In a joint venture, two or more businesses or individuals partner to enhance their success in a business undertaking. They pool their resources, efforts or skills and share the profits from the venture. The venture usually lasts for a set period of time that all parties agree to, rather than obligating them to continue their partnership indefinitely.
A fully integrated joint venture closely resembles a merger. In this arrangement, firms integrate all of their functions, from manufacturing to sales. They may integrate functions in just one area of business, such as a particular product line, or all areas.
Research and Development
In research and development joint ventures, firms pool their skills, knowledge or equipment to develop better products, services or production methods. Each firm's area of expertise may benefit the other, allowing the firms to develop these outputs more efficiently.
Production and Marketing
Firms may either produce goods or services together, or market them together. In some cases they do both. Combining their facilities, equipment and methods can allow firms to produce goods more efficiently. They may jointly produce a product they designed together, or produce their own products using combined resources. If they jointly market their products -- whether they produced the products together or not -- each firm can reach the other's consumer base. By marketing together, they can also pool their resources to advertise more widely.
An agreement to purchase goods together gives both firms more marketing power. They typically purchase goods at a lower rate by purchasing them in larger amounts, which they divide between each other. Firms can also reduce costs by storing goods together and sharing the administrative staff who monitor the inventory.
In some industries, joint ventures between numerous firms create a network that better serves customers. The telecommunications, banking and transportation industries are examples of networking joint ventures. For example, banks use large networks to process credit card transactions and allow customers access to their funds via ATMs.
Domestic and International
Any of the above joint ventures can take place between two firms within the same country, or two firms from different countries. Firms from different countries often join together to broaden their market bases.