The term ‘joint venture’ refers to a project two or more independent companies work on together, combining their respective resources, assets and expertise. In a joint venture, each company retains its independence, there is no merger or transfer of ownership and it is not the same as a partnership, where the businesses join together to run one unified business. In a joint venture, each business continues to operate independently. Experts agree that the secret to a successful joint venture is research, preparation and a solid agreement of terms and conditions before beginning.
Businesses might have different reasons for teaming up for a joint venture, but usually they are looking to expand into each other’s market. A joint venture is a particularly useful tool in entering a new market or a new country. You source a receptive host business in the new field or country and working together, you each get a foot in the door of that market.
What are the benefits of a joint venture over going out on your own?
Lessen the bad: as joint venture partners, you share the costs and therefore the risk. Every business sector has its unique traits and culture, so you need to consider if these will have an impact on your venture and how to overcome them. If your venture partner is already in that market, their expertise and experience will be invaluable to avoid any problems or market entry barriers: while there is always some risk in a new venture, fair play between the companies is ensured, as both have something to lose.
Increase the good: you and your joint venture partner share resources, expertise and all the things you need to make the venture work. Together, you make a larger entity, with greater market impact and control. When businesses work together on a joint venture, the impact can be significant. In 2012, Vodafone and Telefónica UK initiated a joint venture to improve and manage a single network grid in the UK. Collaborate with a business in a similar field to yours and you might corner a sector of the market, or combine separate but related products, such as the joint venture between Spotify and Uber, which allows Spotify premium account holders access to their playlists in Uber cars. Where can a joint venture take your product?
Choose the right joint venture for you and the right joint venture partner
As with all matters in business, sound research and planning are key to a profitable joint venture. There are factors to consider before you decide on the right business to work with: check the company’s financial situation is stable and its resources complement those of your business.
If you are thinking big – perhaps you are looking to expand into a new country or new market – you need to identify where you can have the maximum impact based on your current resources and expertise. In June 2019, the Business Insider identified health and micromobility as two of the fastest growing industries they thought small businesses should look into. They estimate that over the last decade, healthcare stocks have increased by 185%, so let’s use this as an illustration, though obviously the same methods would work in different markets and industries.
For example, you’ve decided you want to try to broach the healthcare market in China. The Chinese medical device registration sector is named by Export.gov as China’s best prospect sector but how do you find a company to work with? You use a company with experience in that sector and a database of Chinese healthcare companies looking for a joint venture partner like you. Alternatively, perhaps technology is more for you: the micromobility sector will, McKinsey predicts, see a rise across China, Europe and the US from an estimated $300 billion to $500 billion over the next decade. Which sector or market you try to expand into will depend ultimately on the expertise of your business and finding the right joint venture partner.
Begin your new business relationship with a clear partnership agreement
Before you launch your venture, pin down the details in a written agreement. You and your joint venture partner will need a contract drawn up by your lawyers or attorneys. Use this document to spell out your expectations for the venture, agree your respective input, financial or logistical, and define your roles within it, and prepare an exit strategy, because unforeseen changes in circumstance can unravel the best of plans. With the right partner, and sound research and preparation, what can a joint venture do for you?