What is a Joint Venture?
A Joint Venture is defined as “a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities” by the Oxford dictionary and “a business or business activity that two or more people or companies work on together” by the Cambridge dictionary.
At it core, it is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.
Simply put, it is just old fashioned joining up resources with a very neat strategic perspective.
Here are some of the benefits of joint venturing:
Generate additional business
Substantially develop and boost your own chance to enter fresh markets
Gain access to other people’s capital investment, goodwill, distribution channels, brand association, positioning
With little or minimal cost, time and risk to you.
Challenges businesses face today:
In today’s market place with the effects of globalization and increased sophistication through technology, businesses require every advantage possible to sometimes just survive, let alone prosper.
The competition for a piece of the action is brutal and your competition is continuously seeking out new ways to gain an advantage, take over your market share, put you under even deeper and if possible, out of business.
Another challenge that businesses are facing today is the commodification of products and services. Commodification is the process of transforming goods and services, as well as ideas or other entities that normally may not be considered goods, into a commodity. This makes it difficult for businesses to stand out and distinguish itself (because all the products looks the same) and to maximize any kind of profits.
For example, lets look into the graphics design industry all over the world. Probably back to a decade ago, if you needed some graphic design work done for your business such as requiring logo designs services, or brochures and pamphlets design, you would have to pay a significant sum of money for such services to multimedia design studios or companies that has employees under their payroll that would have graduated from some design related colleges. Fast forward to today in 2016. You could go to Fiverr.com, and get similar quality of design and work (sometimes better) for a paltry $5.50 or to eLance or oDesk, both are online outsourcing websites for better quality ones but at higher prices.
That in essence is what a commodification is. The effects of globalization and advancement of technology does not only happen in the graphics design industry, but has been felt across the board into most industries.
Currently, China is producing a quarter of the world economy’s output according to an article in The Economist. Couple that with the advancement of technology where outsourcing is readily available and increasingly becoming the trend has changed the way consumers interact with businesses.
Increasingly disloyal market
In the eyes of consumers, most products and services looks the same with multitude of substitutes readily available on the market. Brand loyalty today isn’t what it used to be as businesses have found out. Of course, there are exception to the rule. Apple for example has built a fanatic and loyal base of consumers who are willing to pay a premium for its products and services. But how many Apple are there in the world today? What are the odds that your business has the strength, capabilities and financial clout to develop a brand like Apple?
So what can businesses do in the face of these challenges?
There are a few things that businesses can do today that can help them survive, sustain and grow their businesses. They generally fall into one of these two categories; increasing marketing expenditure, or reducing cost. For example:
- They can increase their marketing budget and market more aggressively, thereby increasing their cost and risk.
- Or they can outsource some function of their manufacturing and production to cost effective production countries such as China, Vietnam or Myanmar and cut their overhead by reducing the headcount for non essential functions like accounting, legal, cleaning, tele-marketing, etc and only retaining the core functions.
Is there a better way?
With such brutal competition abound, businesses has to do whatever it takes to survive and thrive. However, one of the most overlooked and least understood strategy is Joint Venture. Through joint venture and strategic alliance, companies can:
Increase sales and profitability
Expand your customer/client base
Strengthened your reputation and brand
Capitalize on hidden assets
Manufacture and fulfill cost effectively
and many more with minimal cost and risk to your company.
In essence you will be forming mutually beneficial relationship with other businesses and capitalizing on the strength of each party for mutual profit and gain. Some of these joint venture are also easy to establish.
An example that comes to mind is the Sony Ericsson (SE) joint venture established in 2001 between Sony Corporation Japan and the Swedish telecommunications company Ericsson to make mobile phones. The joint venture combines Sony’s consumer electronics expertise with Ericsson’s technological leadership and large market share in mobile communications.
Another example of joint venture on a smaller and local scale can be between a dentist and an optometrist whereby they jointly promote each others business to their clients as their products are complimentary and are non competitive but shares the same target market.
Or it can be between a magazine publisher and a product manufacturer where the magazine publisher will run promotional ads in its magazine but not charge the product manufacturer for advertising space but get paid a percentage of the subsequent resulting sales and its future recurring revenue.
There are unlimited ways that a business can create joint ventures and strategic alliance. It is all limited only by the creativity and imagination of your mind.
We will look to explore more into other joint ventures example in our next article.
Thank you for reading until the end. Please leave a comment about your thoughts and if you have any joint venture ideas that you would like to explore with us, please leave a comment or get in touch with us via our contact form or via Facebook.
Looking forward to serve you further.