15 Benefits of Joint Ventures for Your Business
Joint ventures can be incredibly lucrative for businesses of all types, and most business owners know it — in fact, 68% of respondents to a survey by McKinsey say they expect joint-venture activity to increase over the next five years.
Joint ventures can be a bit of a secret business growth weapon for those that know how to take advantage of them. Although it may not be easy, finding the right joint venture partners can lead to serious advantages for your business.
This article will tell you 15 benefits of joint ventures for growing your business.
Keep reading to learn more.
What Is a Joint Venture and Why Should My Business Do It?
A joint venture is a business strategy where two or more companies form a partnership to achieve a common goal. This could be to reach a specific consumer market, increase sales, and more.
Usually, a joint venture will have the businesses involved work under a contractual agreement for a specific project and for a certain amount of time. By pooling together their resources and combining business strategies, they can make the project more profitable for everyone involved.
Whether the project is successful or not, the companies will share in the profit or losses.
Types of Joint Ventures
Before we jump into the different benefits of joint ventures, let's take a look at the different types of joint ventures so that you have a better understanding of where your business might fit in.
There are four types of joint ventures:
Project-based
Vertical
Horizontal
Functional-based
Let's take a deeper look.
Project-Based Joint Ventures
In a project-based joint venture, all of the participating parties work together to accomplish a fixed task. Since these partnerships are created with a specific goal in mind, they are usually finished after the project is accomplished.
They can be formed for a particular project, task, or time span.
Function-Based Joint Ventures
In these joint ventures, the businesses will create an agreement that allows them to mutually benefit from the deal. This allows them to take advantage of the other partner's expertise in different areas to work more effectively and efficiently.
Vertical Joint Venture
This type of joint venture works between suppliers and buyers. In this partnership, different stages of the manufacturing process are integrated to create economies of scale. It results in a lower per-unit cost of a finished product.
Not only does the business prosper for all involved, but consumers usually receive the product for more reasonable prices as well.
Horizontal Joint Venture
In this type of joint venture, companies that sell similar products join together to create more efficient and effective output to reach customers. This type of joint venture often raises disputes because of competing businesses.
15 Benefits of Joint Ventures
Now that you have a better understanding of what joint ventures are, let's take a look at the different benefits your business can gain from participating in a joint venture. Keep reading to learn more.
1. Shared Resources and Responsibilities
A big reason why businesses will join a joint venture is that it lacks something. It could be:
Required knowledge
Technology
Access to a specific market
Without that factor, the business probably can't be successful in a certain project on its own. Joining forces with another business allows taking advantage of the other business's resources without having to spend a lot of resources to get them.
For example, one company might have manufacturing production technology as well as top-tier facilities that another company needs to launch and distribute a certain product.
A joint venture would allow the second company to gain access to its equipment and facilities without needing to lease or purchase them. On the other hand, the first company can participate in the production and revenue from a product that it didn't spend resources to develop.
In the end, both businesses benefit from the partnership.
2. More Flexibility
Other business partnerships like mergers or acquisitions are permanent changes to companies. Joint ventures, on the other hand, are temporary contracts that finish once a project is completed or on a specific future date.
These businesses aren't required to create a new business entity. This allows them to have much more flexibility in their strategies. Neither business needs to give up control of their business or stop their production or operations.
They can both continue to maintain their business identities and work as normal once the joint venture finishes.
3. Shared Risk
Another great benefit of joint ventures is that your exposure to issues and problems can be spread out among all of the partnered businesses.
There are several risky projects that companies take on, like creating a new business or delivering a new service. By working together, each company can contribute its share of resources, which can lower the financial burden on each one.
The risk that comes with a project failing can be significantly lowered when distributed among all of the participating businesses.
4. New Streams of Revenue Through Faster Growth
Small businesses often have problems with projects because of a lack of resources and access to capital. By joining together with a bigger company, they can expand much more quickly than if they were to work alone.
They can take advantage of a bigger company's more extensive distribution channels which can lead to more diversified streams of revenue, compelling offers, and more.
5. Take Advantage of Event Chains
One of the most successful strategies when it comes to creating successful joint ventures is to find partners that serve the exact same clients that your business sells to.
Let's take a look at an example. Let's say you run a florist business. One of the most lucrative opportunities for florists is to provide services for weddings. When looking at their target customer, they fall into something that is called an "event chain."
The event chain is the series of businesses that a customer will purchase from for a specific sequence. In this example, it's a wedding.
The sequence for a wedding might begin with a purchase of an engagement ring from a jeweler, then booking an event venue, then hiring an event planner, and so on. At some point, the florist will come into the event chain. After that, they may hire a DJ, a printer, wedding cakes, etc.
This event chain is very important when it comes to referrals and joint ventures. Any of the businesses that lie above the florist in the event chain can refer business to the florist, but they might not have as much control over that.
However, the florist can send business to anyone that is below them on the event chain. They can negotiate offers and create joint ventures with those businesses.
This can lead to significantly more leads and revenue through partnerships.
6. Intellectual Property Gains
Joint ventures allow partners to upgrade their products with technological advancements from other businesses.
It is difficult for any business to create advanced technology in-house. When businesses join in on joint ventures with firms that have a lot of technology, they can gain access to them without having to spend the resources to build them themselves.
They can get new ideas, insights, and expertise from different types of businesses to help upgrade their products and services.
For example, a large business that has great access to financing can contribute working capital to a partnership. Another business that might have limited financing capabilities can provide important technology for the development of services or products in a relationship.
7. Creates Synergy
Joint ventures allow businesses to extract positive qualities from their partners. For example, one business might be great at marketing while the other one is efficient when it comes to production.
Working together and mixing these qualities can help synchronize businesses to run more efficiently and get a better cost advantage. One of the best advantages of joint ventures is that partner's often lower repeated tasks, which can significantly increase productivity and profits.
8. Access to Better Resources
Businesses of all kinds have certain qualities and resources that allow them to work more efficiently. This can include specialized staff, access to raw materials, or better pricing from suppliers.
The location of businesses can also lead to certain benefits and resources. With a joint venture, companies can take advantage of the resources that other businesses have access to.
9. Access to New Markets and Distribution Networks
Another great benefit of joint venture options is that it opens up opportunities in new markets. This gives companies huge potential when it comes to growing and developing.
For example, if a business in the United States enters a joint venture with a business in Canada, it gives the US business a huge new market to access. It also provides the citizens of Canada the benefit of accessing a new and useful product.
This can be invaluable in fields such as real estate and sales.
10. Lowered Cost of Production
For any business, the main objective of a new strategy (including a joint venture) is to create the best quality product for the most efficient cost possible. Joint ventures can help keep production costs to a minimum by sharing resources to help all parties involved.
11. High Potential
Many joint venture options can be entered or created with little to no money. When many partners create a joint venture, they can quickly gain momentum and expand their business. Getting access to new wide-scale markets and resources can provide limitless potential for businesses.
12. Access to Brand Names
Joint ventures can also give the benefits of a distinctive brand name for a new entity.
Smaller brands that have not built a reputation can work together with bigger brands that have already established themselves in the market. This allows them to borrow the reputation of the bigger company and gain more customer confidence in their business.
This is a great way to build brand awareness without spending extra time, money, and effort on marketing.
13. Low-Cost or Even Free Advertising
When businesses work together in a joint venture, businesses can benefit from significantly cheaper or even free promotion of products. When working with other businesses, there are often several opportunities to cross-market products and services with those participating in the joint venture.
This is a great way to expand your market and reach a new range of potential customers for a very low cost.
14. Try Out New Products
Typically, developing, creating, and testing new products can be a very costly and time-consuming process. However, joint venture agreements can allow partners to test out products in a much more efficient manner.
For example, you can create a deal where your joint venture partner introduces one of your new products to its customers. This can be given as a sample or sold at a lower price. You can then set up strategies to collect customer feedback and improve the product.
15. Develop Better Business Relationships
Building a joint venture takes trust and accountability between businesses. You can use these as an opportunity to create deeper relationships with other businesses while expanding your network with new businesses in your industry.
It's a great way to improve your business and grow your network at the same time.
Get the Best Insights For Your Business
Now that you know more about joint ventures and how they can help your business, it's time to start researching what kind of joint ventures can help your business the most.
If you want the best insights on how to scale your small business, look no further. Take your business to new heights with a business coach to improve your skills and reach your goals.
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