Joint Ventures

Meaning

A joint venture is a very common way to enter foreign markets. It means establishing a firm that is jointly owned by two or more otherwise independent firms. In the widest sense, it is any form of association that involves collaboration for more than a short, transitory period.

Three major ways to form a joint venture

1. A foreign investor buys an interest in a local company.
2. A local firm acquires an interest in an existing foreign firm.
3. Both the foreign and local entrepreneurs jointly form a new enterprise.

Advantages

• Because the local partner contributes to the venture's equity capital, global expansion is financially less burdensome for the international firm.
• Joint ventures make it possible to execute large projects needing huge capital and manpower.
• The foreign firm gains from the local partner's knowledge of the host country — its competitive conditions, culture, language, political and business systems.
• Entering a foreign market can be costly and risky; this is reduced by sharing costs and risks with a local partner.

Limitations …