Why Joint Ventures Die So Quickly

Abstract

Joint ventures have an attractive quality in turbulent times, since they often reduce or exploit the variance of the market by stabilizing competition, especially in industries with excess capacity. Reasons given by chief executive officers for choosing joint ventures vary from the benefits of sharing risk or exploiting economies of scale to the exchange of technologies and abilities. The most common reasons, however, are fear, profit, and learning. By requiring mutual commitment of investment, joint ventures provide incentives for both parties to perform according to their obligations. Enhanced profitability can be derived from the cost reduction or the creation of new products and technologies. Sharing knowledge is particularly important in ventures between firms from different industries that seek to pool their distinct competencies. A joint venture is especially difficult simply because it is under the ownership of more than one firm. Tables.