question_answer 16)

What are the benefits of entering into joint ventures?

Answer:

When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture. The major benefits of joint ventures are as follows (i) Increased Resources and Capacity When two firms come together, it enables the joint venture company to grow and expand more quickly and efficiently as the new business pools in financial and human resources. It is able to face market challenges and capitalize new opportunities more effectively. (ii) Access to New Markets and Distribution Networks When foreign companies form joint venture with companies in a host country, they gain access to the market of host country. They can also take advantage of the established distribution channels i.e., the wholesale and retail outlets in different local markets which may be very expensive for them otherwise. (iii) Access to Technology Most businesses enter into joint ventures to get access to an advanced technology which is not possible or economically feasible to be developed on their own. Technology adds to efficiency and effectiveness, thus leading to reduction in costs and superior quality products. (iv) Innovation Products become outdated after sometime and demand for them starts falling. Consumers have become more demanding in terms of new and innovative products. Joint ventures enable companies to come up with innovative products because of new ideas and technology acquired from the partner in the joint venture. (v) Low Cost of Production When international corporations invest in developing countries through joint ventures, they are able to benefit from low cost of raw materials and labour. The international partner is thus able to produce the products of required quality and specifications at a much lower cost than what is prevailing in the home country. (vi) Established Brand Name When two businesses enter into a joint venture one of the parties’ benefits from the other's goodwill already established in the market. In such cases, there is a ready market waiting for the product to be launched which saves expenditure on marketing activities otherwise required to launch a new product.