Joint venture (JV) is a legal entity formed between two or more parties to undertake an economic activity together. The JV parties agree to create, for a finite time, a new entity and new assets by contributing equity. They then share in the revenues, expenses, and assets and the control of the enterprise.
The venture can be for one specific project only - when the JV is referred, more correctly as a consortium (as the building of the Chunnel) - or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for ‘’one-time’’ contracts. The JV is dissolved when that goal is reached.
Reasons for forming a JV are:
- reducing 'entry' risks by using the local partner's assets
- inadequate knowledge of local institutional or legal environment
- access to local borrowing powers
- perception that the goodwill of the local partner is carried forward
- in strategic sectors, the county's laws may not permit foreign nationals to operate alone
- access to local resources through participation of national partner
- access by one partner to foreign technology or expertise, often a key consideration of local parties (or through government incentives for the mechanism)
- again, through government incentives, job and skill growth through foreign investment, and
- In coming foreign exchange and investment.
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