As a result of the increased globalisation of the world’s markets, firms are looking to capitalise on the availability of suitable new business areas wherever possible. Accordingly, commercial joint ventures (JVs) have risen in stature and frequency in recent years. Today, JVs have become an important feature of the modern corporate landscape.

JVs serve to marry firms both domestically and internationally, enabling companies to explore and develop their functions, and allowing them to internationally source and distribute their goods, services and intellectual property. The recent economic downturn has only served to make JVs more popular, as they allow firms to capitalise on strategic opportunities, via alliances, which would have been unavailable to them otherwise. JVs have become particularly popular in capital intensive industries such as oil and gas exploration, mineral extraction, and the metals processing sectors.

For firms embarking upon a JV, there are a number of clear advantages. Among these is providing parties to the venture an effective and timely entry into a new and potentially lucrative market. This is particularly important for small and medium enterprises (SMEs) which may not otherwise be able to access an international market without a JV. This democratisation of international markets is also pivotal to SMEs as it allows participants to dramatically reduce their financial outlays by teaming with one or more partner companies. Capital and resource sharing enables firms to not only save money, but also to reduce risk levels.

Junior firms within a JV are afforded the opportunity to work with larger corporations, giving them the chance to develop, manufacture and market new products, often in a new market. Access to new and emerging markets can be a key motivator for businesses looking to enter a JV, as increased sales and more sophisticated research and development capabilities can be pursued when more than one firm is engaging with a market.

Jan-Mar 2015 issue

Richard Summerfield