Merger and joint venture are the terms used in the context of the business world where two companies come together to do business, however, one should not confuse and think that both imply the same because the merger is like marriage just like in marriage two people come together for a lifelong relationship while the joint venture is more like a romantic relationship where two people agree to commit into a relationship but there is no guarantee that there will be life long relationship. In order to understand more about both the concepts, one should look at some of the differences between merger and joint venture –
Merger VS Joint Venture
Meaning
Merger in simple words refers to that arrangement where two companies willingly and not forcefully combine into one to form a new company while joint venture refers to that arrangement where two companies come together to complete a particular task or venture and it comes to end on completion of the task or venture.
Time Period
The time period for which a merger is undertaken is long because the intention of companies undertaking the merger is to operate as one entity for a long period of time but as far as the joint venture is concerned it is undertaken for a short period of time as the intention of companies doing joint venture is to operate only till the completion of a particular venture. In simple words, the merger is more like a soap opera just like soap opera keeps running for many years in the same way a merger is for a long period of time while the joint venture is more like a 3-hour movie as it gets over within a short period of time.
Size of the Company
In case of a merger, the size of a company becomes big as two companies come together to form into one company the resources of both companies will be combined but as far as the joint venture is concerned the size of the company is small as in a joint venture both companies commit only part of their resources into the venture and not all resources. In simple words, the merger is like a full buffet dinner involving every meal while a joint venture is more like a breakfast involving only some meals.
Difficulty Level
In case of a merger since two companies merge the difficulty level is very high as the integration of resources and workers is an enormous task while as far a joint venture is concerned it is much easier to collaborate as compared to the merger as companies have to combine only part of its resources and manpower and not the entire resources and manpower.
Number of Companies
In case of mergers only one company remains as two companies which are merged no longer remains while as far as the joint venture is concerned three companies are there as apart from existing two companies new company comes into existence thus making it 3 companies.
Nature of Alliance
In the case of a merger, it is more of a strategic alliance in the sense that it is undertaken to keep in mind the long term repercussion of the merger while as far as the joint venture is concerned it is more of an insignificant alliance in the sense that it is undertaken for the short term period and chances are companies may never come together again after the completion of the venture.
As one can see from the above that both merger and joint venture are miles apart when it comes to differences between them and that is the reason why any company thinking of doing a joint venture or a merger with other company should carefully read the above points and then only should go ahead with any one option.