Differentiation

JOINT VENTURE

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  Joint ventures involve two or more organizations that contribute to the creation of a new entity. The partners in a joint venture share decision-making authority, control of the operation, and any profits that the joint venture earns.
  
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  Franklin Roosevelt once quipped, “Competition has been shown to be useful up to a certain point and no further, but cooperation, which is the thing we must strive for today, begins where competition leaves off.”
  
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  The ownership arrangement can vary as to how much each partner owns and how much each partner has control. Joint ventures can work well, even among competitors, when each partner brings something of value to the venture that the other partner could use.
  
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  Other types of cooperative arrangements include research and development partnerships, cross-distribution agreements, cross-licensing agreements, cross-manufacturing agreements, and joint-bidding consortia.
  
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  Joint ventures and cooperative arrangements are being used increasingly because they allow companies to improve communications and networking, to globalize operations, and to minimize risk.
  
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  It is often used to pursue an opportunity that is too complex, uneconomical, or risky for a single firm to pursue alone. Such business creations also are used when achieving and sustaining competitive advantage when an industry requires a broader range of competencies and know-how than any one firm can marshal.
  
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  Firms can benefit from cooperating with one another. This is because cooperation enables firms to share rather than duplicate resources and to learn from one another’s strengths. Sometimes two firms create a joint venture to deal with a shared opportunity. In other cases, a joint venture is designed to counter a shared threat.
  
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  Strategic partnering takes many forms, including outsourcing, information sharing, joint marketing, and joint research and development.
  
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  In our global survey of 253 companies that used joint ventures to spur growth or optimize their product mix, more than 80% of the participants told us that the deals met or exceeded expectations. (FORBES, 2017)
  

Six guidelines for when a joint venture may be an especially effective means for pursuing strategies are:

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  When a privately owned organization is forming a joint venture with a publicly owned organization; there are some advantages to being privately held, such as closed ownership; there are some advantages of being publicly held, such as access to stock issuances as a source of capital. Sometimes, the unique advantages of being privately and publicly held can be synergistically combined in a joint venture.
  
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  When a domestic organization is forming a joint venture with a foreign company; a joint venture can provide a domestic company with the opportunity for obtaining local management in a foreign country, thereby reducing risks such as expropriation and harassment by host country officials.
  
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  When the distinct competencies of two or more firms complement each other especially well.
  
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  When some project is potentially very profitable but requires overwhelming resources and risks.
  
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  When two or more smaller firms have trouble competing with a large firm.
  
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  When there exists a need to quickly introduce a new technology.