Nikhil and Puja have known each other since college and remain good friends in spite of entering very different professions. Nikhil is the general manager of an automobile organization, while Puja leads a start-up working on clean energy.
A year into his managerial tenure, Nikhil’s organization runs into trouble after independent researchers find that the vehicles manufactured by the organization emit double the pollutants as compared to their top three competitors.
Puja, meanwhile, finds it increasingly difficult to get a client with a national presence.
Nikhil and Puja vent their respective grievances, and before they know it, a solution is staring them in the face. Nikhil’s organization can use clean energy expertise to re-engineer its vehicles, and Puja’s start-up can benefit from having a big automobile client as a partner.
The two friends explore the possibility of a joint venture.
What Is A Joint Venture?
A joint venture is an arrangement where two or more organizations come together to form a new business entity. A joint venture partnership conducts a specific business where the ownership, rewards and risks of business are divided among the co-venturers in a specific ratio as per the terms of agreement laid down in the joint venture partnership contract.
Project joint venture allows organizations to share and/or merge their resources, staff, and know-how for mutual benefits.
Purpose Of Project Joint Venture
Before moving on to the types of joint ventures, let’s take a moment to understand how joint ventures can be useful for your organization:
- Joint ventures provide organizations with the opportunity to increase their capacity and expertise
- Through a joint venture, it’s possible for an organization to enter a new market, find additional customers and revenue and gain access to newer technology
- Joint ventures are designed to be flexible, which means that they can either be set up for a short period to achieve a specific goal or incorporated into a long-term plan for the future
- Joint ventures offer a convenient way for organizations to separate their business from the rest of the organization and eventually sell the business to another parent organization
Types Of Joint Ventures
Any reasonably developed business ecosystem has room for different types of joint ventures to exist and thrive. Below is an explanation of the different types of joint ventures that are the most popular as well as the most productive:
1. Project-Based Joint Venture
A project joint venture is the most common type of joint venture in modern business. As part of this joint venture partnership, two or more organizations join hands for a fixed period to achieve a fixed goal. These joint ventures are meticulously planned and cease to exist once their goal has been realized. For example, consider the partnership between an IT organization and an HR organization that come together as a team for one year for a project joint venture focused on studying how restructuring organizational feedback can enhance productivity.
2. Functional Joint Venture
Among the different types of joint ventures, a functional joint venture tends to be the one where symbiosis and synergy are highest. In this joint venture partnership, organizations that have expertise in different aspects of the same field or different fields altogether combine to maximize productivity on both sides. For example, if one organization with a great pool of artificial intelligence researchers is struggling for funding, it makes sense for them to enter into a functional joint venture with an organization that’s short on quality research but has the resources to raise large funds in less time.
3. Vertical Joint Venture
A vertical joint venture is unique as it’s only operational in supply chains between suppliers and buyers. A supplier will enter into a vertical joint venture because a buyer is willing to invest and help them produce more raw materials by procuring better personnel or technology. As for the buyer, they will be guaranteed the supply of raw materials irrespective of market fluctuations or other contingencies. Vertical joint ventures create a reliable supply chain that helps all stakeholders, including the consumer, who’s assured of a quality product at a reasonable price. For example, a number of top tech organizations enter into vertical joint ventures with suppliers producing microchips or other vital components of a technological device that can’t always be obtained securely from the open market.
4. Horizontal Joint Venture
Among the types of joint ventures, a horizontal joint venture is considered the hardest to manage. In this arrangement, two organizations offering the same goods or services unite to enter new markets or increase their capacities manifold. In most cases, horizontal joint ventures take place between a local organization and a foreign organization, allowing the former to expand its resources while the latter prioritizes a new geographical market to amplify its reach.
Learn To Ace Joint Ventures
Several types of joint ventures end prematurely because organizational personnel can’t adapt fast enough or integrate a collective vision. Harappa’s High Performing Leaders Program has been created to resolve such issues and harness the individual and collective skills that are of foremost importance to ace joint ventures. Through frameworks such as the Leadership Equation, the Pyramid Principle and the Rule of Three, your employees will be able to decode the strategic big picture behind joint ventures alongside communicating with impact to enrich trust. They will also become experts at executing 15 Must-Have Thrive skills such as instinctive adaptability, prudent risk-taking and managerial courage.
Sign up your employees for the High Performing Leaders Program today and watch them grow into masterful minds who can build successful joint ventures.
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