This increases the revenue and profits of both companies many folds. Foxconn is a contract electronics manufacturer, while Apple is a products and service company.įoxconn holds expertise in manufacturing, while Apple holds expertise in supply chain management and software development.īoth companies are able to leverage their expertise to create value for both themselves and the consumers. One company is better at making products, the other is better at selling them, by combining both of their expertise, the companies are able to increase their revenues, quality of products is also improved drastically, while costs of products are also reduced dramatically.Įach of the partner companies is able to combine its skill set to achieve the goals of the Joint venture.įor example, Foxconn and Apple Joint venture. The joint venture also allows for shorter production lead times, which means a company is able to change its production goals relative to the demand and consumer taste which also increase the revenues and profits for the company. The combined expertise of both companies also allows for better management of resources which leads to a cost reduction. This is because both companies can share the equipment and software they are using for research and development. There is also a huge reduction in fixed costs such as research and development due to the joint venture formed by both companies. The other way Joint ventures reduce the cost of operation and production is by implementing technology changes that would have been expensive to implement alone for both partners. See also What is a Bank Account Title? (Explained) In economics, this is called economies of scale, which is that a higher number of production numbers of the same product can lead to a lower cost per unit of the product. The scale achieved by the combination of resources of both companies can help achieve great cost saving. Joint ventures are a great way to reduce costs. This way both of the partners can unlock new growth segments. This scale allows for better negotiation terms with the suppliers.īy pooling both of their resources, companies are also able to produce new and innovative products that help them capture more of the market share. It also allows both partners to operate at a much larger scale than any of the single partners would be able to only own their own. The pooling of resources also allows both companies or partners to minimize risk while maximizing reward. The joint venture allows both partners in the Joint venture to pool their best resources that will greatly improve the operational efficiency of the whole project. The other company may have a great distribution network, but its manufacturing facilities are not great. One company may be great at manufacturing a product, but not so great at selling that product. The joint venture allows for both companies to leverage their resources to achieve the goals of the joint venture. The three biggest reason companies form a Joint venture is explained in much more detail below: Pooling of Resources For example, many western companies form joint ventures to get access to the Chinese market. Some companies have to form joint ventures to get access to that market. See also What is the Cost to Income Ratio? Definition, Formula, Calculation, and Interpretation Both car companies have agreed to jointly develop electric vehicles to help reduce the cost of developing electric vehicles. One of the examples of a joint venture is the recent partnership announced between General Motors and Honda. It can be a limited liability company, a general partnership, or any other type of JV. Joint ventures are a kind of partnership, but the legal status of the JV really depends upon both the partners and how they want to structure it. It really depends upon both parties how they divide the new venture’s share between them. One company may keep more of the joint venture than the other one. A joint venture also reduces the cost of developing new technologies.Ī joint venture is a completely separate entity from both parties’ other businesses while the profit, losses, and any associated costs are borne by both parties.Ī joint venture is not necessarily a straight down 50-50 venture. This helps both parties or businesses collectively manage the challenges in their particular industry while also improving the chances of decreased losses. A joint venture or JV is defined as a particular business arrangement where two or more parties agree to use their collective resources to set up a particular venture.
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