Joint venture can be defined as agreement between two companies to form a separate company or entity which focuses on a specific market. In joint venture a third company will come into existence while the companies which have entered into joint venture will continue their existence. An example of joint venture would be when two computer manufactures decides to form a joint venture to tap into a market where the specialty of one company is its distribution channel and other company specialty would be its latest technology. Give below are some of the reasons due to which company enters into joint venture –
1. By entering into joint venture companies can share their resources which include capital, labor and other such resources, and therefore joint venture can be particularly helpful when huge capital is needed to do business.
2. Joint ventures also enable companies to take advantage arising out of economics of scale due to large scale of operations which may not have been possible if there was single company.
3. An international joint venture also enables companies to tap new markets and therefore increase the scale of operations of the company.
4. Companies which face shortage of raw materials in their own country can benefit from an international joint venture because a joint venture can end that shortage of raw material and therefore another reason for company to go for joint venture.
Apart from above reasons there can be many other reasons which compel the companies to go for a joint venture depending upon the general market conditions and industry in which company is operating.