Joint Venture Essay

Joint ventures are business ventures formed by two or more companies to achieve aspecific, but limited, objective. An example would be the development of an offshore oil field, where a group of companies combines to build and operate a drilling platform and related pipeline. The project is owned equally by the affiliated enterprises and its management could be controlled either by one of the partners or by a separate management could be controlled either by one of the partners or by a separate management organisation established just for the project. The venture may be organised as a partnership ,a corporation ,a joint-stock company or some other legal form, and it can contunieindefinetly.The rational for a joint venture is usually to diversify risk among the members and or to combine expertise and assets that none of the participants provide alone. : Roy L.Crum,Eugene F.Brigham& joel.F.Houston.(2005)Fundamentals of international finance.1st edn. THE ADVANTAGES OF JOINT VENTURES: * Access to expertise and contacts in local markets, each partner agrees to ajoint venture to gain access to the other partner’s skills and resources. Typically the international partner contributes financial resources, technology or products. The local partner provides the skills and knowledge required for managing a business in its country. * Reduced market and political risks * Economies of scale by pooling skills and resources(resulting in e.g. lower marketing costs) * May avoid local tariffs and non-tariffs barriers * Shared risk of failure * Possibly better relations with national governments through having a local partner. THE DISDVANTAGE OF JOINT VENTURES: * Objectives of the respective partners may be incompatible ,resulting in conflicts * Contributions to joint ventures can become disproportionate * Los of control over foreign operations * Completion might overburden a company’s staff * Partners may become locked into long term investments from which it is difficult to withdraw * Cultural differences may result in possible differences in management culture among participating firms * Problems of management structures and dual parent staffing of joint ventures. * Transfer pricing problems as good pass between partners Sven hollensen.(2004)global marketing(adecision-oriented approach).3rd edn.