The perks of merging two or more commercial enterprises into a joint venture comes with several tactical and strategic advantages. Joint ventures can either enhance each party’s existing business activities or build an entirely new business type altogether. Businessmen and entrepreneurs who intend to partake in a joint venture must hire a corporate law firm in India for unmatched and much-needed legal guidance throughout the process.
Based on the specifics of an agreement and resources invested by each party, the overall revenue and losses will be distributed amongst the parties. Besides, there are a bunch of other benefits of implementing a joint venture. Here are 5 benefits we believe all businessmen must be aware of:
- Common Business Goals and Strategy
Traditionally, mergers and acquisitions were considered as the go-to method of combining resources and working towards building a corporate superpower. Although, the legalities involved and intensity of workforce disruptions can prove troublesome. Additionally, the time investment to stabilize the entire business can also be a lot.
The initial stages of a joint venture call for a full-fledged agreement that states what each party is entitled to. Above all, it also defines the future scope of the services or product within a pointed-out target audience.
When 2 organizations have the opportunity to work towards a similar goal, it becomes much easier to pool resources and formulate a strategy.
- Increased Revenue Streams
Although this benefit profits all types of businesses, it is the small to medium enterprises that stand the most to gain. Partnering with a larger company on a joint venture proves to carve the path for a profitable revenue stream. In most cases, smaller businesses can earn more via these ventures, rather than by themselves.
This helps expand the smaller organization and chalk out progressive business goals that have a higher probability of being achieved. Most importantly, the bigger organization in the deal opens the doors to several revenue streams for the smaller organizations. This turns out to be a major factor in lifting the limitations that limited resources bring to SMEs.
- Enhanced Reliability and Credibility
This is a two-way process. Based on the expertise of either party involved, each party is liable to receive a significant spike in overall credibility and reliability within the market. There are two examples that can help lay emphasis on this benefit:
- Firstly, smaller businesses find it simpler to gain a higher degree of credibility by getting into a joint venture with larger businesses. This upgrades their brand value and proves valuable in establishing and acquiring a larger and long-term clientele. There are few better ways to gain greater marketplace visibility without a significant amount of investment.
- Secondly, based on the precise services and products offered by one company, the other party can gain greater value. For example, irrespective of the size of the organization, if company A is a leading global sports equipment distributor and company B is a trusted sports equipment manufacturer, company A will face an increase in the number of incoming clients.
This happens due to company B’s epic brand name and reliability in the market. Thus, it is wise to step into a joint venture after carefully examining the scope of benefits on the table.
- Sharing Intellectual Property Perks
When a technology-rich company enters into a joint venture with a financially and technically weak company, they have a lot to gain. In these modern times, technology is the driving force for many organizations. It helps simplify and optimize workflows to achieve faster and more accurate results in a broad spectrum of business activities.
The party involved that is not technologically gifted will gain access to resources that would otherwise require plenty of development time and investments.
Besides, as the two parties are in a joint venture, one would offer the best possible helping hand to their partner, as all the gains are anyway going to be shared.
- Increased Market Penetration
Joint ventures also increase the size of the market that a synergy can cater to. If the organizations are placed in different countries, each company gets access to an entirely new clientele in an alternative country. Even better, if the product/service of one company was not really provided effectively to the partner’s country, the annual turnover could be massive.
Everything from product portfolio, target audience, market penetration, resources, data access, etc. would face a spike for the greater good.
Additional benefits could be shared investments and overall expenses. This makes it easier for SMEs to survive in the market and increase their organizational lifespan. Even the level of competition reduces along with the ability to provide tougher competition to existing market players. Make sure you look for an experienced corporate and m&a advisory law firm in India to reduce the legal burden of this process.