Joint Ventures: The Positives And Negatives Of Joint Ventures
Joint ventures have become increasingly popular with companies that outsource a major portion of their operations overseas.
Because there is an entirely new legal entity created by the joint venture; the companies who outsource and involve themselves in joint ventures usually retain a good portion of their business.
However, because the launch of a joint venture does creates a new entity, both companies are faced with their share of positives and negatives.
On the positive side; joint ventures provide obvious revenue and tax advantages to both the company and the out-sourcer.
Successful joint ventures can boost your reputation and your net worth providing both parties bring something of value to the table.
Another obvious positive to joint ventures, is the sharing of any inherent risk by both companies. Occasionally substantial losses can occur in business, especially in our current economic climate.
Where one entity could not bear the burden of a substantial loss; joint ventures can allow both entities to weather the storm and survive an otherwise disastrous economic catastrophe.
Joint ventures also provide more operational transparency to both parties. Because both parties are affected by the outsourced services; a greater degree of control can be exercised by the buyer of the outsourcing operation.
Because of their mutual financial interests, both parties in joint ventures tend to devote much more attention and commitment to their end goals than would normally occur.
Despite all these positives, there are some negatives associated with joint ventures that should be pointed out.
The number one drawback, is the amount of time that it takes for decisions to be formulated.
Corporations make decisions relatively quickly compared to the time it takes for decisions to be made in joint venture relationships.
There can also be an understandable clash of opinion when two separate entities try to quickly agree on a solution, strategy, or answer to a problem that affects one party and not the other.
Sometimes this clash of corporate cultures can lead to disastrous consequences for both parties.
Joint ventures require more sophistication from buyers compared to other business models, which is why both parties to joint ventures should take a deep breath before creating the new entity.
