Joint Ventures: The benefits and perils - why some are successful and others fail

Research Paper (postgraduate) from the year 2011 in the subject Business economics - Business Management, Corporate Governance, grade: 1.3, Zeppelin University Friedrichshafen, language: English, abstract:

The concept of the joint venture was developed in the United States. First, we need to make

a distinction between purely contractual, non-equity joint ventures, on the one hand, and

equity or corporate joint ventures, on the other.

The regular form of joint venture is a company that is founded out of equity provided from

two other entities. This venture is similar to a business partnership but limited to a specific

project or purpose.

The equity joint venture manifests the founding firms¿ willingness to

cooperate by providing each a certain percentage of the common capital stock as illustrated

in the graphic below (in this case with each partner providing half of the capital stock).There

are countless ways to build up an equity joint venture with each partner providing only a

certain percentage of the common capital stock (e.g. 70/30%, 90/10%, 51/49% and so

forth). The firms gain control over the founded joint venture and share revenues, expenses

and assets in equal proportion to their respective contributions to the venture¿s registered

capital. Differing arrangements are possible.

Over the last decade, we were able to witness rapidly growing companies, some of them

seeking for partnerships to take advantage of positive synergy effects to gain in size or to

enter new foreign markets. The topic of this essay should be why firms seek to venture,

what the benefits of venturing are and why some firms fail after the venture, what are

the downsides of this concept?