Venture is an agreement between two or more parties agreed to acquire their resources for the successful completion of a specific tasks. All the concerned parties are responsible for profit and loss of the venture also the cost related to it. Like as other business entity it is also totally separated from its participants. To start a new venture involves tremendous risk and challenges. Some strategies ought to be built with the anticipated challenges for starting a new venture. Generally, new ventures needs finance human resources and technology to face the challenges and uncertainty. Mobilization of finance required for new venture is a big challenge for an entrepreneur. The next biggest challenge is to acquire skilled and talented human resources along with latest technologies to beat the huge competition in the market.
Joint venture is a business organisation where two or more individual, companies join hands to overcome the individual hurdle and gain a tactical advantage over the competitor in the market. Venturer join hands to undergo a pre determined task in the form of new project of an existing firm or a totally new firm.
The concept of joint venture is as old as Industrial revolution. In the year of 1800 joint venture concept is used first time in their history in mining and rail road projects. In 19th century four Middle East Company formed ARAMCO through joint venture. But the history of joint venture in India, it is also not new phenomenon. Hindustan Aeronautics ltd has the highest number of joint venture in Pan India and across the globe.
Consortium joint venture is a burning topic. It is also termed as co-operative agreement. In case of construction business where huge amount of capital with technological support is needed, consortium joint venture plays a crucial role. Huge requirement of finance is financed by two or three financer through a consortium mode of financing. The same is applicable for knowhow requirement also. Most of construction contract or aeronautical project are the by-products of consortium joint venture. The said process is easily dissolved when venture reach its goal.
Although dictionary meaning of venture of is hazard, it lasts for a long period of time after meeting all kinds of risk associated with it. Joint venture is not an enterprise like going concern it last for a finite period only. Three most common types of joint venture are insider joint venture, outsider joint venture and marketing joint venture. Along with this three rests are discussed here.
1. Marketing Joint Venture:In this case two or more marketing companies joint hands to promote the product or services equally. They enjoy the benefit of cost cutting by combining their advertisement and promotional expenditure. Most of the multinational companies implement this approach to get competitive advantages against their competitor and enjoying an extra mileage.
2. Insider Joint Venture:When any one member of the enterprise will have an access to all information of the joint venture then it is called insider joint venture.
3. Outsider Joint Venture:In case of the outsider joint venture each venturer is in the charge of a particular task related to the venture. Venturer’s duty is limited to that only.
4. Limited Co-Operation:When one business agreed to go with another business in a limited way like as Tata Docomo tried to use sell their sim card through the distribution channel of Hindustan liver, then it will be treated as limited co-operation. In this case venturer will set their future course of action at an agreed manner.
5. Separate Joint Venture:To carry forward a particular contract one separate joint venture can be started with the existing platform. Each venturer will have an own share and defined work portfolio. This is very flexible in nature and also fruitful.
Salient features of joint venture are as follows:
1. Common Agreement:joint venture came into force after an agreement between two or more firms. This agreement is done to undertake a business for a specific objective.
2. Joint Control:Joint venture is controlled evenly by the co-venturers. Assets, administration and operation of the business are controlled jointly by the co-venturers.
3. Polling of Resources:Required resources from capital to expertise of the entire organisation for large scale production are pulled by the organisation from open market.
4. Profit Sharing:If the venture will continue for a long term then profit and loss of the venture are shared by the co venturer as an agreed ratio. Otherwise the same is shared among them at the end of the venture.
5. Adoption of New Technology:The main motto of the joint venture is to capture the latest know how, the best techniques of production and marketing of a particular product or services. Co-venturer are generally wish to get the latest know how to improve the productivity which leads the reduction of cost and enhance the overall profitability of the organisation.
6. Dissolution of Venture:Once the purpose of the venture is fulfilled the agreement between the co venturers comes to an end and joint venture is dissolved after settlement of co venturer’s account.
7. Nothing At the End:Any stock at the end of the venture if remain that is either disposed off or taken over by the venturer. The balance of other assets is also handling on the above way. closing liability of the venture are paid off or shared by the co venturer at the end.
1. Finance:The biggest challenge of the co-venrturer is obtaining finance from the market to start a new venture. Most of the financial institution complicated the terms and conditions of issuing loan from the bank after some financial debacle in the market. So find the parallel source of finance from friends’ relatives and others are a tough challenge to the co venturer. The very next greater challenge in the field of finance is reaching the break even, maintaining cash flow, touching bottom line, reducing cost. These are the various issues related to finance for which new business man steps back.
2. Human Resource: After finance, the next greater challenge is finding skilled human resources for running the business efficiently. Recruiting proper human resources from the mass and providing training, appraising performance giving wages and salary for motivating the work force is not an easy task for the organisation. Organisation may face the unexpected challenge to solve the grievances of sexual harassment, labour turnover and works man compensation due to accidents at the work site etc.
3. Supplier: Choosing the right person from group of supplier is another challenge to the new venture to meet their production needs. Quality of material, price of material and carrying cost of material directly depends on the specification of supplier and indirectly it relates to the profitability of the organisation. Venturer should have profound knowledge about specification of material, quality of material, labelling of material before selecting the supplier for the organisation and also have a pure clarification regarding damages during transit.
4. Taste and Preference of the Customer:Due to the globalisation an array of product is available in the hands of the customer. Taste and preference of the customer change from time to time; new venturer should know the pulse of the customer to enhance the volume of sales and quantum of profit for the organisation. Without considering the growing needs of the general public longevity of the business will be in stake.
5. Raw Materials:Cost of raw materials depends on the scarcity, competition and seasonal fluctuation. Bulk purchases make it easy to reduce the total cost of material but the same is not possible for perishable product. The new business man ought to consider all these complication regarding price, storage, maintenance before purchasing the raw material from a specific source for the organisation.
6. Latest Technology:Adoption of new technology improve the quality, productivity and profitability of the organisation same time it destroy the prior investment. Incorporation of new technology hire the huge expenditure through cost of knowhow, cost of material, cost of skilled labour, cost of training, cost of capital etc. So these are issues new entrants should consider before taking the right decision otherwise may face a big challenge.
7. Decision Making: A decision can alter the fortune of the enterprise. Decision for introduction of satellite phone or change in the test of coca cola makes a huge loss to the organisation. An establish company can absorb the effect of imbalances but it is too difficult for the new entrepreneurs. A wrong decision gives an opportunity to the competitor to make counter strategy and huge loss to the organisation. Proverb says, switch in time saves nine. A perfect decision in time may save the business from several difficulties and supply the fuel in the race.
8. Government Policy:Change in government policy may create difficulties to the entrepreneur; it is also true to the country. Imposition of anti dumping duty may facilitate the local entrepreneur. Where introduction of goods and service tax brings negative impact on certain industry. All the policy and approaches taken by the government from time to time may change the entire business structure as a whole. Entrepreneur should consider properly avoiding this type of future challenges.
9. Competitors: Competitor is one of the forces of the porter’s five forces. Competitor’s strategic perfection may be the causes of de motivation to the new entrepreneur to enter into the business world. Economies of scale, competitive advantages with brand image, work force diversity financial strength are always enjoyed by the existing entrepreneur and are capable of eliminating outside threats, but it is difficult for the new entrepreneur to tackle various kinds of threats like these.
10. Interest Rates:Increasing rate of interest always discourages the new entrepreneur to start the venture and a customer to buy a product which leads decrease in turnover and profitability. Higher rate of interest also detrimental to interest of economic growth and prosperity for which economies of scale may not be entertained by the organisation. It is the barrier of commencement, procurement, production and distribution of the best product and services to the society due to financial scarcity.
11. Political Environment:A stable political environment is always helpful for existing as always new comers for their business. However, the unstable political ambiance may have negative impacts on the commercial environment. Unstable government enhance the risk of quick changing concept of rule, regulation and government policy. New venturer should be ready to overcome these difficulties from diverse front.