Introduction:

As the risks increase and the competitive environment becomes more volatile, the use of joint venture is increasing. Companies use joint ventures to expand into businesses, enter new markets and create new products and services. Joint ventures are now being used in mature economies voluntarily. Organi ations that are restricted from owning foreign assets outright might enter a joint venture with a foreign partner to gain access to inputs and lucrative markets. !n the past joint ventures were used for trading purposes. "hey were defined in law as partnerships. "he use of joint ventures within mature economies has increased due to the many technological and economic changes, and the increased emphasis on the need for product innovation. "his paper aims to provide detailed information about joint ventures, its type, its benefits, the difference between joint ventures and other corporate strategies , its risks, the formation of joint venture and it is dissolution

Definition of joint venture:

Joint venture is on of the key corporate strategy decisions. !t is defined as a legal entity created between two or more parties to participate in an economic activity together. !t is an association of two or more individuals or companies engaged in a solitary business enterprise for profit without actual partnership or incorporation. !t is similar to partnerships with one key difference# a partnership generally involves an ongoing, long$term business relationship, whereas a joint venture is based on a single business transaction. "he venture can be for one specific project only where the joint venture is referred to as a consortium, or a continuing business relationship. %oreover in a joint venture both parties are e&ually invested in the project in terms of money, time, and effort to build on the original concept.

Joint venture agreement:

Most joint ventures arise via an express written agreement, but could arise by the nature of the parties conduct (a non-contractual JV). The written joint venture agreement covers the following: "he parties involved. "he objective of the joint venture. The financial contribution of both parties and whether they will transfer assets and employees into the joint venture. 'ay to day management of the business and the responsibilities of each party. (ow disagreements between both the parties will be resolved. the termination of the joint venture.

Reasons for entering a joint venture:

"here are number of reasons why companies enter a joint venture, the following are some of these reasons# !. Entering foreign markets# by entering a joint venture the firm will be to enter into foreign markets. !nstead of building its own distribution network or investing in publicity campaign, the company can rely of its partner)s distribution network and established market presence. !t also helps the company to avoid legal and trade barriers. !!. Reducing risk: entering joint ventures result in risks being shared between partners. !!!. Economies of scale and synergy: entering a joint venture results in partners combining specific functions * such as manufacturing, information systems, marketing or research development+ which result in lowering const. !,. Gaining access to new technologies, patents and trademarks: joint ventures enable the company to access more advanced technologies of the partner which helps it upgrade its own product lines and production processes. ,. c!uisition of information: joint ventures enable firms to gain information about business opportunities, new products, and sources of cheaper inputs.

,!. Eliminating competitors: by entering a joint venture with current of potential competitors, the company may be able to reduce the competitive threat and thus be able to spare resources to build up its strengths.

"lassification of joint venture:

Joint ventures can be classified according to their structure, the function the

partners are pooling into them and into international and domestic. #$ "lassification %y structure: $ Contractual joint venture# this can be defined as agreement in which two parties come together for a specific business project. A contract outlining the terms under which the both parties together is signed. -o separate legal entity is created for the project under this agreement.

Corporate joint venture# this is also known as e&uity joint venture. .nder this agreement the parties set up a separate legal entity independent of the co$ventures respective businesses and through which they grow the business joint venture. .nincorporated Joint ,enture# this joint venture is similar to the corporate joint venture, however it differs from corporate joint venture in the type of legal entity. "his joint venture is structured r limited partnership */0+, or possibly a limited liability partnership *//0+.

&$ "lassification %y the functioned pooled into the venture: 1ully integrated joint venture# under this agreement the parties integrate all of their function. !t kind resembles a merger. 2esearch and 'evelopment join venture# under this joint venture , the firms pool their skills , knowledge to develop better products, services or production methods. %arketing and production joint venture# under this joint venture both parties combine their facilities, e&uipment to produce goods together with more efficiency. "hey might also market the product together , by doing so both parties can access each other)s consumer base.

 0urchasing joint venture# this type of ventures leads to reduced costs due to the fact that both parties purchase the inputs in large amount. %oreover, the firms can also share administrative cost of storing inventory by storing it together. -etworking# joint ventures in industries like e telecommunications, banking and transportation industries create a network that better serves customers.

'$ domestic or international joint venture: any of the joint ventures discussed above can take place between two firms in the same country *which makes it a domestic joint venture+ or two firms from different countries *international joint venture+.

Differences %etween joint ventures and other corporate strategies:

Joint venture .nder a joint venture agreement, both parties agree to create a separate legal entity to achieve a particular goal. 3oth companies remain separate and intact 1or a specific period of time. 2e&uires combining the specialties of all companies involved toward a mutually beneficial goal (erger .nder a merger, two companies agree to combine as one company. Only one of the companies survives. "he second company disappears. 0ermanent 2e&uires downsi ing of one or both companies. And only the best parts of each company survive.

#$ Joint venture vs) (ergers:

&$ Joint venture vs) strategic alliances: Joint venture "wo firms combining some or all of their functions to create a separate legal entity. Joint ventures are used to shield the parent companies from the risk of a new venture failing. *trategic alliances "wo companies enter a legal agreement for the purpose of sharing the core strength with each other 4trategic alliances are usually undertaken to allow each company to pursue a new market, product or strategy that they can5t manage on their own

Risks of joint ventures:

"here are number of risks related to joint venture that may lead to loss of control, lower profits, conflict with partners, and transferability of key assets. 4uch risk stems from the following resources# Communication# firms may fail in communicating their objectives clearly which results in a misunderstanding, unachieved expectations and hard feelings on both sides. "he severity of communication issues can be increased geographic and cultural distance among partner firms. 4trategy# firms might have different strategies for the joint venture, this leads to a failure to set up mutually agreeable objectives. "his also may lead to both firms against one another, using valuable resources and energy without achieving the desired outcomes.

!mbalanced resources# this becomes a source of great conflict between companies. 0artners may not be sufficiently committed to the joint venture, which leaves one partner shouldering the bulk of the responsibility with decreased benefits

Culture# sometimes firms may have distinct corporate cultures and management styles, which results in in poor integration and cooperation.

*teps in formation of joint venture:

6$ 0lanning# before entering a joint venture both parties need to understand what each want from such a relationship. this step involves # 4pecifying the goals and objectives of the joint venture. 'etermining the product or market or both. 4pecifying technology decisions. 'etermining the financial re&uirements. Conducting and foreign exchange analysis. 'etermining the human resources re&uirements.

Conducting a cost benefit analysis. Conducting a personal 47O" Analysis.

8$ 0artner selection# 4electing the right partner is critical for the success of the joint venture. "he ideal partners are the ones who have resources, skills and assets that complement each other)s. the following is the steps in the selection process# 4creening prospective partners. 4etting up a list of the prospective partners and ranking them. Checking the credential of the other party.

9$ 1easibility study# "his step is the most important step in the formation of the joint venture. !t is the process of analy ing the practicality of the proposed joint venture. "his step determines whether the proposed joint venture is worth the risk. "here are : prime components in this study and they are as follow# "echnical study. 1inancial study. %arket study. 4ocial desirability. %anagement study.

Dissolution of joint venture:

Joint venture can be dissolved if# "he objective and goals of the joint venture are achieved. "he joint venture failed in achieving the goals od objective agreed upon between the partners. "he joint venture is not profitable A breach of a joint agreement was committed by one of the partner. One of the partners became incapable of preforming his part in the joint

venture.

"onclusion:
"he increased risks, competition and the need to innovate have firms leaning toward joint ventures. %oreover, joint venture represents a significant change in industries structure and in competitive behaviors. !n addition, joint venture provides the firm with an access to uni&ue business opportunities and new geographic markets. (owever this strategy doesn)t lack the risk , therefore firms should be aware of such risks.

References#
4anyal, 2ajib -.. ;Chapter <. 4trategic Alliances and =&uity !nvestments.; !nternational management# a strategic perspective.. .pper 4addle 2iver, -J.# 0rentice (all, 8>>6. 8>. 0rint. (arrigan, ?athryn 2udie. Joint ventures, alliances, and corporate strategy. 7ashington, '.C.# 3eard 3ooks, 8>>9. 0rint. (ewitt, !an . joint ventures. /ondon# 4weet @ %axwell, 6AA<. 0rint. (arrigan, ?athryn 2udie. %anaging for joint venture success. /exington, %ass.# /exington 3ooks, 6ABC. 0rint.

(arrigan, ?athryn 2udie. ;Joint ,entures And Competitive 4trategy.; 4trategic %anagement Journal A.8 *6ABB+# 6D6$6:B. 0rint.

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