What is a 'Strategic Joint Venture'

A strategic joint venture is a business agreement between two companies to work together to achieve specific goals. Unlike a merger or acquisition, a strategic joint venture does not have to be permanent, and it offers companies the benefits of maintaining their independence and identities as individual companies while offsetting one or more weaknesses with another company's strengths. In a strategic joint venture two companies may share ownership, risks and returns. Strategic joint ventures may be seen as a strategic alliance, though the latter may or may not entail a binding legal agreement while the former does. A strategic joint venture may be considered a subset of a strategic partnership.

Breaking Down 'Strategic Joint Venture'

There are a number of reasons why two companies might choose to enter into a strategic joint venture. For one, strategic joint ventures allow companies to pursue larger opportunities than they could alone. One frequent use for such a business structure is to establish a presence in a foreign country or gain a competitive advantage in a particular market. Strategic joint ventures have helped many companies enter emerging markets that would be hard to break into without the benefit of local intelligence and connections. In such arrangements, one company typically contributes more to operational costs (such as with a cash investment) and the other contributes know-how and operations. The share of the venture owned by each company will depend on their contributions. The most successful strategic joint ventures feature founding members firms that have equal stakes.

Strategic joint ventures may also help companies achieve greater efficiencies and scale by combining assets and operations. They also may help companies access unique skills and capabilities that they would otherwise not be able to develop themselves, and also allow them to share risk for investments or projects. Strategic joint ventures may also help companies gain access to another company's technology, increase revenues, increase their customer base or expand product distribution, among other possibilities.

Strategic Joint Venture Structure

While strategic joint ventures can take a variety of structures, most are incorporated. They are their own legal entities in that they operate independently of the founding member companies. Some strategic joint ventures are structured to dissolve when a project is completed or an objective is met. They may also enter into contracts under their own name, such as to acquire rights. All strategic joint ventures have separate liability from their founding member companies and can be sued (or sue) in courts.

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