A joint venture is a partnership or alliance among two or more businesses or

organizations based on shared expertise or resources to achieve a particular goal.1

There are many good business reasons to participate in a joint venture partnering
with a business that has complementary abilities and resources, such as finance,
distribution channels, or technology, makes good sense. These are just some of the
reasons partnerships formed by joint venture are becoming increasingly popular. A
joint venture is also considered a strategic alliance between two or more individuals
or entities to engage in a specific project or undertaking. Partnerships and joint
ventures can be similar but in fact can have significantly different implications for
those involved. A partnership usually involves a continuing, long-term business
relationship, whereas a joint venture is based on a single business project.
Parties enter joint ventures to gain individual benefits, usually a share of the
project objective. This may be to develop a product or intellectual property rather
than joint or collective profits, as is the case with a general or limited partnership. A
joint venture isnt like a general partnership; its not a separate legal entity.
Revenues, expenses and asset ownership usually flow through the joint venture to
the participants, since the joint venture itself has no legal status. Once the joint
venture has met its goals the entity ceases to exist.
Being a part of a joint venture has its advantages such as providing
companies with the opportunity to gain new capacity and expertise, allowing
companies to enter related businesses or new geographic markets or gain new
technological knowledge. It also has access to greater resources, including
specialized staff and technology sharing of risks with a venture partner. Joint
ventures can be flexible. For example, a joint venture can have a limited life span
and only cover part of what you do, thus limiting both your commitment and the
business' exposure. In the era of globalization and consolidation, joint ventures offer
a creative way for companies to exit from non-core businesses. Companies can
gradually separate a business from the rest of the organization, and eventually, sell
it to the other parent company. Roughly 80% of all joint ventures end in a sale by
one partner to the other.
It also has its disadvantages where problems arise if the objectives of the
venture are not 100% clear and communicated to everyone involved. There is an
imbalance in levels of expertise, investment or assets brought into the venture by
the different partners. Different cultures and management styles result in poor
integration and co-operation. The partners don't provide enough leadership and
support in the early stages. Success in a joint venture depends on thorough
research and analysis of the objectives. 2
Embarking on a joint venture can represent a significant reconstruction to
your business. However favorable it may be to your potential for growth, it needs to
fit with your overall business strategy. It's important to review your business strategy
before committing to a joint venture. This should help you define what you can
sensibly expect. In fact, you might decide there are better ways to achieve your
business aims.
You may also want to study what similar businesses are doing, particular
those that operate in similar markets to yours. Seeing how they use joint ventures
could help you decide on the best approach for your business. At the same time,
you could try to identify the skills they use to partner successfully. You can benefit
from studying your own enterprise. Be realistic about your strengths and
weaknesses - consider performing strengths, weaknesses, opportunities and threats
analysis (SWOT) to identify whether the two businesses are compatible. You will
almost certainly want to identify a joint venture partner that complements your own
skills and failings. Remember to consider the employees' perspective and bear in
mind that people can feel threatened by a joint venture. It may be difficult to foster
effective working relationships if your partner has a different way of doing business.
When embarking on a joint venture its imperative to have your understanding in
writing. You should set out the terms and conditions agreed upon in a written
contract, this will help prevent misunderstandings and provide both parties with
strong legal recourse in the event the other party fails to fulfill its obligations while
under contract. 3
When a company is looking to become involved in an international joint
venture, the evaluation and choice of a partner is critical to the success of the
venture. Each potential partner must be considered carefully and the nature of the
relationship must be clearly defined. This examination includes the control structure
of the partnership, the method of financing, and the companys specific expectations
and means of measuring success for the new joint venture. It is also important that
the capabilities of each partner are complementary in a way that adds value not only
to each partner individually, but also constitutes a unique combination within the joint
venture that is not easily imitated. Ideally, the structure and strategy of the venture
should provide a source of sustained competitive advantage.
In the eighties, which was faced with a stagnant domestic cereal market and
with consumers looking at less costly private label brands, General Mills started to
look for alternatives to grow and expand against its competitor Kellogg. General
Mills joined Nestl in 1991 to create the partnership CPW or Cereal Partners
Worldwide, so how and why was CPW created?
Nestl, which is headquartered in Lausanne, Switzerland was facing entry
barriers to the U.S. market. While it was a major player in virtually all areas of
consumer packaged foods except cold cereals, it did not have any expertise in this
specific role. The two companies decided to capitalize on the complementarity of
their objectives and resources for entering the global cereals market, and formed a
strategic alliance that would be implemented in all world markets except the U.S.,
and Canada so as not to compete with General Mills at home.
In cereals General Mills is the second largest cereal company in the country.
Its headquarters are in Minneapolis, MN and its main competitor is Kellogg. Until
1991, General Mills had been based completely in North America. Meanwhile Nestl
first tried to enter the cereal niche with its own brands such as Chocapic. However,
the relative lack of market penetration of its brands convinced the company that it
lacked expertise in this specific marketing area, and that it was necessary to
combine its strengths with a company specialized in cereal business. Until then,
Nestl policy had been to acquire companies rather than to construct alliances. For
Nestl, General Mills offered the advantages of: specialized technology, marketing
expertise, proprietary manufacturing equipment, a stable of proven brands, and easy
access to the North American market.
Each partner aimed to answer competition and enlarge their respective
international business market share. General Mills possessed technology in cereal
production, proven brands, and marketing expertise, but could not compete against
Kellogg without setting up a large international manufacturing base from scratch.
General Mills needed an inside player in the global market with extensive distribution
capability in order to penetrate foreign markets and gain insider status. This partner
had to have strong positioning in the international market in order to respond to
expected competition from their main competitor, and achieve overall market growth.
The partner of choice, Nestl, brought to the venture its name, access to retailers, a
global network of manufacturing plants, and a distribution network that extended to
nearly every country in the world.
The General Mills and Nestl partnership is an equity based collaboration with
an equal capital contribution, otherwise known as a 50/50 joint venture. To compete
with Kellogg, each company contributed $80 million and despite this costly start-up
phase, by 2000 the CPW partnership had achieved 21% of the market with a value
of over $1 billion. CPW was the first major joint venture in the food industry. CPW
successfully anticipated the changing tastes of international consumers, the attitude
change towards its products, the development of breakfast cereal substitutes such
bagels and breakfast bars, the use of increased networks of supermarket chains,
and new commercial television channels. CPW now markets in over 80 countries
and is number two outside of North America in the cereal market. As part of the
agreement between Nestl and General Mills, CPW cant market in the North
American market and Nestl is barred from selling cereals there for ten years if the
partnership is dissolved. 4

In conclusion the motives of the two partners to enter form a joint venture
were complementary. Each company possessed capabilities that were uniquely
desirable to the other. Their respective capabilities could be developed in a
partnership, allowing them to better serve their common goals. In theory, the two
companies could benefit in the long run, as the alliance would create new markets
and new sources of revenue. Together, they were looking to enhance their access
to potential markets and to identity the factors necessary to meet the needs of
consumers.