JVC CONSIDERATIONS 1

JVC Considerations

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Describe and discuss some of the general considerations that should be considered in the

establishment of joint venture company (JVC).

A joint venture is formed when two or more companies agree to collaborate on a

common goal by pooling their resources for a set period of time (Gaughan, p.532). Companies

that get into joint venture agreements preserve their own private businesses while still working

towards a common purpose. They are partners in the loss and profit of the firm, and the

success of the goal is measured by this (Gaughan, p.533). To achieve this, organizations must

consider all potential obstacles such as cultural differences, team appointment or removal, and

the size of the company for this agreement. So that corporation can run their own operations

while also working on the stated joint aim. In this thread, the discussion will be on the different

considerations for the establishment of a Joint venture company by discussing every aspect’s

pros and cons.

For establishment of a Joint Venture Company, we should consider all the possible tasks

that we can achieve and all the possible hurdles that can affect the progress of the work .We

will go through all of them and then will analyze if the company should participate in Joint

Venture agreement. The main motive of Joint Venture Company is the working of two or more

companies on the same goal having more resources (Gaughan, p.534). For this purpose, the

company must have available resources because of the combined resources of both

organizations to fulfill the purpose of the venture. One company may have a well-established

manufacturing process, whereas another may have stronger distribution channels [1]. The

appointment and removal of these resources and management of the teams of experts is also a

crucial part of the company.

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Wealth of shareholders also matters in the establishment of a successful joint venture

company. According to a research made by Dutch public businesses, that was conducted to

examine the shareholder wealth implications of 233 joint venture announcements made

between 1987 and 1998 (Schut & Van Frederikslust, 2002). According to the research, creating

joint ventures has a favorable influence on the market value of Dutch companies on average

(Schut & Van Frederikslust, 2002).

Type of joint venture company is another key factor that must be considered in the

decision-making process. Horizontal joint venture and Vertical joint venture are the two

different types of joint ventures (Gaughan, p.536). Because the wealth of shareholders also

matters in this agreement (Gaughan, p.535). A horizontal joint venture is when the agreement

is between companies having the same line of production (Gaughan, p.536). Vertical joint

venture, when agreement is between suppliers and buyers (Gaughan, p.536). As the parties of

agreement can be seen, so the capital invested on the joint venture will be changed. Johnson

and Houston examined a sample of 191 joint ventures from 1991 to 1995.3 They classified their

sample into vertical (55%) and horizontal (45%) joint ventures (Gaughan, p.536). The data

showed that the average positive gain from joint ventures was 1.67%. The profits appear to be

shared among the venture participants in horizontal joint ventures. The average return on

vertical joint ventures was slightly higher—2.67% (Gaughan, p.536). As a result, Johnson and

Houston recognized that when two firms formed a joint venture, particularly a vertical

collaboration, the profits were greater.

Now let us look at the basic hurdle for a joint venture that companies can face is

“Cultural difference” for internal national joints. Cultural differences have repeatedly been
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identified as a significant source of risk for international joint ventures (IJVs). Cultural

differences among international joint venture (IJV) partners may result in considerable

disagreements in technology, norms, and emotions. If these discrepancies are problematic,

business dealings in a joint venture can usually be reduced at a lower cost (Gaughan, p.533; Liu

et al., 2020).

From a biblical perspective, the concept of unity and collaboration among diverse

individuals or entities is deeply rooted and reinforced by powerful verses. Proverbs 27:17

states, 'As iron sharpens iron, so one person sharpens another' (ESV Bible, 2001). This verse

emphasizes the transformative power of individuals coming together, much like companies

forming joint ventures to achieve common goals. Just as iron becomes sharper through contact

with other iron, joint ventures can lead to growth, refinement, and success as different entities

collaborate while preserving their distinct identities. The Bible's teachings of unity, shared

purpose, and mutual support resonate with the values that underpin successful joint ventures,

where diverse resources and talents combine to achieve remarkable outcomes.

References:

English Standard Version Bible. (2001). ESV Online. https://esv.literalword.com/

Gaughan, Patrick Anthony. Mergers, Acquisitions, and Corporate Restructurings. 6th ed., John

Wiley & Sons, 2015.

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Hargrave, M. (2023). Joint venture (JV): What is it and why do companies form one?

Investopedia. https://www.investopedia.com/terms/j/jointventure.asp#:~:text=To

%20Leverage%20Resources,might%20have%20superior%20distribution%2

Liu, J., Cui, Z., Feng, Y., Perera, S., & Han, J. (2020). Impact of culture differences on

performance of international construction joint ventures: the moderating role of conflict

management. Engineering, Construction and Architectural Management, 27(9), 2353–

2377. https://doi.org/10.1108/ecam-02-2019-0111

Schut, G. H., & Van Frederikslust, R. A. (2002). Shareholder Wealth Effects of Joint Venture

Strategies: Theory and Evidence from The Netherlands. Social Science Research

Network. https://doi.org/10.2139/ssrn.302007