What is a Joint Venture?

Countries worldwide are witnessing significant changes in how they create and market different products and services. Earlier, national economies were working toward self-sufficiency, and now they are dependent on other nations for the supply of a wide range of goods and services. The development of a faster and more effective means of communication and transportation has brought nations closer to each other. The economies have removed the restrictions on cross-border transactions and integrated with the world economy for cooperation. Thus, a growing number of businesses are expanding into foreign markets, as it provides numerous growth opportunities and increases profits. There are different ways in which a business can enter into international business. A joint venture is a common strategy for entering international markets. When two business enterprises agree to join together for a common objective and mutual gain, it gives rise to a Joint Venture. These enterprises can be private, government, or foreign companies.

Joint Venture refers a partnership in which companies share management, risks, investments, and profits in the development, production, or selling of products. In Joint Venture, two or more firms join together for a common purpose and mutual benefit.

All the participants are responsible for sharing the profits and losses under the joint venture. It includes establishing those enterprises in which both the domestic and foreign are partners in ownership and management. Under this mode of international trade, business is conducted in collaboration with the company of importing nation. The primary purpose of this venture is to share a competitive gain among the companies. Maruti Suzuki India Ltd., Hero Honda, Sony and Ericson, etc., are some examples of Joint Venture.

A joint venture may be adopted due to the following reasons:

1. When a company wishes to launch its business in the international market but lacks capital and human resource.
2. When a business believes that working with a local partner will be helpful.
3. When a company seeks to benefit from the existing distribution network of the local partner of importing country.

Many Indian companies entered into joint ventures with international companies that have advanced technologically or are geographically dispersed. In the Indian automobile sector, Maruti Suzuki is a well-known example of a joint venture. It is a venture between Suzuki Motor Corporation of Japan and the Indian Government. Maruti Suzuki is one of the top automobile companies in India. This resulted in the automobile revolution in India. 

A joint venture can be created in three ways which are as follows:

1. A foreign investor purchasing stock in a local business.
2. A local firm is purchasing a stake in an already established foreign firm.
3. Foreign and local enterprises collaborate to create new businesses.

Characteristics of Joint Venture

1. Create Alliance: The joint venture is created to combine the features of two or more companies. The company has a unique quality that other businesses usually lack.

2. Shared Risk and Rewards:  In a joint venture, two or more companies of two countries come together. Companies have different cultures, technology, and ethics. Hence it provides a chance to acquire each other characteristics and collectively share risks and rewards.

3. No Separate Laws: No independent governing body governs the activities of the joint venture. Besides, there are no separate laws for regulating joint ventures.