Joint Venture Failures

A joint venture is a contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking (InvestorWords, 2008). Some of the most significant benefits gained from joint venturing include, a reduced risk of both companies resulting from capital and resource sharing, the opportunity to increase sales, and enhance technological capabilities through research and development underwritten by one party (INC, 2009). Joint ventures also provide a mode for entering foreign markets because the partnering companies join complementary skills and knowhow with local firms (Qiu, 1984). Companies often jump into joint venture agreements blinded by these benefits and often fail to research the risks involved in joint ventures (Park, 1996). Research has shown that half of all companies that enter into a joint venture fail, and only forty four percent of joint ventures that remain operational report meeting profit expectations (Rod, 2009). To limit these risks a company considering entering into a joint venture should look at case studies of failed joint ventures which have similar circumstances as the joint venture the company is currently considering (Lyles, 1987). There are common patterns to joint venture failures (INC, 2009). The first pattern happens when the joint venture partner’s ownership and strategy of the joint venture, doesn’t represent their risk and contribution to the joint venture (Chalos, 2002). Another pattern in joint venture failure happens when companies enter into joint venture agreements without a good knowledge of the market they are entering into. This causes a lot of unforeseen risks in the joint venture project. Finally, another pattern of joint venture failure happens when companies neglect to higher skilled, experienced employees to oversee the joint venture. Because of the lack of skill and experience very large mistakes are often made in joint ventures (Lyles, 1987).
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