Joint ventures are the smartest way to expand a business, enhance a product line, develop new products or even enter into new markets. Many companies are ready to grow, but have limited resources to expand their operations, and to do it quickly. The best option is a joint venture which will allow the business to access new markets faster than usual.
There are many advantages of a joint venture strategy. Overall, it has a positive effect on the bottom line of the business. However, very few businesses take this big step. They fear the unknown, the risk and the uncertainty of the new plan forward. If you are in business, you have already taken a chance, so why not a joint venture if you see strong potential? No doubt, there can be some disadvantages, but if the advantages are more significant, then you have a compelling reason to move forward with this strategy.
The good news is that the joint venture is only temporary with a limited lifespan. If it is not benefiting either company, then each one simply goes their separate ways. In most cases, when companies do enter into a joint venture arrangement, they immediately reap the benefits. Here are the ten advantages of joint venture business operations:
Advantage #1 – Combining business resources
Joint ventures are better than partnerships or mergers as both companies can retain their separate identities and can agree to shared income and expenses.
Many businesses, small and large, use the joint venture as a competitive strategy, so they remain at the forefront. Many organizations pursue joint ventures when they are working on projects to benefit from the additional resources, technology advancements and expertise. It is all about synergy and finding a way to benefit from the other organization.
When combining resources, a joint venture entity will pool resources to gain a competitive edge in the industry. This collaboration also reduces costs for both organizations as resources are used efficiently.
Advantage #2 – Combining joint expertise
As an individual business, it takes a considerable amount of time to build credibility in the industry. The advantages of joint ventures is that you establish instant market credibility and a stronger customer base. If companies what to grow and really expand quickly before competitors, they should consider a joint venture arrangement, as they can gain many new insights and expertise into the market.
Each organization offers an array of specialization and expertise. When combining this expertise, they become more powerful in the industry and soon become pioneers in the industry.
Advantage #3 – Access new business markets
Geographical markets that were difficult to enter into now become much easier with domestic support and presence. Organizations can benefit from new markets and a robust distribution network.
Moreover, organizations can easily navigate through all the logistics and regulations much more efficiently with a domestic presence. There are many instances where local laws make it difficult for foreign companies to enter, which is why a joint venture with a local firm can help to alleviate this grief.
Advantage #4 – Easy exit strategy in a joint venture
A joint venture is only temporary, making it a flexible arrangement that will benefit both organizations at the time needed to expand and grow. There can always be a limited life span on the joint venture if they decide to have it that way. Contact a business lawyer to understand what your options are with a joint venture business operation.
Advantage #5 – Increase customer database
An advantage of joint ventures is that it offers instant access to a huge client database with a pipeline of leads. Less time is wasted on generating new leads or closing new deals. This makes it easy for the organization to focus on closing more business and increasing its profits.
Advantage #6 – Research & Development
Joint ventures are considered when one of the organizations offers strong capabilities in research and development. Having research and development offers a competitive advantage in the industry as both organizations can explore new product or service opportunities that will meet demand in the market.
Advantage #7 – New revenue streams
New revenue streams can be explored through diversification offered with a joint venture agreement. Without the joint venture, a business may face limited resources and capabilities of generating revenue. Extensive distribution channels can offer either firm a larger and more diversified revenue.
Advantage #8 – Gaining intellectual property
Critical intellectual property can be expensive and challenging to build in-house. Technology advancement and technology-rich organizations always have a foothold in the industry. The advantages of a joint venture will allow an organization to gain access to these assets without having to invest huge amounts of capital to develop from scratch or acquire this organization.
Advantage #9 – Limited or no competition
A joint venture’s combined strengths makes it difficult for any small or even large firms to compete at the same level, therefore overcoming competition and creating a stronger barrier for similar entrants. Moreover, joint ventures are no longer dealing with pricing pressures as they have the resources and capacity to offer quality to their customers.
Advantage #10 – Economies of scale
A joint venture will offer economies of scale that both organizations can enjoy. Mutually the organizations scale their operations without additional costs. Joint ventures are known to increase operational efficiencies over time.