When learning about the relationship between two companies from different countries, you often see the phrase Joint Venture. So what is Joint Venture? What advantages and disadvantages does it have?
These issues will be clearly explained by Fastloans.PH in this article!
Table of Contents
What is a joint venture?
A joint venture means a joint venture, a business combination of two independent companies or a government and a company. In a better sense, a joint venture means a company that wishes to share ownership in a business with a partner.
A joint venture is high-level economic cooperation in various forms with advantages and limitations that any company wishing to establish a joint venture must understand.
The joint venture will bring a great resource, which is good for providing services and goods. The highlight of this type is that it creates very favorable conditions for both parties to exploit resources, technology, and market understanding.
The decisive factor to the level of participation in management and the number of profits of joint venture enterprises is the capital contribution ratio. The party that contributes more capital will have more power and enjoy a higher percentage of profit.
What are the characteristics of a joint venture?
A joint venture has the following characteristics:
• Joint venture enterprises operating in the form of limited liability companies. In which each party will be responsible according to the scope of the original contract.
• In the legal structure, the joint venture enterprises get capital from both domestic and foreign.
• Joint venture operates as a legal entity of Philippines. Therefore, this business is under the management of Filipino law.
Advantages and disadvantages of the joint venture
Above we talked about what a Joint venture is, and the characteristics of this type. Here are the pros and cons of this form:
• Bringing benefits in terms of resources, technology, and market knowledge to both domestic and foreign partners.
• Capital-contributing partners are entitled to share profits from the company’s operations. In addition, Filipino companies also learn a lot of experience in management as well as approach modern science.
In addition to the above advantages, joint venture enterprises also have the following disadvantages:
• Foreign enterprises have modern working and management methods. Therefore, for this cooperation to be successful, Filipino enterprises must operate professionally and have leading experts to manage and operate.
• When making joint ventures with foreign countries, Filipino enterprises also face language barriers, differences in lifestyles, customs, and mindsets, etc. These are also detrimental to business.
• When two companies enter into a joint venture, strict procedures are required to ensure the interests of the parties. However, these procedures are often time-consuming and quite complicated.
Forms of Joint Venture
What are Joint Venture Forms? According to economists, joint ventures are divided into four main types:
• Forward integration joint venture: This is a downstream joint venture. This means that the activity will gradually shift towards co-production of finished products, packaging, and shipping to consumers.
• Joint venture integration behind: This is a form of joint venture focusing on the production and exploitation of input products for finished products. Helps reduce costs for both parties.
• Joint-venture acquisition: This is a form of cooperation where input materials are provided by partners.
• Multi-stage joint venture: Usually takes place in large companies. For example, a manufacturer can link up with an agent or retailer for better distribution.
What are the benefits of a joint venture strategy?
It can be said that a joint venture is a way for businesses to better understand their potential and be able to take on projects that are too much for one company and can turn small companies into big ones quickly. This strategy offers the following benefits:
• Combining resources: The joint venture will take advantage of the resources of both businesses, helping to quickly and conveniently implement the project.
• Professionalization of expertise: each party will have its expertise and operating methods, and when joint ventures, they will converge in both quality and quantity.
• Cost savings: When entering into a joint venture, both parties will make the most of their relationship to bring products to market at the most reasonable cost.
• Entering new markets: When the company wants to go to foreign markets or vice versa, foreign partners want to enter Philippines, the best condition is through a joint venture company.
Above is an overview of what a Joint Venture is and the benefits it brings, so that everyone, especially Filipino business owners better understand how this cooperation in the market can be plan the business’s policy and achieve maximum profit.
Hope this article has brought you useful information.