Why are joint ventures popular?
Joint ventures have become popular for a number of reasons.
- Gain access to markets
One important marketing reason is to gain access to markets. Nearly all of the developing countries, and many developed countries, require some degree of local participation for operating in their country. Mergers with distributor companies or companies which already have well-established local distribution may provide rapid market access and distribution to foreign companies entering a country.
- Broaden the line of merchandise
Sometimes companies join forces in order to broaden the line of merchandise that they have available, thereby gaining marketing efficiency and better public image.
- Gain valuable local knowledge
Another market reason for joining ventures is that local firms possess market information and the marketing know-how, which would take years for a foreign company to acquire. Such participation minimizes the risk of market failure and speeds the marketing effort.
- Financial reasons
Joint ventures may also arise for financial and manpower reasons. Financially it is sometimes desirable to merge with foreign companies because the merger provides access to local capital markets and combines the resources and fund raising capabilities the companies have. It may also give access to a higher quality and more capable managerial manpower.