Joint ventures: A quick guide to forming a business partnership
Read our quick guide to this type of partnership agreement
Joint ventures are businesses set up by two or more companies who agree to work together either indefinitely or for a limited period.
Why consider it?
By joining forces with another company to set up and run a business or project, you share the cost and consequently the financial risk. However, financial considerations are by no means the only driver. Many joint ventures are set up by companies because they see the merit in pooling complementary skills or technologies. For instance, one partner may be strong on product development while the other’s strengths lie in marketing. By working together they can take products to the market cost-effectively.
Who should consider it
Companies of just about any size can engage in joint ventures and working with a partner can be particularly advantageous for companies that lack the resources to go it alone. It’s an especially popular strategy when companies move into new and unfamiliar markets, where a local partner can make a huge difference to potential sales.
It has to be said that the course of joint business ventures does not always run smooth. For one thing, it isn’t always easy for managers from two different organisations to work together on a common project. Differences in culture or poor communication can cause problems, as can an imbalance between the two parties in terms of the skills, assets or financial commitment that they bring to the venture. Successful joint ventures depend on the objectives being clear to all parties and continued leadership is required to ensure that no one loses sight of the goal.
A written agreement is essential, covering the length of the venture, the objectives, the role and financial commitment required of each party, the ownership of intellectual property and a framework for dispute resolution.
If you’re looking for complementary skills, the first thing to do is look backwards and forwards along the supply chain. Are there customers or suppliers who might work with you? One advantage of locating partners in this way is that you will already have established a relationship. This has the added advantage that you will already know your joint business venture partner.