Unit 3-4: Advantages and Disadvantages of Joint Venture Marketing

Advantages of Joint Venture Marketing
– Sharing Assets
– Sharing Critical Expertise and Experience
– Sharing Costs
– Sharing Business Risk
– Access to New Markets
– Diversification
– Flexibility
Sharing Assets
– Share collective tangible and intangible assets in pursuit of a common goal
– One party may supply the cash funding, while another party supplies real property of property rights, equipment, supplies, and/or access to other assets
Sharing Critical Expertise and Experience
– Parties can share management experience and expertise, industry knowledge, technological capabilities and any other expertise or experience necessary to fund the business
Sharing Costs
– Allows participants to undertake a venture that neither could afford independently
– Research and development, labor and management, distribution, supply and administrative costs as a percentage of revenues may be significantly reduced for each party
– Economies of scale in which per-unit costs may be reduced due to efficiencies reached at larger joint production levels
Sharing Business Risk
– Participants share the business risk of creating a new product or service or entering into or expanding a business
– Individually, each party my not be able to take the risk to develop necessary assets or resources that it currently lacks as the possibility of the new investment may not yield enough revenue to make the development costs worthwhile
– Sharing resources and costs can help ease the burden of the risk
Access to New Markets
– Able to access geographic or high-growth markets that they would not otherwise have access to individually
– Both parties may pool their access to suppliers or customers
– Have greater bargaining power in negotiating contracts for the distribution or supply contracts, or agreements for the purchase of goods, supplies and services than they would have individually
Diversification
– Helps to reduce a participant’s business risk across its product or service lines, and may also increase the participant’s access to resources (such as superior talent) and more capital if the profits and/or assets of the joint venture grow significantly
– Potential to improve cash flow and profitability of the co-ventures, either directly through the venture or indirectly via improvements or enhancements to their own products, services or operations
Flexibility
– Maximum flexibility in creating the entity and establishing a relationship that works for them
– Allows each party involved to undertake a new business opportunity while maintaining their respective identities and existing business operations
– Allow the earnings, profits and losses of the joint venture to flow through partners’ financial statements, which would allow the joint venture’s earnings or losses to provide benefits to the partners from an income or tax perspective, as long as such earnings and profits are treated consistently among the partners
– Form a strategic alliance, which would allow them to manage their financial positions in the joint venture individually
Disadvantages of Joint Venture Marketing
– The objectives of the venture are not 100% clear and communicated to everyone involved
– There is an imbalance in levels of expertise, investment or assets brought into the venture by different parties
– Different cultures and management styles result in poor integration and co-operation
– The partners don’t provide enough leadership and support in the early stage

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