Taking the leap in company with a joint venture

Monday, 16 april 2018 | Redacción CEU

Entering a foreign market can be an adventure. The companies that undertake this feat have to save major obstacles like financial limitations, the difficulty when choosing distribution channels, the lack of specialized professionals, some technical barriers or the complexity in obtaining information about those new markets. One strategy that can help these companies overcoming these and other difficulties is to build a temporary strategic partnership with another company. Union makes force. It is about sharing the feat, the adventure, but also the efforts, profits and risks. Is it advisable to take the leap together with a "joint venture"? What risks does this type of business internationalization imply?

Opening the doors to new environments and taking the risk to undertake a project outside the native borders offers a wide variety of advantages. Among others, they could be the exponential growth, the competitiveness increase, the brand consolidation, the cost readjustment, achieving new customers or strengthening the position facing potential crisis. Nevertheless, taking the leap to a new market always sets out certain uncertainty. Although the companies that would be willing to start this adventure previously and meticulously studied the field, the stablished companies in the country will always start from a great competitive advantage. A solution to this problem is joining forces with other companies to achieve a successful corporate internationalization.

What does the joint venture consist of?

There are several ways to facilitate entry into foreign markets through joint operations like the export consortium, the licenses or the franchises. However, joint ventures are one of the most convenient models of new market immersions, because the companies that participate in them continue to maintain their business and identity independently from the common project that they undertake. The birth of the union of these companies begins precisely with the premise of the autonomy conservation of the parties involved.

Joint venture is a term used to refer to a type of business collaboration in which, as the name suggests, the participants begin a joint adventure. Specifically, this is a strategic partnership limited in time that is established between two or more companies in order to achieve a specific commercial objective -such as launching a new project, offering a better service or entering a new market- . A relationship that is convened under the same rules, and as long as both parties are willing to share both benefits and efforts, as well as, risks and costs.

These companies agree to make contributions to this common business: raw materials, distribution channels, market knowledge, etc. As a general rule, the most common case of joint venture will be the agreement between a foreign and a local enterprise to set up a company in the market where the first one wants to enter. This way they can be both benefited from their own particularities such as the contribution of capital and technology, on one hand, and the environment knowledge and the ability to access to the market, on the other. However, in this type of collaboration models, there are different legal formulas that can be adopted. Therefore, it is not necessary, to set up a new company (non-equity joint venture or non-corporate joint venture) to embark on this new adventure and there are as many types of scenarios as complex is the reality that surrounds them.