Joint Venture

The Joint Venture (JV) is a business structure where two or more businesses or individuals share ownership, cost, return, benefits, governance, etc., of a specific project or series of projects.

In short, a new entity is called a JV when two and sometimes more than two entities join hands to create synergy and achieve a shared goal.

Reasons behind Joint Venture

For several different reasons, companies establish joint ventures, but there are three key reasons behind this:

  • Leverage or resources

JV will take full advantage of both companies' resources to accomplish the goals. One business could have a well-established development process, while the other business could have a superior distribution network.

  • Cost savings

Both companies in the JV can maximize their output at a lower cost, i.e. (per unit) than individually, by using economies of scale. With technological advancements that are expensive to introduce, this is especially appropriate. Other tax savings techniques may involve sharing ads or labour costs as a result of a JV.

Also, two companies involved in drilling for fossil fuels or mining for precious metals could create a JV to start mining or drilling in a specific area, both of which are costly proposals.

A Consortium vs a Joint Venture

Another kind of business arrangement between two or more organizations is a consortium. A consortium and a JV's key distinction is that a consortium is commonly seen as a looser agreement between organizations that remain firmly distinct. Businesses work together on a project, such as construction firms building a skyscraper, but do not exercise much control over one another.

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