Shared ownership, shared returns and risks, and shared governance is the defining features of a joint venture (JV), which is a corporate company formed by two or more partners. Joint ventures are pursued by businesses for four main reasons: to enter a new market (especially an Emerging market), to achieve scale efficiencies through the consolidation of assets and operations, to divide the risk associated with large-scale investments or projects, or to gain access to specialized skills.
New research by Reuer and Leiblein casts doubt on the idea that partnerships can help keep losses to a minimum. Water Street Partners’ Gerard Baynham argues that despite the bad coverage, joint ventures may actually be more profitable than totally owned and controlled affiliates. In his words: “Our most recent investigation of over 20,000 business records kept by the United States Department of Commerce (DOC) led us to a different conclusion.
The DOC data shows that U.S. corporations’ international joint ventures earned an average return on assets (ROA) of 5.5 percent, while the affiliates of those companies (of which the great majority are wholly owned) earned a ROA of 5.2 percent. Foreign direct investment in the United States follows the same pattern, however with far more dramatic results. The average return on investment for U.S.-based joint ventures was 2.2%, whereas the return on investment for U.S.-based affiliates that were totally owned and controlled was only 0.7%.”
Even while most joint ventures are legal corporations, “unincorporated” joint ventures do exist; these are common in the oil and gas business. When two or more people form a short-term collaboration for the goal of completing a certain project, they are said to be “co-venturers” and their partnership is considered a joint venture.
Legal Definition
It is company law that provides the best framework for defining “joint venture” in European law. “Joint venture” translates to “association d’entreprises,” “entreprise conjointe,” “coentreprise,” or “entreprise communal” in French.
Risks
A joint venture is a high-stakes business relationship. Different determinants of conflict and opportunism in joint ventures have been studied in the business and management literature, with a focus on the impact of parent control structure, ownership change, and a volatile environment.
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How Does Joint Venture Work?
To elaborate on our definition of a joint venture, a joint venture agreement permits you to work with another party (or parties) on a specific project. The construction, entertainment, and technology industries frequently form partnerships.
Simply put, business owners form joint ventures so that they can expand into untapped markets, use one another’s strengths, and save money. Because there is both collaboration and freedom in a joint venture, the concept might be difficult to grasp.
In a joint venture, two or more entities work together toward a common goal. However, beyond the limits of the joint venture, the parties have no legal obligations to each other.
What’s the Dissimilarity Between a Partnership and a Joint Venture?
When two or more people or organizations work together on a project, they are said to be engaging in a joint venture. Partnerships are groups of people who work together in business with the goal of producing a profit. Incorporated limited partnerships are also included.
Battery Materials Joint Venture Between Volkswagen Group and Umicore
Battery manufacturer PowerCo, part of the Volkswagen Group, and Belgium’s Umicore, a leader in circular materials technology, have formed a new firm to manufacture precursor and cathode materials in the European Union.
From 2025 onwards, the joint venture is obligated to provide essential materials to PowerCo’s battery cell plants in Europe. By the end of the decade, we want to have produced enough cathode material and their precursors to power approximately 2.2 million electric vehicles.
In an unannounced location, the two firms intend to invest $3 billion (€3 billion). The joint venture’s name and location for production remain undecided, as noted in the press statement.
However, CEO Mathias Miedreich was quoted by Automotive News Europe as saying that Umicore’s brand-new battery materials plant in Nysa, Poland makes perfect sense from an industrial standpoint. Additionally, he stated that a choice would be made “quite rapidly.”
The joint venture is slated to begin producing goods in 2025 to supply PowerCo’s Salzgitter battery production, with an anticipated 40 GWh of annual capacity by 2026. It is anticipated that the annual production capacity of the JV will increase to 160 GWh by the end of the decade, based on the evolution of the market and demand.
In accordance with the provisions of the agreement, the JV will be run by both parties jointly, and all expenses, investments, revenues, and profits will be split evenly. Volkswagen Group is certain that the joint venture will provide both partners with a considerable first-mover advantage in Europe’s rapidly expanding e-mobility market.
PowerCo’s unified cell approach in Europe will be bolstered by Umicore’s access to innovative, sustainably sourced, and custom-tailored high-performance battery materials at affordable prices made possible through this agreement. Furthermore, PowerCo will be able to take advantage of Umicore’s established production capabilities and upstream experience.
In exchange, Umicore will have guaranteed access to a substantial portion of the European demand for EV cathode materials at above-market rates of return, as evidenced by the solid take-or-pay obligations. The primary technological factor influencing battery performance and the primary cost driver is the cathode active materials.
By 2030, Volkswagen Group expects to have constructed six battery facilities across Europe, the first of which will be in Salzgitter, Germany.
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