IntroductionA joint venture is a business owned by two or more organizations or persons to share the profit and expenses of a particular business project (Johnson, 2000). A joint venture is not a business organization but a sense of partnership, proprietorship, corporation or other form of business parties involved in joint venture choose to select (Levine & John, 1986). Though, the joint venture represents a new enterprise, parties involved in the joint venture will continue to exist as separate entities. A joint venture may be formal or informal, such as a handshake and an agreement for two parties to share a stall at a trade show.
Other agreement may be complex, such as major electronics companies joining hands to develop a new microchip. The key element in a joint venture is its single, definable objective (Levine & John, 1986). Few businesses have been able to use this form of business strategy to their advantage over the years, although the practice is primary associates with large companies. Most joint ventures have been formed for the purpose of saving money (Johnson, 2000). This is a true as international oil firms that agree to partner together for oil or gas extraction or exploration as it is of neighborhood businesses that agree to jointly run an advert in the weekly paper.
This form of business strategy is attractive because they enable firms to share both costs and risks. Thus joint venture partnership is of limited duration and scope. It involves only a small fraction of each party’s total activities (Johnson, 2000). Each party in a joint venture partnership must have something important and unique to offer the joint venture’s business and at same time provide a source of gain to the other party.
However parties in joint venture need not be affected by the arrangement (Johnson, 2000). Joint Venture Failure RateJoint venture partnerships have become very popular in recent years, despite their high failure rate for one reason or another. In the recent uproar about joint venture partnerships, most people tend to focus on their benefits. Joint venture partnership are said to allow companies to share markets and risks, resources, information, to yield economies of scale, to build trust among companies, and so on (Choi & Paul, 2004).
But expert in this field stress the costs of joint ventures partnership, such as the potential for disagreements between parties, for creation of future competitors and for diffusion of proprietary information (Moeller, 2000). Such issues have been blamed as factors that contribute to a high “divorce rate” between partners in the joint ventures. Sixty five percent of the joint venture partnership in a study conducted by eventually don’t end up well (Johnson 2000), as well as those in Franko’s sample, and a three third of those in Harrigan’s (Benjamin, 2006).
Many studies have stated that high degree of “instability” of this kind of partnership is a sign that the organizational form will not succeed (Bertrand, Mehta & Mullainathan, 2002). In many cases, the dissolution of a joint venture indicates initial organizational choice is wrong for the project at hand. In other cases of instability, a joint venture may be the right thing to do when the partnership was formed (Ramaswamy, 1998). After that, however, changed in conditions as a result of joint ventures themselves, may have contributed to changes in the joint venture structure.