At present, business projects become larger and larger, technology improves further but becomes more and more expensive, and the costs of failure become too large to be carried alone. The global business community is also becoming larger and larger, thus the need for more markets and higher profits. Because of all these, corporations and even small businesses see the importance of engaging in joint ventures.
In general, a joint venture is an alliance of two or more parties—corporate, government, individual or otherwise—pooling together property and expertise to perform a single business enterprise and, having a joint proprietary interest, all those involved have equal share of profits and losses and equal share of rights to control the process.
The joint venture (JV) must be a distinct identifiable entity and each JV partner (JVP) must have an equal ownership interest in such entity. Moreover, each of the JVPs must play an active management involvement or must deliberately relinquish or reject such involvement.
So as to locate new opportunities for growth and in an effort to gain new markets and procure new venture capital, businesses have been reaching beyond national and even international boundaries. Different foreign markets have different and very unique opportunities and risks. It’s but natural for firms to look into JVs with one or more local partners in that area for help in penetrating those markets. Due to the heightened global competitiveness and technological advancements and innovations, joint ventures have become a key feature on the international business arena.
Several industries have produced and sustained successful joint ventures. Examples are in the real estate, land development and construction industries. To obtain sufficient funds to acquire large parcels of land, land tracts or major building and skyscraper projects, many conglomerates turn to JVs. Likewise, the manufacturing, mining and service industries also have countless joint ventures all around the world.
Other aspects or tasks where JVs are useful: to conduct research and development work or a feasibility study of a new product or technical application; to manufacture or produce various items or articles, especially those with ingredients or raw materials that are available only or abound in certain places; to market and distribute different products and services in a specified geographic area; or, to perform a combination of these functions. Obviously, the overall objectives or goals of the parties involved would be linked into the function of the joint venture itself and this dictates, to a large extent, the substantive and significant terms of the JV agreement.
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