Joint Venture

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What is a Joint Venture?

A Joint Venture (JV) is a strategic business partnering and legal agreement resulting in the creation of a new legal entity by two or more businesses to mutually accomplish a business objective. It is one type of Strategic Alliance.

The parties agree to create a new legal entity together by both contributing equity, and they usually share assets, costs, risks, profits, other rewards, and the control of the enterprise. The venture can be for one specific project only, or it can be a long-term continuing business relationship.

reasons for forming a Joint Venture

• Share costs and risks.

• Improve access to financial resources.

• Achieve economies of scale.

• Share / access new technologies.

• Share / access innovative managerial practices.

• Share / access foreign markets / customers.

• Influence the evolution of an industry (by combining the strengths of the two parties).

• Pre-empting competition.

• Defensive response to blurring industry boundaries (build a presence in unclear terrain).

• Create stronger competitive units.

• Increase time to market.

• Achieve better Organizational Agility (when 2 large entities create a small and flexible JV).

• Achieving cross-organizational "synergies". See: Synergy, Relational Capital.

• Diversification.

• Off-Balance Sheet Financing.

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Compare also: Acquisition Integration Approaches  |  Special Purpose Vehicle  |  Strategic Alliance  |  Coalition  |  Spin-Off  |  Synergy  |  Alliance Network  |  Disaggregation  |  Divestiture  |  Start-up Company

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