Pros and Cons of Joint Ventures

0
2633

A joint venture is something that proves teamwork can be an essential part of modern business. It allows a company to grow and expand without the need to purchase another organization. The goal is simple: to create an agreement through cooperation that allows both companies to prosper through the roles that each individual entity play. Here are the key points to consider.

The Pros of Joint Ventures

1. It provides new channels of access.
We see joint ventures every day. Starbucks, for example, partners with a number of grocery store chains to place franchises within the store itself. They once did this with Barnes & Noble as well. Having a Redbox vending unit outside of a commercial location is another example of this.

2. It opens up new markets.
Let’s say a business wants to expand into China. There’s a business across the street who already has distribution channels overseas. A joint venture between the two would allow access to China while providing access to unique strengths on the other side of the equation.

3. It lowers the risk for everyone.
The math in a joint venture is pretty simple. If expanding into a new market will cost $1 million, if two companies are participating, then their financial risk is cut in half to $500k.

The Cons of Joint Ventures

1. Communication can become a nightmare.
Company executives are hired to preserve the best interests of their employer. This creates a natural barrier in a joint venture because ultimately each team is looking out for themselves and not their partners.

2. It requires the settings of very specific goals.
Every company has a mission statement which they follow. Sometimes a joint venture has requirements which can come into conflict with that mission statement. Without specific goals being set before the joint venture is implemented, a company may find themselves stuck between a rock and a hard place.

3. Failure brings down two companies instead of one.
Although risks can be minimized in a joint venture, failure is still a possibility. In this instance, that failure will typically bring down all parties who are involved in the venture.

Joint ventures are complex and require good relationships, but they can also bring about growth at an unprecedented level. The pros and cons of joint ventures show that as long as the negatives can be minimized, it can be a beneficial experience for everyone involved.