Competition is prevalent throughout the capital markets, but sometimes, it makes sense to form partnerships, even with rivals. A joint venture investment is essentially a business partnership in which both parties are interested in accomplishing the same goal. It is a formal agreement in which the up-front investment and eventual profit distributions are clearly stated. Joint ventures often occur between two companies that operate in the same industry or with business models that complement one another. It is possible that a joint venture investment can be formed domestically or internationally, and the agreements could last for the short or long term.
A joint venture investment is a formal agreement that typically requires the services of lawyers in order to be completed. The partnership can be equal, where both parties hold a 50-percent stake, or there could be a majority and minority partner. Depending on the terms of the deal, a joint venture investment may be made with cash, stock, or a combination of the two. A common goal should be outlined in the agreement so that the role of each party is clear.
Certain capital-intensive industries tend to generate more joint venture investment partnerships than others. Energy, for instance, is a sector where large sums of money, drilling expertise, and sophisticated equipment are needed. Some oil and gas drilling opportunities are extremely vast and compelling. Partnerships are a common way for companies to share resources and create more time and cost-efficient systems for drilling natural resources out of the ground and ocean floor for lucrative profits.
Some joint venture investments take on a life of their own. For instance, two companies might agree to a joint venture investment to create a partnership where unique business lines are combined and complement one another. In technology, such a partnership might include a software provider and a hardware company. It is possible for the joint venture to be a long-term commitment where separate operations are created and staff are devoted to the deal. Meanwhile, each of the companies continues to operate core operations separately.
Overseas joint venture investments allow businesses to gain footholds in other countries without having to develop operations from the ground up. It allows the company from a visiting nation to leverage the expertise of the partner in order to compete more effectively. Greater regulatory requirements are likely to be necessary in a cross-border partnership versus a domestic venture.