The Preface
Main points and the structure
Part I. Joint Ventures in common review
Abstract
The Origin
The Begetters of the new Trend/ or why to Joint Venture?
Who Benefits more?
Joint Venture rewards
Part II. Joint Ventures in legal review
Abstract
Legal Definition
Partnership Vs Joint Venture
The Governing Law
Legal Vehicles of Joint Ventures
Abstract
Reasons behind particular Joint Venture Vehicles
Contractual Joint Ventures
Abstract
Limited Partnerships
Hybrid Structures
The founding process of the Joint Venture
Negotiation and the Memorandum of Understanding
Location of the Joint Venture
Shareholder’s Duties
Governance and Management
“In this brave new world, joint ventures and strategic alliances, when properly structured, provide a competitive advantage to both minority and majority partners in sourcing work.” Jeff Jones[1]
The recent trend of the global business has inspired me to carry out a research on phenomenon known as Joint Ventures. Nowadays global economy is complex, as companies and corporations with gorgeous experience and power overload the market. The Keen rivalry between the corporate entities builds insurmountable obstacles not only for individual persons or for novice companies with less competitive strength, but also for big companies intending either to enter a new market or to make a debut into the new product development. The most efficient tool, in case individual person or company is not capable of solely handling the successful accomplishment of a business objective, is to constitute alliance with another company or person, in other words, to acquire the urgent help.
The ideas given in the work do not assert joint ventures as the only way for successful business transaction. The paper does not represent an advertisement of Joint Ventures or otherwise agitation of the mentioned one; it just outlines the best features and comprises the ample description of the advantages and disadvantages of Joint Ventures. The patronizing tone that describes the topic represents the consequence of the inspiration gained while researching the benefits of joint venturing.
The work goes beyond the common definitions and reviews the subject in details, including significant examples and cases. It also includes the comparative analysis between the German and the English jurisdiction in range of the regulatory legislation for Joint Ventures. The reasons behind my decision to view mentioned systems as the regulatory legislation are, on the one hand, the diversification between these two jurisdictions and on the other hand the fact that both are the major representatives of their law systems. My aim while making the comparison between the two legislations was to show each possible characterization of the subject.
In the first part of my paper, I merely concentrated on advantages of Joint Ventures and on reasons behind their creation by bringing some significant examples.
Despite that, such massive use of Joint Ventures is rather new trend, “Joint ventures have existed for centuries. In the United States, their use began with the railroads in the late 1800s. Throughout the middle part of the twentieth century they were common in the manufacturing sector. By the late 1980s, joint ventures increasingly appeared in the service industries as businesses looked for new, competitive strategies. This expansion of joint ventures was particularly interesting to regulators and lawmakers”.[2]
The main point of the Joint Venture is to approach an urgent help from the other source in resolving the problems and the obstacles or just in accomplishing the tasks, which you are not able to accomplish alone. It comprises the philosophy of the humanity: to unite against one challenge and one barrier. The exchange of the help can be diverged; it can vary from the interchange of services to the interchange of goods. The list is vast and the key is to look at what you do have to offer and find someone who is willing to give you something you need in exchange for it. For example, Person A runs a used technique store but he does not offer repair services. His customers permanently ask him about these services, and he repeatedly turns them away, suggesting the person B who owns a little repair store in front of his shop. He realizes that they could both benefit by creating a business partnership and person B agrees to Person A’s joint venture idea. Person A no longer turns customers away, and person B gets all the business plus a cut of the profits. They both benefit.
An Important thing to mention about ventures is that it can only truly be successful if each party in the joint venture benefits. This sharing principle should govern the entire process. Many potential joint ventures, including large-scale projects were unsuccessful because of divergent goals and self-serving attitudes, which are not coordinated with the essence of the joint venture. A significant example of this was the British Aerospace/Taiwan Aerospace alliance. After tough negotiations, the two parties signed an agreement during a celebrated ceremony in Taiwan. Soon after, Taiwan announced its wish to pull out of the deal. Their goal divergence was the main reason of separation. Taiwan wanted to acquire new technology, which the British refused to give away, and the British wanted to capture new markets in Asia, which Taiwan refused to grant. A joint venture concept is only effective when there is a true willingness to move forward together.[3]
Another elucidation given below will draw the importance of having the bilateral opportunities in gaining advantages and how will the lack of this opening affect the alliance. The So-called constructing joint venture represents a significant illustrative example. Imagine a group of individuals consisting of 5 persons with a land, constituting in common 10 000 square meter, in ownership, which they intend to use for residential house construction purpose, but they are not capable of managing it, as the erection requires high financial expenses. Therefore, the owners decide to team up with a partner with ample financial abilities to build a residential house, the partner can be a constructing company or just an individual. The success of the Joint Venture and of the transaction itself depends on how the group can contrive in attracting the partner, because no partnership will team up without offering cross benefits in exchange for the financial assistance. The owners and the partner can close a bargain according to which the partner will build a block of flats from which a part of the apartments will be granted to the landowners and the partner in order to cover the expenses and to get benefits will sell the rest. The flat volume and other provisions will build up the results of the negotiation between the parties. In some of CIS countries (like Georgia, Azerbaijan) Business formations resembling above-mentioned are broadly used by the developer and constructing companies to fulfill proposed projects.
It is obvious that gaining advantages from the co-operation is the main reason for parties to enter Joint Venture , but who gets more Benefits from Joint Venturing? There is no apt answer on the question as it is completely individual and depends only on given case. But in common, authors of recent business researches and of analytical surveys avow that Joint Ventures are more important for small businesses than for large ones. Somehow, I also do admire the idea. I consider that if for big companies or for individuals, running the big and successful business, Joint Venturing with another company or with an individual is just another step to success, for small and start-up companies it is the best and maybe the only way to develop. These days no small business can afford the ignorance of joint venturing rewards.
There is no doubt that all small businesses, especially start-ups struggle with building acceptance within their market and customer base.[4] What can we consider as the characteristics of the small business? Not enough finances, lack of recognition, limited contacts in industry, few products or services to offer and so on. While having that significant list of needs, it is impossible to succeed in the modern business world, therefore the alliance can be an extremely lucrative way to make business grow and expand a market share.
It has become clear that a small business can skyrocket to new levels of performance and profitability using Joint Ventures but there arises another inquisitive question: Who is the most appropriate partner for a small company.
Pure logically, a small company would achieve much more growth if it teams up with a larger one. Small companies that do not have an established set of regular customers will expand its sales force and distribution channel for low cost by formulating a joint venture with a solid partner, that already has a customer-base, a market share and has a capability to offset lacks of its partner. While having limited resources and capital for further development, efforts in increasing sales, gaining access to wider markets, developing new products and in improving productivity, can be time-consuming and costly. This type of arrangement will allow a "nobody" company to reach an enormous amount of customers and to approach the expanded geographic range. Does it sound exaggerated? Well, I consider that an example given below will be the apt elucidation.
If an inventor has a great product but no money, has a lack of resources and distribution channels needed for mass-production his product, it would be a cute idea for the inventor to team up with manufacturing companies with capabilities which are needed to produce the inventor’s product. Because of pooling resources with the manufacturing company, the inventor will gain the access to additional funds, production resources, and distribution channels that could take months or even years to develop independently. By its side, the manufacturing company will gain a new product in order to provide its existing and potential customer base, thereby potentially creating an additional source of income.
Another example of the alliance between the husband & wife team and Disney can impressively illustrate the example of above reviewed Joint Venture sort: Jon and Leah Miner have collaborated their small and unknown company with the likes of 3M & Disney. This joint venture created a new technology of scratches and sniff stickers of Disney characters. The consequence of this partnership was the birth of a multi-million dollar business, Mello Smello.[5] If not the alliance with Disney, the family team could stay unknown with minimal profits. The name and the experience of Disney has entitled Miners opportunities to leverage the assets of an established, complimentary business, assets that took that company years and years to build[6].
Nevertheless, pools between small companies are more frequent. The bitter truth is that huge business runners are seldom interested in cooperation with smaller ones. The dominancy of large companies forces them to band for common goals, offsetting each other’s weaknesses and forming a strong force, capable enough to take on the goliath of their industry and conquer the industry they exist. Usually an object of Joint Venture between small businesses is a simple purpose of saving costs. For example Store A bands with neighboring store B to advertise jointly in the weekly paper, they both benefit as they reduce costs.
Apart from being the fastest, easiest, and most profitable strategy in any business, there are many other advantages of joint venture for all parties involved[7]. The reasons behind forming a joint venture include: Cost savings, risk sharing, access to technology, expansions of customer base, Entry into emerging economies, entry into new technical markets, pressures of global competition. The maximization of profits is the common reason for all entrepreneurs. In nowadays complicated and competitive market, cost savings can be a great step towards increased incomes. That is the reason behind the collaboration of majority joint venture parties. Joint Venturing advantages companies to reduce expenses as it costs very little to set in place while most of the infrastructure already exists . The same mission had the collaboration between the second and the third largest brewery companies in Canada. Molson Companies and Carling O'Keefe Breweries teamed up for synergy realization of their brewing operations. Molson had a very modern and efficient brewery in Montreal Carling's was outdated. However, Carling had the better facilities in Toronto. Furthermore, Molson's Toronto brewery was located on the waterfront and had substantial real estate value. Overall, the synergies added more than $150 million in pretax earnings during the initial year of the venture.[8]
Cost saving is marvel objective not only for small business runners but for huge corporations as well. Joint Venturing allows companies to pool capital, to gain economies of scale or increase the use of facilities, thereby reducing manufacturing costs. Companies save costs “by achieving synergy benefits through rationalization of employment or other fixed costs or by sharing with a joint venture partner or partners the costs of research and development (R&D) or capital investment programs.”[9] An example to it can be Today’s European auto entrepreneur`s, many European companies have formed joint ventures for manufacturing costs reducing purpose. Ford and Volkswagen are jointly planning to make four-wheel-drive vehicles in Portugal, and Nissan and Ford intent to build a plant in Spain to produce vans. These companies will benefit from cost sharing and will reduce expenses by building and operating facilities in relatively low-cost countries, at least by West European standards.[10] Another example is C ombination of General Motors and Firestone Tire Co, teamed up for sponsorship of the special television program on safety on the highway.[11]
[...]
[1] Senior Vice President of Supply Chain Management for Bank of America.
[2] West's Encyclopedia of American Law, Joint Venture Thomson Gale.
[3] Joint Venturing 101 - Risks and LegalImplications, Scott Allen p.4 http://entrepreneurs.about.com/od/beyondstartup/a/jointventures_4.htm
[4] Joint Ventures and Strategic Alliances, Stefanie Hartman http://www.privatejvclub.com/about/jvinfo
[5] Boost Your Business Now With JointVentures Darrell Zahorsky, http://sbinformation.about.com/cs/bestpractices/a/jointventure.htm
[6] What is the Big Deal about Joint Ventures? Chris Rempel http://www.jv-web.com/joint_venture_business.html
[7] Most Profitable Strategy of Joint Venture & Internet Marketing, Gaurav Malik, http://www.articlesbase.com/business-ideas-articles/most-profitable-strategy-of-joint-venture-internet-marketing-763051.html
[8] Strategic alliances and joint ventures: making them work - corporate collaborations p.2 Bruce A. Walters http://findarticles.com/p/articles/mi_m1038/is_n4_v37/ai_15636442/pg_2/?tag=content;col1
[9] Joint Ventures, Ian Hewitt p. 6
[10] Strategic alliances and joint ventures: making them work - corporate collaborations p.2 Bruce A. Walters http://findarticles.com/p/articles/mi_m1038/is_n4_v37/ai_15636442/pg_2/?tag=content;col1
[11] Business Law, text and cases 2nd edition, William R. Bandy, Eugene W. Nelson, Tannell A. Shadid, Gaylord A. Jentz, Jack W. Ledbetter, William L. Velman. P. 719
