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Advantages and Disadvantages of Joint Ventures Essay
Advantages and Disadvantages of Joint Ventures Paper
A joint venture occurs when two or more enterprises come together to attain the same objectives. It is not a merger since the companies get to maintain their administrative independence and legal personalities. The venture mainly strives to provide the commercial and technological breadth required to realize a particular project. Typically, the strategic alliance created in a joint venture can be beneficial to the parties involved, but it can also come with significant risks as outlined in this paper.
In a joint venture, businesses share equity, resources, and assets to make the strategic alliance successful. They sign a contract that binds them and stipulates the share of outcomes in management, businesses expenses, and loss/profit (Business Town LLC., 2019). A good example of a joint venture would be the case of Uber and Volvo. The two corporations formed a strategic alliance to manufacture and market self-driving vehicles. As per the contract, Uber and Volvo will invest $300 million and share the ownership of the project at a 50%-50% ratio (Pollard, 2017). In the venture, the companies will share resources and expertise with Uber purchasing Volvo cars and installing a self-driving system for its ride-hailing services.
Unlike partnerships and mergers, joint ventures are temporary agreements. Hence, the parties can pull out at any moment as long as they sell their share to the other partner or an outside company with similar interests. Joint ventures provide limitless potential from the combination of technologies, systems, production capabilities, and staff, which could be beneficial for the growth and development of the organizations involved.
The disadvantages of joint ventures include the lack of clear objectives, interests, similar management and culture styles, and similar expertise, assets, and investments. Since the parties involved are not merged, they contain distinct capabilities, management styles, organizational cultures, and goals that can affect the continuity and outcomes of the project (Killing, 2013). A joint venture may also encounter challenges in communication due to misunderstandings and miscommunication............GET A PLAGIARISM FREE COPY