Joint Contributions. In a joint venture, the enterprise customer and the service provider each contribute capital, intellectual property, personnel and other resources to design and implement a new service business. By definition, a joint venture is a joint enterprise – regardless of form – in which at least two partners share assets, management and profits and losses within an agreed joint commercial mission.
Control by Organizational and Contractual Governance. A joint venture gives the enterprise customer direct control over the operations and services that the JV provides. However, this control comes in return with additional expense of structuring the establishment of the JV and in terminating it.
Legal Environment for Joint Ventures. Legal considerations might make a JV more attractive than a classic outsourcing agreement. The enterprise customer’s direct control may be necessary to ensure compliance with laws governing citizenship or residency of personnel (particularly in governmental or military service industries), licensed professions (such as architecture, accounting, engineering and law), or to accommodate securities disclosure laws (such as the Sarbanes-Oxley Act of 2002 in the USA) where the enterprise customer wants to hire a service provider that derives a majority of its revenues from that customer and is thus deemed integrated into the customer’s reporting obligations.
Joint Venture as an Exit Strategy. A joint venture could be an exit strategy for an enterprise that has developed unique tools or processes for performing a generic industry operation, but where its service provider partner anticipates new business opportunities in the market. In this scenario, the enterprise customer gives up its exclusivity in the unique tools and processes, and probably transfers some personnel as well, so that it can reduce costs of continuing to maintain such tools by spreading costs over a hopefully broad range of industry players.
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