A joint venture is a strategic partnership where two or more companies develop a new entity in order to collaborate on a specific project or venture. This arrangement allows each company to pool their resources, expertise and capital to achieve a common objective—and share the risks and rewards.

Joint ventures are often established to pursue opportunities that may be too ambitious, costly or risky for a single company.

Joint ventures can take various forms, such as contractual agreements or the creation of a new, separate entity. Joint ventures are prevalent across all industries and can involve domestic or international partners.

Key features of a joint venture include shared responsibilities, decision-making and financial contributions. This collaborative approach enables companies to access new markets, technologies or skills, leading to mutual growth and increased competitiveness.

Successful joint ventures rely on clear agreements, effective communication and a shared vision. However, they also require careful consideration of potential challenges and the establishment of mechanisms for conflict resolution. Ultimately, joint ventures can be a powerful tool for businesses seeking to leverage complementary strengths and achieve strategic goals.

The overarching rationale for a joint venture is simply to make money, says Beamish. “But if we look at what a joint venture allows a company to accomplish, there are many good reasons to participate in this type of arrangement.”

Here are some of the most important reasons to participate in joint ventures:

• Product innovation
  Each partner can bring a set of complementary resources and expertise with the goal of developing a product or service that partners would not be able to create on their own.
• Expanding into foreign markets
  A company can break into a new market by, for instance, partnering with a local business specialized in logistics, distribution or retail.
• Reduce production costs
  With their economies of scale, two companies can reduce their per-unit costs by amalgamating their production.

Joint ventures do not necessarily have to be formed through an equal 50-50 ownership split. The exact terms can be what the partners decide and negotiate, such as a 60-40 or 70-30 split, with the majority partner typically having more control in decisions and earning a greater share of the profits.

“Partners who own less than 20% of a business seldom have much of a voice,” explains Beamish. “They have very limited control over any decisions made in the venture.”

When it comes to sharing in the decision-making, Beamish suggests that the best practice is for each company to have more say in the area in which they are strongest. “Unless each partner is making a solid contribution to the business, why do a joint venture?” he asks.

With that in mind, if one partner is an expert in technology, they should control the decisions pertaining to technology. And if the other partner, a distributor in Europe, for instance, their local market knowledge should enable them to make the decisions on that aspect of the business.