When a company thinks of different avenues to expand its operations, the first thing that comes to mind isn't typically a joint venture. Instead, a company usually considers new marketing initiatives, traditional business development tactics, and cutting costs. However, joint ventures may offer the highest ROI of all.
Firms enter joint ventures for a number of reasons, including accessing difficult markets, reducing the risk of new initiatives, increasing the speed of innovation, and adding new value to existing customers. An intelligent and well executed JV can rapidly bring significant results to your business. Here are three reasons to enter into a JV.
Create A More Compelling Offering
The 2017 Microsoft-GE merger is a prime example of using a JV to increase the speed of innovation. This JV combined Microsoft’s Azure cloud computing platform with GE’s industrial data gathering Predix platform. As a result, GE’s industrial customers recieved access to a new suite of capabilities, making their products far more attractive to customers. And Microsoft had a new edge against larger, more established cloud players like Amazon.
JVs like this can provide a low-cost way to quickly develop new capabilities necessary to serve your clients or better compete with other firms.
Expand Your Reach
When looking to new markets, a JV can give you intimate knowledge of a market without taking the full risk of competing in an unknown environment. For example, global expansion can be difficult when there are significant language barriers and cultural differences, but through a JV it becomes much easier to manage these factors. JV partners can teach you about their market, help you avoid hidden pitfalls, and get you quickly up to speed on how to operate effectively.
Reduce Risk, Including Cost
JVs can also help reduce the costs of expansion. Yijian, the Chinese maker of the innovative artificial intelligence treadmill "Future,” recently created an enormous opportunity for themselves by entering into a JV with U.S.-based TOP JSEN Science & Technology, allowing CEO, Pan Yan Jun, to execute his vision of a healthier world with high quality, low-cost intelligent exercise products.
The company experienced solid growth in China but its goal was always growth in the U.S. Instead of taking on the entire cost of launching into the U.S. on its own, a JV allowed them to take advantage of their partner’s infrastructure, relationships and marketing capabilities. The company launched its groundbreaking treadmill to a new group of consumers around the world, as evidenced by its recent debut at ISPO Munich, and growth has taken off from there.
If the cost to achieve your goals is prohibitive, using a JV as Yijian did can allow you to take significant steps forward without shouldering the entire cost of the initiative.
The Outcome
A fun, simple example of a JV is when Taco Bell and KFC locations were built together. The venture allowed the restaurants – which are both currently owned by Yum! Brands – to minimize labor cost. While this type of JV was easier to execute because both brands are owned by the same company (PepsiCo at the time of the first dual-brand location), the important takeaway is how two companies were able to bring their best assets together, create synergy and lower their cost. That encapsulates the best reasons for a JV.
However, JVs aren’t right for every situation. You need to weigh the pros and cons and make sure you’ve considered the challenges of collaborating with another organization.
If you decide a JV is right for you, there are a few questions you need to consider: How do your partner’s capabilities complement your own? How will you both define success? What are you offering them in the relationship? The answer to that last question needs to be more than just extra sales. No company wants to feel like an extended sales force of another firm. You need to create a mutually beneficial relationship. If you can effectively answer each of these questions, your company may be ready for a JV.