Pros and Cons of Joint Venture

The joint venture is a business entity created by two or more parties, generally characterized as shared ownership, returns, profits, risks, and governance. They pool their resources to accomplish their common goal.

The goal can be for a new business or an existing business entity. There is normally agreement and the risks and profits are shared among the parties.

Pros and Cons of Joint Venture

Pros of Joint Venture

  1. Access to new markets and distribution networks

When the parties come together with a common goal they get access to new markets of their products and the distribution networks of their products.

  1. Low-cost production

The production cost of the commodities will be low as there will sharing of the production cost in that the raw materials will be supplied in the continuous process hence and they will be cheap hence low production cost.

  1. Better resources

When businesses come together, they utilize the resources such as staff and professionals from the parties hence increasing the production of the goods and high quality.

  1. Both parties share risks and costs

The parties can share the risks incurred in the business hence it becomes less burden to the entire business.

  1. They can be flexible

The parties can be flexible in that they can shift in case the business is limiting itself to one product which is not earning the intended profit.

  1. It is possible to know what is yours and the cost

When the business comprises of two or more parties, the individuals can know what they own in the business.

  1. New insight and expertise

When the parties come together they enjoy the new insights and expertise as they will have a wide range of thoughts that are beneficial to the market hence getting the large market intended.

  1. They allow exit

When one party decides not to continue with the venture, they are free to exit and they are given their shares.

  1. It builds relationships and networks

The parties involved can build relationships and networks that will assist in the selling of their products by creating a wide market area.

  1. They share advertising and marketing costs

This will enable parties to save money that they could have used and use it to expand the business as the costs of advertising and marketing will be shared.

Cons of Joint Venture

  1. Unreliable partners

There is a possibility of merging with unreliable partners and this will make one party strain as the other one will not work towards the common goal.

  1. There may be unrealistic goals

The venture may set goals that cannot be achieved and this may make them not continue operating as one as they will differ due to that.

  1. A problem in communication

They may experience a problem in communication whereby they may be having different opinions over something hence communicating it wrongly.

  1. Easy to leave the joint venture

The parties involved may reach a place where one is willing to leave the venture but the other one may not be ready for that hence affecting the running of the remaining one.

  1. One party may want to leave before the end of the contract

This will become difficult for the party to leave as it will have to go by the contract hence forcing one party to operate with another unwillingly.

  1. Needs a lot of research and planning

As the business will be big, it will force the parties to do a lot of research and plan how such businesses are managed before they start.

  1. Limited to outside activities

Many joint ventures limit the members from operating outside the business hence they may not be able to engage themselves in activities outside the business.

  1. Culture

Culture may affect such ventures in that one party may not be trading in a certain commodity because their culture forbids that but the other party trades in the commodity hence difficult to understand each other.

  1. There can be a problem of imbalance

One party may have a lot of assets and investments and this may create a problem when it comes to sharing of profit earned in the business.

  1. Unequal involvement

One party may not be involving the other in the operation of the business and this may create a problem whereby one party will not be fully aware of the happenings in the business.

Summary

Joint ventures are most preferred if the businesses have the same goal and they mostly trade in similar commodities hence it is easier for them to pool their resources together reducing the competition in the market.

 

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