Definition of Joint Venture

Many personal or business projects are possible because the union of two forces or capabilities occurs. In this sense, the English word joint venture refers to the strategic alliance that takes place between two entities. Although its literal translation in Spanish is a joint venture, this denomination is not used and the term is maintained in English.

Union make force

Sometimes companies decide to join forces for some purpose, be it to launch a new product, design it, create a new market or improve a service.

The idea of ​​this type of alliance is simple: take advantage of what each company does best. With this strategy it is possible to reduce the cost of a draft and, at the same time, improve its effectiveness.

It is an agreement or commercial pact of shared investment and the alliance that is established can be in the medium or long term

It is possible to collaborate with raw materials, capital, market knowledge, technology, channels of distribution and, ultimately, with any aspect that a company decides to contribute to the benefit of the joint project.

The expression joint venture is not used in a legal sense, as other names are used, such as business alliance or strategic alliance. It must be borne in mind that this alliance does not imply the loss of the identity legal of each company.

This modality should not be confused with fusion business. On the other hand, the entities that agree to a joint project sign an agreement and undertake to share the benefits and damages generated by this association.

Advantages, disadvantages and some examples

With the joint venture it is easier to reach a new market. Second, the risk is minimized since the responsibility It is shared. Third, the companies that collaborate do not lose their identity or their ability to control. Finally, there is no type of limit that conditions the "adventure in common".

Although the relationship between the two companies is reflected in a well-defined contract, during the collaboration period there could be some conflict interest that was not originally planned. There may be discrepancies in relation to each partner's strategy or in relation to priorities. Finally, it is not always easy to quantify and value the assets contributed by each of the entities.

Three significant examples of the success of a joint venture have been the alliances between Sony and Ericsson in 2001, Nokia and Siemens. in 2007 or Coca Cola and McDonals in 2015 (in the latter case the history of the alliance between the two companies has more than 50 years).

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