A joint venture is formed through an agreement or legal partnership between firms. Companies will separately exist on their own and a new separate entity will be formed for a specific task or business venture.
Advantages:
– Can share the set-up and running costs
– Can learn from each other
– Can focus on relative strengths
– May reduce political or cultural risks
– It is better than going it alone and then competing
Disadvantages:
– Can often lead to disputes
– May give access to strategic capabilities and eventually allow the partner to compete in core areas
– There may be a lack of commitment from each party
– Requires strong central support which may not be provided
– Transfer pricing issues may arise and performance appraisal can be complicated