Joint ventures and business partnerships

A joint venture is a common way of combining the resources and expertise of two otherwise unrelated companies. There are many benefits to this type of partnership, but it is not without risks - arrangements of this sort can be highly complex.

Advantages of joint venture

One of the most important joint venture advantages is that it can help your business grow faster, increase productivity and generate greater profits. Other benefits of joint ventures include:

• access to new markets and distribution networks
• increased capacity
• sharing of risks and costs (ie liability) with a partner
• access to new knowledge and expertise, including specialised staff
• access to greater resources, for example, technology and finance

Joint ventures often enable growth without having to borrow funds or look for outside investors. You may be able to:

• use your joint venture partner's customer database to market your product
• offer your partner's services and products to your existing customers
• join forces in purchasing, research and development

Another benefit of a joint venture is its flexibility. For example, a joint venture can have a limited lifespan and only cover part of what you do, thus limiting the commitment for both parties and the business' exposure.

Joint ventures are especially popular with businesses operating in different countries, for example within the transport and travel industries. Read about the different types of joint ventures.

Disadvantages of a joint venture

Joint ventures can involve risks, such as legal responsibilities and disagreements between partners. Problems are more likely if:

• aims of the venture are unclear
• communication between partners is poor
• partners have different expectations
• skills, experience or investment are not balanced
• work and resources aren't sharef fairly
• different cultures and management styles cause conflict
• leadership and support are lacking
• contract terms limit a partner's main business activities

Partnering with another business can be complex. It takes time and effort to build the right business relationship and, even then, it can be difficult to completely avoid all the issues.

Success depends on good communication, a carefully planned joint venture relationship and a clear joint venture agreement.