In today's fast-moving landscape, joint-ventures have emerged as a powerful strategy for companies seeking to grow beyond their core business, expand their portfolios, and explore untapped markets. They deliver growth fast, at reduced risk and enable participants to form valuable strategic alliances.
By merging diverse strengths, sharing unique resources, and tapping into collective expertise, joint-ventures provide a unique platform for businesses to grow, innovate, and conquer new frontiers. In addition, joint venture partners can achieve greater economies of scale, leading to:
- Reduced production costs
- Increased purchasing power
Well-established companies can also leverage their market presence to enhance the credibility and trust in the new venture, creating buzz among customers and making it easier to attract customers, investors, and other stakeholders.
To give you a better idea of how joint-ventures can help you boost growth, let’s take a look at how they work, the different types, and some inspiring real-world examples.
What is a joint-venture?
A joint venture is a strategic arrangement between two or more companies where they pool resources and expertise to achieve a common goal. Each company brings a specific set of resources to the table, including the capital, technology, personnel, or intellectual property, in exchange for a share of the revenues, expenses, and control of the joint venture.
Each participating company holds a stake in any profits, losses or costs associated with the joint venture. However, in most cases, the venture itself is its own entity, separate from each of its parent company’s broader business interests.
Key aspects of project-based joint-ventures include:
- Access to new markets: Joining forces with companies in a determined target market can provide quick access to new customers and distribution channels.
- Shared risks and costs: Joint-ventures allow companies to share the financial burden and risks associated with the new venture.
- Combining strengths: Partnering companies can leverage each other's expertise, technology, or resources to create a more competitive offering in the market.
- Learning from partners: Joint-ventures provide an opportunity for companies to learn from each other, acquiring new skills, knowledge, and best practices.
- Increased bargaining power: By joining forces, companies can often negotiate better terms with suppliers, customers, or regulatory authorities.
Joint-ventures vs partnerships: what's the difference?
Both joint-ventures and partnerships involve working together towards a common goal. In fact, you might say joint-ventures are a “type” of partnership, which is why they share several similarities (e.g. pooling resources, working toward a common goal, etc.).
To help you understand some of the key differences, we compiled them below:
Joint Venture: A structured collaboration that establishes a new entity to pool risks, resources, and share profits.
Partnership: A commercial arrangement with reciprocal agreements like a preferred supplier-client relationship.
Joint Venture: Specific task or project.
Partnership: Long-term business operation
Joint Venture: Temporary, limited to the project's completion
Partnership: Indefinite, ongoing
Joint Venture: Limited to the scope of the venture
Partnership: Unlimited, partners jointly liable
Joint Venture: Shared among participants
Partnership: Partners share risks based on their agreement
Joint Venture: Distributed according to established agreements
Partnership: Divided among partners as per their agreement
Joint Venture: Based on the joint venture agreement
Partnership: Collaborative, typically per partner's contribution
Joint Venture: Funded by participants for a specific project or new entity
Partnership: Partners contribute as needed based on pre-established agreements
What types of joint-ventures are there?
Joint venture ventures come in all shapes and sizes, with participants ranging from individuals to small and large businesses to even governments. To give you a better idea of how joint-ventures work, we’ve listed the four main types below:
Project-based joint-ventures are formed to collaborate on a specific project, usually with a specific goal and timeline. The participants pool their resources, expertise, and capabilities to achieve the project's goals more effectively than they could individually.
Once the project is completed or the desired outcome is achieved, the joint venture may be dissolved, and the partnering companies may go back to operating independently or collaborate on other projects in the future.
The key aspects of product-based joint-ventures include:
- A specific goal: These ventures centre on a specific project with a defined goal.
- Duration: Generally time-bound, concluding when the specific project is completed or the goal is achieved.
- Structure: Tend to involve a new legal entity, a contractual agreement, or an informal collaboration between the partnering companies.
Example: BP and Reliance Industries
In 2011, BP and Reliance Industries announced a project-based joint venture aimed at investing $20 billion in developing offshore oil and gas reserves in India. The goal was to accelerate the building of infrastructure to receive, transport and market natural gas in India.
This joint venture combined BP's technical and operational capabilities with Reliance's expertise in the Indian market to develop oil and gas reserves in specific locations. Established with a clear aim and future end date, this is a good example of a project-based joint venture.
In a function-based joint venture, companies collaborate to perform a particular business function or activity, like marketing, sales, or distribution. This type of joint venture allows companies to leverage each other's expertise, resources, and networks in specific business areas, resulting in increased efficiency and market reach.
Key aspects of function-based joint-ventures include:
- Scope: Function-based joint-ventures focus on specific business functions.
- Duration: Tend to be ongoing, as they often involve continuous business functions, while other types are typically time-bound, concluding when the specific project is completed.
- Flexibility: Companies can choose to form a separate legal entity or operate under a less formal agreement, depending on their needs and objectives
Example: Starbucks and PepsiCo
Since 1994, Starbucks and PepsiCo have been working together to produce and distribute ready-to-drink coffee beverages. This joint venture, known as the North American Coffee Partnership (NACP), has led to the creation of popular products like Starbucks Frappuccino and Starbucks Doubleshot Espresso. The result? Increased market reach, brand awareness and profits for both companies.
A vertical joint venture is a strategic collaboration between companies at different stages of the supply chain (e.g. manufacturers, distributors, or retailers). The main goal of this type of partnership is to optimise the supply chain by combining the unique capabilities and resources of each company, leading to increased efficiency, cost savings, and better control over production and distribution processes.
Key aspects of vertical joint-ventures include:
- Scope: They tend to focus on the synergies between companies at different stages of the supply chain.
- Objectives: Primarily seek to enhance efficiency, reduce costs, and streamline operations within the value chain.
- Enhanced coordination: Enable companies to identify potential bottlenecks, improve information flows, and streamline operations.
- Quality assurance: Enable companies to maintain better quality control, ensuring that products meet specifications, regulatory standards, and customer expectations.
- Timely delivery: By working closely with supply chain partners, companies can better manage lead times, optimise inventory levels, and ensure timely deliveries.
Example: Shell and Cosan
In 2010, Royal Dutch Shell and Cosan (a Brazilian producer of bioethanol, sugar and energy) created Raízen a joint venture focused on sustainable and competitive biofuels. The collaboration, combined Shell's expertise in fuel distribution with Cosan's experience in sugar and ethanol production. Since then, Raízen has become one of the largest bioenergy producers in Brazil, benefiting both companies by expanding their market reach and boosting profits.
Horizontal joint-ventures are strategic collaborations between companies that operate within the same industry or market, often as competitors. These partnerships focus on combining resources, technology, or expertise to achieve a shared objective, e.g. expanding into new markets or creating innovative products. This type of venture can provide participating companies with a competitive edge by leveraging their collective strengths and helping them mitigate risk.
Key aspects of horizontal joint-ventures include:
- Objectives: Horizontal joint-ventures primarily seek to expand market share, pool resources, and achieve economies of scale by working together to enhance competitiveness.
- Competitive Advantage: Provides a competitive edge by combining resources, expertise, and market presence, enabling companies to better compete against industry rivals.
- Risk Management: By partnering with companies operating within the same industry, horizontal joint-ventures can help manage risks associated with market fluctuations, increased competition, or other industry-specific challenges.
Hulu was created as a joint venture between several media companies, including NBC Universal, News Corporation, The Walt Disney Company, and Providence Equity Partners. By pooling their extensive media libraries and resources, the participating companies were able to create a competitive streaming service that effectively addressed the growing demand for online video content. Over time, Hulu has expanded its offerings to include live TV and original programming, further enhancing its position in the streaming market.
The venture enabled the partner companies to adapt to the changing media landscape, monetise their content libraries, cross-promote their brands, share costs and risks, and develop original content, ultimately enhancing their positions in the market and creating new opportunities for growth.
As illustrated in the examples above, joint-ventures can be a powerful tool for companies to accelerate growth and achieve strategic goals. With the right partner and effective execution, joint-ventures can help you unlock new opportunities and lead to mutual success.
Hungry for more inspiring examples? Be sure to check out our other joint venture article: 10 joint-venture examples you should know about.
Joint-ventures help you reduce risk, pool valuable resources, boost brand recognition and increase your overall chances of long-term success. We can help you find the right partner and strategy to bring your next joint venture concept to life.