A great idea is the foundation of a successful business, and it is also a fact that without resources and capital any business cannot flourish. And this is where the idea of a joint venture comes in, which unlocks the path of the rapid growth of the business. In the era of globalization, Joint Venture is an excellent business strategy, which organizations are doing and uplifting the level of their business. Through, this blog we will discuss Joint ventures and its other aspects.
What is a Joint Venture?
Joint Venture is a business agreement, in which two or more business entities (it can be private or government) come together to commence new business activity, for a certain time to achieve specific business goals or project. Joint Venture is not a permanent business activity; it is a temporary business partnership that is established for a definite objective.
In a Joint Venture, two or more business entities mutually agree to use their resources to accomplish a specific business project. Business entities who enter in a joint venture are equally responsible for profit, loss, and the cost associated with the business. Let’s understand it with some examples below:
- The veteran corporate giant of India Tata Sons and Singapore Airline Vistara come together to set up Air Vistara Ltd.
- India’s leading business group Bharti AXA and popular insurance company of France come together to set up Bharti AXA General Insurance Corporation Limited.
The Objective of Joint Venture
There are three main reasons that propel companies to work under the joint venture.
Leverage resources:
Under the joint venture, companies can use the resources of each other to achieve the objective of the business. One company might have adroit technical human resources, while the other company might have an excellent marketing network.
Cost-saving:
Under Joint Venture, companies save a lot of cost in things like marketing, production, packaging, distribution, and labour cost, etc. which is not possible while doing business separately.
Combined expertise:
Under Joint Venture, companies share their unique skill and expertise, which is assuredly beneficial for them for any future business project.
Important Factors to Consider Before Entering in The Joint Venture:
- Proper research and valuation are mandatory before entering in the joint venture. Do in-depth research about your business partner, observe the track record of the partner. The research should be done deep enough to come up with a concrete conclusion and prediction.
- Assess the scope of the joint venture like; Will there be enough growth opportunities in this joint venture? Will your product or services meet the expectation of customers? Is your prospect business partner will follow your company’s ethics? After assessing all these things, you should take your final decision.
- Assess the financial risk, before entering in the joint venture, thereby you do not get shocked when the company runs in the losses.
- Review the liquidity right and obligation, as any hidden obligation can spoil the joint venture. Therefore, transparency and accountability in the joint venture are mandatory.
- To ensure the success and fairness of the joint venture, partner should know their legal rights and obligation. Because that is where all our intentions lie.
Conclusion:
In this era of the 21st century, Joint ventures not only beneficial for international business, rather small and medium domestic enterprises also can leverage their advantage of it to take their business to the next level. Domestic small and medium industries of the country play a significant role in the economic development of the country, in such a scenario joint ventures at the domestic level can be an excellent idea to ensure the growth of the business.
Global Jurix are a multi-specialty law firm with offices in Delhi, Mumbai, Hyderabad, and Other Location in India. We advise and represent domestic and international clients in various legal matters. Law Firm India Our services are provided for all types of legal issues to be consulted and judged by our experienced lawyers.
Original Content Sources – https://www.globaljurix.com/blog/joint-venture-is-the-path-of-rapid-growth.php
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