Once the contract ends, however, the local company may take the knowledge it gained from the joint venture to compete with its former partner. To manufacture cars in China, non-Chinese companies must set up joint ventures with Chinese automakers and share technology with them. This is what’s currently happening in China.
Second, the local partner may gain the know-how to produce its own competitive product or service to rival the multinational firm. First and foremost is the challenge of finding the right partner-not just in terms of business focus but also in terms of compatible cultural perspectives and management practices. Abdel Nour’s company reached $22 million in sales and was the Egyptian jam-market leader before being bought by a larger Swiss company, Hero.Įquity joint ventures pose both opportunities and challenges for the companies involved. The two companies’ joint venture continued for three years, until the French company sold its shares to Abdel Nour, making Vitrac a 100 percent owned and operated Egyptian company. Using French Vitrac’s manufacturing know-how, Abdel Nour had found a new supply and the opportunity to enter new markets with it, thus expanding his partner’s reach. Vitrac thus was importing blueberries from Canada, manufacturing the jam in Egypt, and exporting it to Japan. To meet this demand-in an interesting twist, given Vitrac’s origin-Vitrac had to import blueberries from Canada. Sales results from Japan indicated a high demand for blueberry jam. In addition to exporting to Australia, the United States, and the Middle East, Vitrac began exporting to Japan. Abdel Nour supplied the fruit and the markets, while his French partner supplied the technology and know-how for producing jams. Abdel Nour initially approached the French jam company, Vitrac, to enter into a joint venture with his newly founded company, VitracEgypt. Mounir Fakhry Abdel Nour founded his jam company to take advantage of Egypt’s surplus fruit products. To see how an equity joint venture works, let’s return to the example of Egyptian company, Vitrac. (In a nonentity joint venture, there is no contribution of capital to form a new entity.) The partners in an equity joint venture each contribute capital and resources in exchange for an equity stake and share in any resulting profits. Some major joint ventures include Dow Corning, Miller Coors, Sony Ericsson, Penske Truck Leasing, Norampac, and Owens-Corning.Īn equity joint venture is a contractual, strategic partnership between two or more separate business entities to pursue a business opportunity together.
The JV is dissolved when that goal is reached. To achieve this success, honesty, integrity and communication within the joint venture are necessary.Ī consortium JV (also known as a cooperative agreement) is formed when one party seeks technological expertise, franchise and brand-use agreements, management contracts, and rental agreements for one-time contracts. Ultimately, short term and long term successes are both important. In short, both parties must be committed to focusing on the future of the partnership rather than just the immediate returns. Since money is involved in a joint venture, it is necessary to have a strategic plan in place.
Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project as well as the resulting profits. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. While joint ventures are generally small projects, major corporations use this method to diversify. In this scenario, both parties are equally invested in the project in terms of money, time and effort to build on the original concept. When two or more persons come together to form a partnership for the purpose of carrying out a project, this is called a joint venture. They exercise control over the enterprise and consequently share revenues, expenses and assets. In a joint venture business model, two or more parties agree to invest time, equity, and effort for the development of a new shared project.Ī joint venture is a business agreement in which parties agree to develop a new entity and new assets by contributing equity.
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