A joint venture is a business agreement between two or more parties or entities to come together and accomplish a specific task. It is not like a partnership agreement because the agreement is done for a specific period of time and each party maintains a separate business entity. Before joining a joint venture, you need to look at the pros and cons of joint venture to evaluate if it’s a suitable business opportunity for you or not.
Some pros and cons of joint venture are:
Pros of Joint Venture:
- Create a business opportunity
A business arrangement done between two parties help them establish and create a business opportunity which is otherwise unavailable.
- Temporary arrangement
In a joint venture, parties can make a temporary arrangement to come together and complete a particular business project. There are no long term commitments.
- Shares business risk
Everybody knows that any business is prone to a lot of risks. In case there is any failure in the joint-group project then both the parties will bear the cost of its failure.
- Better resources
Forming a joint venture, the parties will have an additional pool of better resources since they come together with a single goal with specialized staff and technology.
- More likely to succeed
When you are in a joint venture, there are high chances of success as you are already working with a renowned brand. Also it increases your credibility.
A joint venture has a limited amount of time and commitment where you will share responsibilities and can only cover a fraction of duties.
Cons of Joint Venture | Disadvantages of Joint Venture
- Lack of commitment
As the agreement is done for the project only, there is a lack of commitment by parties involved in undertaking a joint venture which may result in the failure of the project.
- Unclear objectives
The objectives of a joint venture are not 100 percent clear and also there is result in an uneven division of labor, profits, and losses within the business.
- Clash of cultures
A joint venture may involve people with different beliefs, tastes, and preferences. There is a clash between cultures and management styles that result in poor co-operation and integration.
- Great imbalance:
There is a negative impact on the effectiveness of the venture as different parties are involved in having different assets, expertise, and skills.
- No equal involvement
For the companies working together, it is not possible to have the same involvement and responsibilities. There may be interference with normal business operations of their individual entity.
- Conflicts and mismanagement:
There is a high chance for conflicts between the parties of the joint venture if there are non-proper communication between them and also lack of understanding of each party’s roles in minor decisions.
These were the pros and cons of Joint Venture. If you would like to know more useful information, suggest us a topic.