Reading: Joint Ventures

In a joint venture business model, two or more parties agree to invest time, equity, and effort for the development of a new shared project.

KEY TAKEAWAYs

  • Joint business ventures involve two parties contributing their own equity and resources to develop a new project. The enterprise, revenues, expenses and assets are shared by the involved parties.
  • Since money is involved in a joint venture, it is necessary to have a strategic plan in place.
  • As the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project as well as the resulting profits.

Term

  • Joint venture:  A cooperative partnership between two individuals or businesses in which profits and risks are shared.

Example

  • Sony Ericsson is a joint venture between Swedish telecom corporation Ericsson and Japanese electronics manufacturer Sony to develop cellular devices.

Joint Ventures

A joint venture is a business agreement in which parties agree to develop a new entity and new assets by contributing equity. They exercise control over theenterprise and consequently share revenues, expenses and assets.

Joint Venture
Sony Ericsson is a joint venture between Swedish telecom corporation Ericsson and Japanese electronics manufacturer Sony to develop cellular devices.

When two or more persons come together to form a partnership for the purpose of carrying out a project, this is called a joint venture. In this scenario, both parties are equally invested in the project in terms of money, time and effort to build on the original concept. While joint ventures are generally small projects, major corporations use this method to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project as well as the resulting profits.Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership rather than just the immediate returns. Ultimately, short term and long term successes are both important.To achieve this success, honesty, integrity and communication within the joint venture are necessary.

A consortium JV (also known as a cooperative agreement) is formed when one party seeks technological expertise, franchise and brand-use agreements, management contracts, and rental agreements for one-time contracts. The JV is dissolved when that goal is reached. Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson, Penske Truck Leasing, Norampac, and Owens-Corning.

GLOSSARY

Assets

Economic resources that represent value of ownership that can be converted into cash (although cash itself is also considered an asset). Any property or object of value that one possesses, usually considered as applicable to the payment of one’s debts. A resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit.

Asset

Something or someone of any value; any portion of one’s property or effects so considered. Something or someone of any value; any portion of one’s property or effects so considered. Any component, model, process, or framework of value that can be leveraged or reused. Items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable; securities and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate (as opposed to liabilities).

Business model

The particular way in which a business organization ensures that it generates income, one that includes the choice of offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.

Communication

The concept or state of exchanging information between entities. An instance of information transfer; a conversation or discourse the concept or state of exchanging data or information between entities.

Cooperative

A type of company that is owned partially or wholly by its employees, customers, or tenants. Abbreviation: co-op.

Corporation

A group of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those of its members. a group of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those of its members.

Enterprise

A company, business, organization, or other purposeful endeavor.

Equity
A legal tradition that deals with remedies other than monetary relief, such as injunctions, divorces and similar actions. Justice, impartiality or fairness. Internal and external equity relate to a comparative level of pay compared to both internal and external candidates. Ownership interest in a company as determined by subtracting liabilities from assets. Ownership interest in a company, as determined by subtracting liabilities from assets. Ownership interest in a company, as determined by subtracting liabilities from assets. Justice, impartiality or fairness. The residual claim or interest to investors in assets after all liabilities are paid. If liability exceeds assets, negative equity exists and can be purchased through stock. Ownership, especially in terms of net monetary value, of a business.Ownership, especially in terms of net monetary value of some business.

Expense

A spending or consuming. Often specifically an act of disbursing or spending funds. In accounting, an expense is money spent or costs incurred in an businesses efforts to generate revenue.

Franchise

The authorization granted by a company to sell or distribute its goods or services in a certain area.

Goal

A result that one is attempting to achieve A desired result that one works to achieve. A result that one is attempting to achieve.

Management

The act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. administration; the process or practice of managing administration; the process or practice of managing. Administration; the process or practice of managing.

Money

A generally accepted means of exchange and measure of value. A generally accepted means of exchange and measure of value.

Partnership

An association of two or more people to conduct a business. A business owned by two or more people. A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership.

Profits

Collective form of profit.

Resource

Something that one uses to achieve an objective. An examples of a resource could be a raw material or an employee. Something that one uses to achieve an objective, e.g. raw materials or personnel.

Revenue
Income that a company receives from its normal business activities, usually from the sale of goods and services to customers. The total income received from a given source. In business, revenue or turnover is income that a company receives from its normal business activities, usually from the sale of goods and services to customers.