Joint Venture

A joint venture is a partnership or alliance among two or more businesses or organizations based on shared expertise or resources to achieve a particular goal.1 There are many good business reasons to participate in a joint venture partnering with a business that has complementary abilities and resources, such as finance, distribution channels, or technology, makes good sense. These are just some of the reasons partnerships formed by joint venture are becoming increasingly popular. A joint venture is also considered a strategic alliance between two or more individuals or entities to engage in a specific project or undertaking. Partnerships and joint ventures can be similar but in fact can have significantly different implications for those involved. A partnership usually involves a continuing, long-term business relationship, whereas a joint venture is based on a single business project.

Parties enter joint ventures to gain individual benefits, usually a share of the project objective. This may be to develop a product or intellectual property rather than joint or collective profits, as is the case with a general or limited partnership. A joint venture isn't like a general partnership; it's not a separate legal entity. Revenues, expenses and asset ownership usually flow through the joint venture to the participants, since the joint venture itself has no legal status. Once the joint venture has met its goals the entity ceases to exist. Being a part of a joint venture has its advantages such as providing companies with the opportunity to gain new capacity and expertise, allowing companies to enter related businesses or new geographic markets or gain new technological knowledge. It also has access to greater resources, including specialized staff and technology sharing of risks with a venture partner. Joint ventures can be flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting both your commitment and the business' exposure. In the era of globalization and consolidation, joint ventures offer a creative way for companies to exit from non-core businesses. Companies can gradually separate a business from the rest of the organization, and eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one partner to the other. It also has its disadvantages where problems arise if the objectives of the venture are not 100% clear and communicated to everyone involved. There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners. Different cultures and management styles result in poor integration and co-operation. The partners don't provide enough leadership and support in the early stages. Success in a joint venture depends on thorough research and analysis of the objectives. 2

Embarking on a joint venture can represent a significant reconstruction to your business. However favorable it may be to your potential for growth, it needs to fit with your overall business strategy. It's important to review your business strategy before committing to a joint venture. This should help you define what you can sensibly expect. In fact, you might decide there are better ways to achieve your business aims.

You may also want to study what similar businesses are doing, particular those that operate in similar markets to yours. Seeing how they use joint ventures could help you decide on the best approach for your business. At the same time, you could try to identify the skills they use to partner successfully. You can benefit from studying your own enterprise. Be realistic about your strengths and weaknesses - consider performing strengths, weaknesses, opportunities and threats analysis (SWOT) to identify whether the two businesses are compatible. You will almost certainly want to identify a joint venture partner that complements your own skills and failings. Remember to consider the employees' perspective and bear in mind that people can feel threatened by a joint venture. It may be difficult to foster effective working relationships if your partner has a different way of doing business. When embarking on a joint venture it's imperative to have your understanding in writing. You should set out the terms and conditions agreed upon in a written contract, this will help prevent misunderstandings and provide both parties with strong legal recourse in the event the other party fails to fulfill its obligations while under contract. 3

When a company is looking to become involved in an international joint venture, the evaluation and choice of a partner is critical to the success of the venture. Each potential partner must be considered carefully and the nature of the relationship must be clearly defined. This examination includes the control structure of the partnership, the method of financing, and the company's specific expectations and means of measuring success for the new joint venture. It is also important that the capabilities of each partner are complementary in a way that adds value not only to each partner individually, but also constitutes a unique combination within the joint venture that is not easily imitated. Ideally, the structure and strategy of the venture should provide a source of sustained competitive advantage.

In the eighties, which was faced with a stagnant domestic cereal market and with consumers looking at less costly private label brands, General Mills started to look for alternatives to grow and expand against its competitor Kellogg. General Mills joined Nestlé in 1991 to create the partnership CPW or Cereal Partners Worldwide, so how and why was CPW created?

Nestlé, which is