A joint venture is a temporary partnership that two companies form to gain mutual benefits by sharing costs, risks and rewards. You can use a joint venture partnership to speed up the expansion of your business by gaining access to scarce skills or entry into new markets. A joint venture partnership can also help you establish your business in an export territory where your partner has a strong presence.
A joint venture is subject to formal contractual relationships, so take legal advice before making any arrangements. If both partners are based in the United States, you must sign a joint venture agreement drawn up by a lawyer, according to the U.S. Small Business Administration. If you are considering a joint venture with a local partner in an export territory, take legal advice on local laws as well as any relevant international trade laws.
Growth is a key objective of a joint venture partnership. By using the resources of a partner, you can supplement your own resources and increase your capacity without making any capital investment. For example, you could cooperate with your partner to win contracts that would be too large for your individual capacity. A joint venture can also give you access to your partner’s markets and customers without committing your own budget and resources to market entry tasks.
A joint venture can give you a stronger territorial advantage. Working with a partner that has a sales force or distributor network in areas that you do not cover, for example, expands your market coverage. A joint venture is even more valuable if you want to expand your export activities quickly. To enter a market without a local partner, you would have to acquire appropriate licenses and documentation, as well as setting up a local sales and distribution operation. A joint venture enables you to take advantage of the local partner’s market knowledge, contacts and customer base.
To be successful, a joint venture partnership must provide both partners with benefits. You must set clear objectives for the partnership and to ensure that your objectives are compatible with your partner’s. A partnership that meets your strategic growth objectives provides you with a powerful competitive advantage.