A joint venture is an agreement between two or more companies that voluntarily create and manage a new business. Each organization invests its own resources and conducts its own expertise for the establishment and launch of a new company. Such a firm is usually called a joint venture.
In Russia, a joint venture may have a different form of work. As a rule, this applies to a joint activity agreement, a simple partnership, an agreement on the paid creation of services and an agency agreement. Each of these types of joint business organizations perform certain functions. Which ones, we will tell you in this article.
Advantages of a joint venture
The wide spread of joint ventures is due to a wide list of advantages of this form of work. This concerns:
- Orientation to long-term cooperation with a partner.
- Pooling partners’ assets to achieve the goal.
- Opportunities for integrated use of resources to maximize profits.
- Participation in the distribution of profits received from joint activities.
- Expansion of the sales market.
- Reducing the cost of creating products.
- Formation of management bodies of joint ventures.
- Savings on administrative, management and sales costs.
- Replenishment of production capacities at the expense of the partner’s resources.
Joint venture functions
The functions of a joint venture can be different and depend on the goals of creating such a company. However, there are some common functions that the joint venture performs:
- Distribution of risks and benefits. At the heart of the creation of a joint venture is the desire of companies to reduce the risks associated with the launch of a new business and to distribute costs and benefits between partners.
- Improving competitiveness. A joint venture allows companies to combine their knowledge and experience to create a strong and competitive business. One of the partners can bring a unique technology or patent to the company, the other – experience in marketing and sales. As a result, such cooperation will provide an opportunity to create a product or service that will be successful in the market.
- Expansion of the market and customer base. Each company has its own customer base and sales market. It is assumed that partners will have access to new marketing channels and methods.
- Improved efficiency. A joint venture allows you to combine the resources and experience of partners to improve the productivity and efficiency of the whole business.
- Cost reduction. A joint venture makes it possible to transfer the costs of creating and launching a new business between partners. This may include research and development costs, marketing, advertising, and other costs. Thus, all partners can benefit from the creation of a new business without having to deal with the costs of it.
Depending on the objectives of the joint venture, the functions of this company may vary. However, the common functions performed by the joint venture include the distribution of risks and benefits, increasing competitiveness, expanding the market and customer base, improving efficiency and reducing costs. The creation of a joint venture can be a profitable step for companies that want to cooperate with each other to achieve common goals and success in the market.
Many entrepreneurs face difficulties when setting up a joint venture. VALEN’s experienced lawyers will advise business representatives on the creation of a new company and the choice of a form of work within the framework of joint activities.