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An entity formed between two or more parties to undertake a specified activity together. Parties agree to create a new entity by both contributing equity, and they then share revenue, expenses, and control of the enterprise. The venture can be for one specific project only or a continuing business relationship Eg: Sony Ericsson.
Unlike mergers and acquisitions, in joint venture the parent companies does not cease to exist.
2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 2
Accurate assessment of the parties & how best to manage the new entity in light of the ensuing relationships. Symmetry between the partners (co ordination, good relationship). Expectations of the results of the joint venture must be reasonable. Flexible with time as conditions and markets could be a success one year and a failure for the next time.
Other Success Factors in a Joint Venture Good communication, cooperation and coordination among partners Common goals and shared vision among partners Dedication towards the success and long term sustainability of the JV Proper sharing of profits and benefits among partners JV should work towards the benefit of all the partners Proper planning and research prior to the incorporation of the JV
2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 3
Joint venture is a temporary business activity. In joint venture, profits ans losses are shared in agreed proportion. If there is no agreement regarding the distribution of profit, they will share profit equally. Joint venture is an agreement for pooling of capital and business abilities to be employed in some profitable venture. At the end of venture, all the assets are liquidated and liabilities are paid off: if necessary the assets and liabilities could be shared by co-ventures.
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Distribution/marketing
To obtain distribution channels To obtain raw materials supply
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Advantages of a JV
Helps an organization to enter in to new markets or new product lines Access to increased resources and improved expertise & technology Helps to build credibility with a particular target market by choosing a well established and credible partner in that market Reduces risk involved in business due to sharing of losses and expenses. Exiting from the business in case of failure is easier as compared to solely owned businesses. Partners in Joint Ventures get preference in buying out the shares of other partners and take over the company.
2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 14
Disadvantages of a JV
Entering into Joint Venture agreements may pose certain threats or disadvantages to the participating organizations: It is time consuming and difficult to set up a Joint Venture and poses many challenges. The objectives of the JV may not be clear and understood by all if the partnering organizations do not state and communicate them clearly. Differences in the cultures and management styles of the organizations may lead to a lack of cooperation and coordination. Lack of thorough research and feasibility studies in the beginning of the JV may lead to failure of the JV. The individual partners may not treat the JV as an integral part of their business and may lead to lack of attention being given to the JV There can be an imbalance in levels of expertise, investment or assets brought into the venture by the partners
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