Joint ventures: advantages

Joint venture is the most important form of organization of international activity of any state. Such enterprises are created in the form of joint ownership or licensing, which allows foreign participants to use trademarks or patents of trade secrets, to carry out the production process in exchange for royalties or commission payments.

The creation of a joint venture involves the conclusion of a contract with a foreign company for the production of its products in this state. At the same time, the national enterprise provides management experience and marketing of finished products. Concluding the management contracts, the enterprise acts as a consultant for a foreign company. If there is a joint ownership, the national company agrees to the sale and production of goods manufactured together with a foreign enterprise, which allows to reduce new costs and distribute risks.

Any joint venture in the field of sales or production should clearly represent the consequences of creating an overseas organization with the participation of foreign partners. The creation of a joint venture is advisable if there are the following prerequisites:

- an industrial enterprise does not have sufficient capital or its production personnel is adequately prepared for performing independent operations abroad;

- The company is given the opportunity to cooperate with an enterprise that already has a strong position in the market;

- the enterprise does not have the necessary quantity of raw materials, raw materials or components to expand the production of competitive goods;

- the company does not have modern technologies and equipment, but it has the necessary labor resources, raw materials and materials for the production of competitive modern products, which can find the maximum sales in the country with the production.

Some states prohibit the creation of companies that are wholly owned by foreign missions, and to enter the markets of these countries, it is necessary to organize joint ventures.

Advantages of establishing joint ventures

Affiliate activities are the most beneficial for small companies seeking to win several markets, however, they do not have sufficient financial resources for this. In practice, such enterprises do not have personnel that meet international requirements, they do not possess information on the capacity and the conjuncture of the external market. In exchange for attributes of successful foreign trade activity, companies offer technical knowledge.

Feeling a lack of financial assets, the company can work together with several foreign partners, by selling shares of the company. In this case, it should be borne in mind that such joint ventures can be controlled only by having more than 50 percent of the share capital.

It's much easier to enter the foreign market in partnership with a local firm. And for some countries the only opportunity to work in the market is provided only by joint ventures.

The work of the joint company can give a special effect in the presence of an intermediary who has an established system of relations with consumers and has an energetic business reputation in its market.

During the economic crisis, the creation of joint ventures can greatly help the country's industry and will overcome difficulties, which is of great importance for the state economy.