A joint venture is a subsidiary, jointly funded by two separate companies. The two companies act as partners and channel both know-how as well as capital into that subsidiary. It is important to note, that the joint venture acts autonomously and in most cases independently. Goals and expectations of both partners should be clearly defined and communicated upfront in order to avoid misunderstandings.
The advantages of a joint venture are as follows:
- Shared risks (it makes sense to enter into a joint venture whenever the risks of operating on your own in a given market are too high)
- Increased synergies through use of resources of both partner-companies (it makes sense to enter into a joint venture whenever you lack certain resources, i.e. skills, experience or capital, to operate sustainably in a given market)
Sometimes you also have legal barriers requiring to set up a joint venture: China is a good example: Until very recently the Chinese government did not allow foreign investors to operate in China independently but only through cooperations with Chinese companies, i.e. through joint ventures in which the foreign investor was not allowed to own more than a 50% stake. However, this rule is now about to be dropped.
Hope this helps!