In order to be more successful and to get mutual benefit from their activities, companies often work together. It is not always an amalgamation of companies to form a company, but the companies can work together in a community and remain independent. A joint venture is a community of companies.
Joint venture – the definition
Short for JV according to AbbreviationFinder, a joint venture is a form of cooperation between companies, in which the partner companies are involved with capital. The companies involved in a joint venture jointly bear the financial risk of investments and perform management functions in the joint venture. A distinction is made between different forms of joint ventures.
The joint venture as a specific form of cooperation
A joint venture is a specific form of cooperation; in an equity joint venture, two or more partners with an equity stake are united to form a legally independent company. The partners are involved in the joint venture with capital, they bear a common financial risk in investments and perform management functions together. In this joint venture, the capital participation of the individual companies can vary. The higher the equity stake in a company, the greater the decision-making power of this company in the joint venture. A contractual joint venture is not a legal joint venture; the partners are merely contractually bound to one another. The contract regulates the distribution of costs, risks and profits between the partners. An international joint venture exists when the partners come from different countries.
Forms of joint ventures
There are different types of joint ventures, which can be differentiated on the basis of various criteria. Such criteria are
- Number of cooperation partners
- Cooperation area (the cooperation can relate to production as a production joint venture or to the entire joint venture as an overall corporate joint venture)
- Geographical area of cooperation
- Equity participation with equal or unequal shares of the partners
- Temporal horizon of cooperation.
Reasons for education
There are various motives for forming a joint venture. The entrepreneurial risk can be divided between two or more partner companies, the use of the local market knowledge of a partner company can play a role and offer new sales markets. Thus, by establishing a joint venture, a company can combine its own strengths with the strengths of the partner company; a joint venture results in synergy effects and competitive advantages .
Problems with joint ventures
A joint venture can not only offer advantages, but also have problems. Such problems exist in competition law regulations, in a high coordination effort, in the outflow of know-how and in intercultural conditions. In addition, joint ventures often tend to be unstable, as the lifespan of joint ventures is often limited.
Examples of joint ventures
At the end of September 2012 it was announced that Allianz, the largest German insurer, and VW would form a joint venture on January 1, 2013. The aim for Allianz is to take out more car insurance policies, and within five years more than 40 percent of VW vehicles are to be sold with an insurance contract. The joint venture is called Volkswagen Autoversicherung AG. Allianz has a 51 percent share of the vote, but only 49 percent of the capital. The two partners also hope that this joint venture will bring international benefits.
The energy giants E.ON and RWE founded a joint venture in 2009 to build new nuclear power plants in Great Britain, with E.ON UK and RWE each holding a 50 percent share. This joint venture is designed for many years of activity; it serves to acquire locations and support approval processes. New nuclear power plants are to be built and operated by this joint venture. The two partners complement each other with their experience in the nuclear power plant sector, they have a good knowledge of the British market for nuclear power plants. The joint venture plans to build nuclear power plants with a capacity of at least six gigawatts. The two companies complement each other with their technical and personnel requirements for the construction of nuclear power plants.