Joint Venture Business Strategies: Maximising Collaboration and Profit

Joint ventures bring a new perspective to the market. The organization's expertise mostly drives them rather than its finances. JVs, therefore, concentrate on specific goals with a technical approach rather than a profit-based one.

Establishing joint venture business strategies in the very beginning is important. Otherwise, the JV might start to diverge from its initial goal.

This blog will help you understand the different strategies to focus on before forming a JV.

Before discussing the strategic side of joint ventures, let's fully understand their meaning and purpose.

What is a Joint Venture?

When two or more independent organisations come together with a new business goal in mind, they form a joint venture. Joint ventures revolve around the organizations’ technical expertise and know-how, not their financial stability.

JVs aim to increase revenue by leveraging the different expertise the companies bring to the table.

Here are some additional points to keep in mind regarding joint venture strategies:

• Legal agreements form the basis of joint ventures.
• Organizations come together to form separate business entities.
• They share their assets and expenses in a joint venture.
• The organisation’s goals and ideas for the entity must align.
• A joint venture is usually temporary, but in rare cases, it becomes permanent.
• Organisations in a joint venture have room to focus on their individual goals.

Remember that JVs are a type of partnership, but partnerships are not joint ventures. Partnerships usually don’t form a separate business entity like a JV.

Joint Ventures can also invest in VC funding for an external company.

Key Elements of Successful Joint Ventures

A good business strategy is following the key elements of success in joint ventures. The main reasons to choose a JV and not a partnership, an acquisition, or a merger are given below.

• Entering New Markets

Joint ventures are a way to enter a completely new market. You can get into new markets by collaborating with organisations from that market. This way, you don’t have to set it up from the very beginning.

• Shared Expenses and Revenues

A key element for JV is that all parties involved will share both the risks and advantages of the project. Unlike mergers, JVs share the project's assets and revenues. This results in reduced costs and increased quality.

• Vertical and Horizontal Ventures

A JV between organisations within the same market to increase value is a vertical joint venture. For example, PepsiCo and Starbucks came together to make their ready-to-go bottled coffee.

A project between organisations in different markets is a horizontal joint venture. Spotify and Hulu have a combined subscription, which comes with buying one of them.

The advantage of vertical and horizontal ventures is that they explore and combine two markets to make a bigger impact in the industry.

5 Effective Collaboration Techniques in Joint Ventures

Collaboration is the most important business strategy for joint ventures. Collaboration will serve as the foundation for everything else.

Let’s see how we can maximize collaboration in a joint venture.

1. Synergy

When two firms form a joint venture (JV), they bring their individual synergies with them. Once these synergies have been established in an agreement, it is up to the join venture to exploit and combine them into a smooth-running machine.

For example, consider the operational synergy between the two parent companies. Firm A can provide access to quick transport, while Firm B has the means to provide efficient transport.

The Joint Venture should then see the potential in bringing the two into harmonious synergy.

2. Credibility

All organisations involved in the joint venture should have credibility in their operations. If one organisation cannot find a means to share assets, it needs to find ways to compensate.

This goes for building credibility in the market as well. If one company has a higher level of credibility than the other, it is their responsibility to assist the joint venture.

Not all companies involved in the JV will be on the same market level. So, even though the assets are shared, there is a hierarchy of responsibility.

3. Objectives

A joint venture keeps a specific set of objectives in mind. After the JV is operational, the companies should remember these objectives. Once you set goals based on the objective, collaboration becomes easier.

These objectives form the foundation for the entire joint venture. They act as a guide for decision-making, strategy planning, and operational decisions.

To consistently circle back to the objective, keep the objective:

• Realistic: JVs are beginner businesses; make sure your initial objectives are reachable.
• Flexible: Sometimes, the main objective can change with circumstances. Keep some room for change in secondary objectives.
• Aligned with culture: All parties involved should agree on how the JV should run. By ensuring that the objectives align with the core values of all organisations, the joint venture can function smoothly.

4. Quality

While collaborating on the JV, decisions like the quality of products/services will be agreed upon. The parties involved will base their expectations on market innovations.

They will also consider the assets they contribute to the joint venture.

Factors like infrastructure, technology, costs, resources, and expertise should be considered when deciding the quality of the products. Shared expenses make it easy to set a higher standard for quality.

5. Culture

Imagine two companies coming together that have opposite management styles. This creates chaos for the JV. Everything will fall apart before it has even begun.

This is why agreeing on a culture for the JV is one of the priorities.

It is a misconception that the parent companies should only guide the JV with technical expertise. Before it can enter the market, the JV should have an established culture.

4 Ways of Risk Management in Joint Venture Partnerships

Like any other business venture, there is a risk in joint ventures, too. While we cannot completely avoid risks, we can control them with appropriate considerations.

1. Partner Selection

Before you choose your JV partners, establish your project objectives.

• Choose a partner whose ideas and goals align with yours.
• Choose the right market, depending on your objective.
• Choose a partner with the right innovations and technology that your company lacks.

2. Detailed Agreement

Before your partnership, discuss your objectives and JV informally. Once everyone has agreed on the clauses, get started with the agreement. An informal discussion avoids any legal discrepancies in the agreement.

3. Equity Sharing

You and your partners will be sharing assets, profits, liabilities, taxes, and everything in between. Establish the shares in detail according to the size and capabilities of each party.

4. Exit Clause

Every JV should have an exit clause in case of unforeseeable circumstances. Discuss the dissolution of the JV, which typically occurs after achieving the objective.

Measuring Success: 3 Simple Metrics for Joint Venture Performance

Measuring joint venture success requires tracking specific, quantifiable key performance indicators (KPIs). Here are some tangible metrics to evaluate the partnership's effectiveness:

1. Opportunity Acceleration

Make a list of the opportunities you want your venture to explore, such as expanding global market share, securing sponsorship deals, or entering new markets.

If one of the partners lacks the funding or resources needed to support these growth opportunities, develop an actionable improvement plan to address the gap.

2. Financial Performance

The easiest way to measure your venture’s success is by analysing your cash flow, income statement, return on investment (ROI), and other tangible finances.

Compare balance sheets and past revenues to predictions for upcoming years. This will tell you what profit/loss, liquidity, and proactive measures to take.

3. Quality Alignment

Set qualitative expectations for your venture growth. Looking at the quantity is not enough; your venture should have boundaries set for service quality, user experience, brand voice across touchpoints, innovation, and social and environmental impact.

Pro Tip: Keep in mind the environmental, social, and governance (ESG) considerations while measuring your success.

Future Trends in Joint Venture Business Strategies

As a new venture capital investor, you should know the essential tips in VC. But more importantly, you should know what the future trends look like in joint venture business strategies.

• Broaden the Market: Investors have been broadening their markets recently and going beyond their comfort regions to form JVs.
• Increase Adaptability: When it comes to collaboration, the parties involved are becoming more and more flexible with their mindsets. A new business strategy is adaptable to change goals according to market fluctuations.
• Data Privacy and Security: Investing in data and privacy is becoming a necessary concern for venture capitalists and investors.
• Invest in VC Trends: India itself has so many VC success stories that you have to imagine the global impact of it. The demand for funding is increasing for industries such as sustainability, AI, deep tech, and clean tech.

Wrapping Up

A Joint Venture is a way to combine market expertise and increase profits. Getting into a joint venture can be a difficult investment opportunity, and partnering with another organisation is uncharted territory.

But good joint venture business strategies like collaboration ethics, expanding the market, and risk management can turn it into a smart investment.

Our experts at GrowthJockey can help you plan out a successful business strategy for joint ventures. We’ve been helping companies grow in all aspects, so why not try it out?

FAQs

1. What is a joint venture in business?

A joint venture includes two or more parties with shared interests and expertise. They contribute their infrastructure, assets, and technical or marketing knowledge to a project. Joint ventures will usually form an individual third entity.

This business entity will have one objective decided by the parent companies.

An example of a joint venture in business is Mahindra-Renault Ltd, a car launch project between Mahindra & Mahindra and Renault SA.

2. What is an example of a joint venture?

A joint venture is a project between two or more organisations. An example is ICICI Prudential Life Insurance Company Ltd., a JV by ICICI Bank and Prudential Corporation Holdings Ltd.

This is a great example of a horizontal joint venture where a financial banking company and an insurance company came together.

3. Is McDonald's a joint venture?

Although McDonald’s itself is not a joint venture, it has multiple joint ventures.

In India, McDonald’s has had two JVs: one is run by Vikram Bakshi, and the other is run by Hard Castle Restaurants (run by Amit Jatia), although the JV with Vikram Bakshi was terminated.

McDonald’s has partnered with local businesses globally to form JVs. For a global food retail franchise, forming JVs is necessary to understand different cultures and market to them.

4. How to start a joint venture business?

Before starting a joint venture business, determine and establish your JV goals.

1. Select and vet your partner.
2. Understand the market and market trends
3. Choose the region you want to expand to.
4. Establish mutual JV objectives
5. Decide on how the company culture and management will be.
6. Hold a formal meeting to make it legal.

Once you form a JV, keep the mutual goals consistent and bring unique knowledge to the table. Innovative tech and adaptability go a long way when maximising collaboration with partners.