In a world where mergers and acquisitions make headline news on an almost daily basis, the news of a major joint venture can be refreshing. According to Clopton Capital, which arranges JV equity for real estate, rather than two companies completely merging together, a joint venture is an (often temporary) strategic partnership in which two or more businesses utilise each other’s resources and expertise to achieve mutual growth.
One major successful example of this recently is the venture between the world’s largest pharmaceutical company, Pfizer, and the Chinese distributor Hisun. Pfizer was able to rely on the expertise and knowledge of Hisun to help them break into the Chinese market, and billions were made as a result.
However, not all joint ventures are as successful as this one. It may only be right for your business in certain, very specific circumstances. These are the most important factors to consider before entering into a joint venture.
What is the Purpose of the Venture?
One major stumbling block for joint ventures is a lack of clearly defined goals. It might all sound very exciting on paper, but locking yourself into a major partnership with another company without a clear idea of what you both want out of it is a recipe for disaster. Ask yourself how exactly your business should benefit from a joint venture and whether any partner company you’re considering can actually deliver those benefits.
What Can the Partner Company Offer?
In essence, businesses enter joint ventures because the other company can offer something they don’t have. This applies to all industries. Take, for example, the recent joint venture between iGaming platform Mr Green, gaming solutions provider NetEnt, and marketing business Ve Global. All participants brought something different to the table; Mr Green has a large customer base of loyal online casino fans; NetEnt provides leading slot games; and Ve Global has the industry know-how to connect Mr Green with its target audiences. Tangible benefits are crucial.
Are Risks Going to Be Equally Shared?
Joint partnerships rarely end up being equal ones. You might find that a company you’re partnering with is less willing to invest capital into the venture, or is less willing to take on the same level of risk that you are. If this is the case, it’s time to reconsider. For a joint venture to work the risk and reward must be evenly split between all participants, or there will be conflict in the future.
Can You Afford It?
Joint ventures are set up with the intention of increasing profits, but they also cost money. Can your business afford the new training that might be involved? Or the lengthy negotiations and planning that will have to take place beforehand? Do you have the capacity to absorb new staff into your workspace? If the answer to these questions is no, then you likely don’t have the resources to pull off a successful joint venture.
How Well Do You Know Your Partner?
Finally, you need to ask yourself how well you know your potential business partner. This goes beyond simply conducting some market research. You’ll be working very closely with them for an extended period of time, so it’s crucial to know what the company culture is like, how the team responds in a crisis, what their industry connections look like, and what to expect from the CEO. A reliable partner is one you know what to expect from.
If you’ve asked yourself these questions and gotten positive answers, then you may just be ready to move forward. A joint venture can be hugely rewarding for everyone involved, as long as everyone is on the same page.