Joint Venture Advantages And Disadvantages | What is a Joint Venture?, Meaning, Types and Characteristics

Joint Venture Advantages And Disadvantages: A joint venture is a business entity created by two or more parties for a particular project. We can also call it a partnership. In this two parties combines for a particular project and they do an equal amount of sharing to start that project and work with unity for its accomplishment. And during the project, they all make equal efforts. Once it is completed they share equal profit or loss for it. Companies pursue joint ventures to share risk in the business and to share capital while startup.

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What is a Joint Venture? Advantages and Disadvantages of Joint Venture

In a joint venture, two companies combine for a particular project in which they give an equal amount of sharing and effort. They also bear equal profit or losses at the end of the project. Most companies pursue this to share risk. If they suffer loss then capital will be less affected. The reason behind this temporary partnership is also to access the new market. Let’s know about different types of joint ventures. We will learn about the different types of joint ventures:

• Advantages of Joint Venture
• Disadvantages of Joint Venture
• Comparison Table for Joint Venture Advantages And Disadvantages
• FAQ’s on Joint Venture Advantages And Disadvantages

Types of Joint venture

There are 4 types of Joint venture and we will learn about each type;

• Project Joint Venture: Project joint vent is one of the most common joint ventures. Its purpose is to create roads, offices, and so on. Its purpose is limited, it usually works on a single project as per agreement. Once that single project is over the joint venture comes to an end. The period of their partnership is till the end of the project.
• Functional Joint Venture: In this type of venture, two companies are combined, and each company has expertise in some of the other business fields. When they both meet with their expertise, it makes a perfect combination. Which gave rise to a wonderful project. These companies create a symbolic atmosphere for each other and give rise to the wonderful project
• Vertical Joint Venture: This type of joint venture occurs between two business entities of the same supply chain. This usually occurs when one entity produces any specific kind of goods for which it needs raw material so the other entity joins its idea of new goods and invests in its supplies.
• Horizontal Joint Venture: This type of partnership is between two business entities that usually deal with the same types of goods and services. Its benefit is that the company gets to know about the new market in the geographical region.

Characteristics of Joint Venture

As we have learned above joint venture is the combination of business entities for a particular project. In which both the entity involve their capital and efforts. In the end, they both bear profit or loss if there is success or failure in the project. Now let’s learn about its characteristics.

• In this risk and reward can be shared
• It creates synergy between them for their greater good.
• There is no separate law.

Advantages of Joint Venture

• It has Combined Skill Sets: This is one of the best advantages of the joint venture. As we know in a joint venture two business entities combine and each company has its expertise in its field. If both of their skill were combined then it gave rise to the amazing project which has combined skills.
• Economies of scale: As the two company combines so when the project will start both of them contribute the capital. By this both get rid of paying the whole amount alone. It helps the organization to scale up with limited capital. This maintains the economic stability of both organizations.
• It involves risk-sharing: Most companies hesitate to start with a new project because they have the fear of losing their capital. But to take the step towards success it is very necessary to take a risk. Joint venture reliefs the little fear of risk. As if you combine with someone, you can share the risk.
• It involves sharing of resources: Another advantage of the joint venture is that you can access each other’s resources. These resources can be machines, technological tools, etc. If one doesn’t have any particular resources then he can use other’s resources. And if there is a need for new resources then both can contribute.
• Brand exposure: If the one company is new or a startup he can make good exposure to the marketing world. They will get good experience while working with other companies and get to know how to deal with the client. You will know about the condition of the market, and what the market needs and your brand will also get exposure in the market.

Disadvantages of Joint Venture

• Relationship Maintenance: Through joint ventures have many advantages one of the most common disadvantages is relationship maintenance. It is very hard to maintain relationships as there were something in which both the companies have their thought. Sometimes this makes a huge relationship gap which affects the project. It is also hard to maintain the trust issue with your partner and all of these play a huge role in that project.
• There are unrealistic expectations: When they start the work in the beginning there were many expectations regarding the project. Both the companies give equal efforts. But if they bear even a small loss, sometimes one company tries to backup which ruins the whole project. They don’t know how to deal with this and joint venture fails.
• Imbalance: This is also one of the most common disadvantages. There is an imbalance in a joint venture in the matter of capital sharing, profit sharing, and efforts. If one company thinks that there the other company doesn’t do much effort or hasn’t given equal capital then there will be the end of the joint venture.

Comparison Table for Joint Venture Advantages And Disadvantages

FAQs on Joint Venture Advantages And Disadvantages

Question 1.
What do you understand by Joint Venture?

Answer:
A joint venture is the combination of two or more parties that combines to accomplish a particular project.

Question 2.
How does a Joint venture create?

Answer:
A joint venture is a business entity created by two or more parties for a particular project. We can also call it a partnership. In this two parties combines for a particular project and they do an equal amount of sharing to start that project and work with unity for its accomplishment. And during the project, they all make equal efforts. Once it is completed they share equal profit or loss for it. Companies pursue joint ventures to share risk in the business and to share capital while startup.

Question 3.
How does a joint venture affect the economy?

Answer:
As the two company combines so when the project will start both of them contribute the capital. By this both get rid of paying the whole amount alone.