to accidents at the work site etc.
- Supplier: Choosing the right person from group of supplier is another challenge to the new venture to meet their production needs. Quality of material, price of material and carrying cost of material directly depends on the specification of supplier and indirectly relates to the profitability of the organisation. Venturer should have profound knowledge about specification of material, quality of material, labelling of material before selecting the supplier for the organisation and also have a pure clarification regarding damages during transit.
- Taste and Preference of the Customer: Due to the globalisation an array of product is available in the hands of the customer. Taste and preference of the customer change from time to time; new venturer should know the pulse of the customer to enhance the volume of sales and quantum of profit for the organisation. Without considering the growing needs of the general public longevity of the business will be in stake.
- Raw Materials: Cost of raw materials depends on the scarcity, competition and seasonal fluctuation. Bulk purchases make it easy to reduce the total cost of material but the same is not possible for perishable product. The new business man ought to consider all these complication regarding price, storage, maintenance before purchasing the raw material from a specific source for the organisation.
- Latest Technology: Adoption of new technology improve the quality, productivity and profitability of the organisation same time it destroy the prior investment. Incorporation of new technology hire the huge expenditure through cost of knowhow, cost of material, cost of skilled labour, cost of training, cost of capital etc. So these are issues new entrants should consider before taking the right decision otherwise may face a big challenge.
- Government Policy: Change in government policy may create difficulties to the entrepreneur; it is also true to the country. All the policy and approaches taken by the government from time to time may change the entire business structure as a whole. Entrepreneur should plan properly and be ready to any such changes or developments in the policy and frameworks.
- Competitors: Competitor is one of the forces of the porter’s five forces. Competitor’s strategic perfection may be the causes of demotivation to the new entrepreneur to enter into the business world. Economies of scale, competitive advantages with brand image, work force diversity financial strength are always enjoyed by the existing entrepreneur and are capable of eliminating outside threats, but it is difficult for the new entrepreneur to tackle various kinds of threats like these.
- Political Environment: A stable political environment is always helpful for existing as always new comers for their business. However, the unstable political ambiance may have negative impacts on the commercial environment. Unstable government enhance the risk of quick changing concept of rule, regulation and government policy. New venturer should be ready to overcome these difficulties from diverse front.
Considering all the key features and challenges of entering into joint venture, we can say that it is ideal for entering into new markets and developing strategic partnership. Also, it is a structure which can be completely customised as per the needs of the Co-ventures basis their mutual understanding and business goals which ensures flexibility in the business. However like any other business, key challenges are always required to be taken care for assuring long term success of the business.
To know more about Joint Venture or plan your Joint Venture, feel free to connect with our team on firstname.lastname@example.org