There are numerous ways to grow business operations. A joint venture is one of the most sustainable ways for business expansion as it reduces the competition in the industry. Two or more companies can collectively profit from a joint venture instead of competing in the market for the same consumers. There have been iconic joint ventures in the past which created history. Joint ventures help all parties benefit from merged operations and resources. Imagine having a 2x marketing budget for your growth without seeking external financial aid. It indeed is a lucrative proposal. Let’s quickly dive into different types of joint ventures in the contemporary.
What are the benefits of a joint venture?
There are several benefits of a joint venture. Here are some of the most prominent ones.
- New markets and distribution networks
A joint venture provides businesses with access to new markets and distribution networks which aids in their overall growth and expansion. For example, a joint venture between two foreign nations will open new markets and a customer base. It is also great for customers as they have more options to choose from.
- Increased production capacity
Joint ventures allow two or more companies to expand their production base. It is easier to meet the increased demand when the production base rises. It ultimately leads to more revenue and profit in a given period. Customers are also satisfied with the timely delivery of their orders because of the increased production base.
- Reduced cost
Joint ventures can help firms achieve their cost optimisation objectives easily. Increasing production capacity can help bring economies of scale and reduce the cost per unit. The benefit can be passed on to consumers,increasing the demand due to low pricing.
- Access to new technology
In a joint venture, companies with poor technological infrastructure can benefit from the advanced technology used by the partner company. This can be achieved without investing any capital into new plants or machinery. Leveraging new technology also brings efficiency to business operations and boosts productivity.
Different types of joint ventures
Joint ventures can take place to meet different business objectives. Broadly, all joint ventures are categorised under four groups, including project joint venture, functional joint venture, vertical joint venture and horizontal joint venture. Let’s take a quick look into each.
- Project joint venture
A project joint venture is undertaken when two or more businesses work together to complete a specific project. The project in this joint venture can be anything. For example, creating a road, office complex, etc. However, it is crucial to note that these joint ventures are limited to a specific project. The nature, scope and objectives of the project are predefined. The joint venture between different companies comes to a halt when the project is completed.
- Functional joint venture
Functional joint ventures occur when two or more companies want to benefit collectively from synergies in operations. In this case, each company has a strong suit from which the other wants to benefit. For example, A functional joint venture can occur between companies A & B if A has some business expertise B needs and B has some uniqueattributes that are useful for A. Company A can have high-end technology, and company B can have a loyal customer base.
- Vertical joint venture
Vertical joint ventures occur between two or more companies in the same supply chain. It mainlyoccurs between the supplier of specific inputs and the final manufacturer. The final producer/manufacturer of goods can invest in a joint venture to source specific raw material inputs. For example, a vertical joint venture between computer producers and chip suppliers/manufacturers. Vertical joint ventures help to ensure a steady supply of raw materials. Therefore, it can helpbusinesses maintain the desired prices and reduce their input cost.
- Horizontal joint ventures
Horizontal joint ventures are done between two or more companies producing the same or similar goods and services. It can be done for several reasons. Most companies enter into a horizontal joint venture to reduce market competition and benefit from operations synergies. It also helps them expand into different geographical locations.
Final words
There are plenty of benefits to entering into a joint venture. Companies strategically research other firms with which they can get into a joint venture. Joint venture services can help you find the best fit.
