Using a Joint Venture (JV) to Enter Foreign Markets (Latin American Markets from Panama)
A common use of JVs is to partner up with a local business in Panama to enter a foreign market such as the Latin American markets with more than 550 million people. A company that wants to expand its distribution network to new countries can usefully enter into a JV agreement to supply products to a local business, thus benefiting from an already existing distribution network. Some countries also have restrictions on foreigners entering their market, making a JV with a local entity almost the only way into the country.
Joint Venture (JV) vs. Partnerships and Consortium
A joint venture (JV) is not a partnership. That term is reserved for a single business entity that is formed by two or more people. Joint ventures join two or more different entities into a new one, which may or may not be a partnership.
The term “consortium” may be used to describe a joint venture. However, a consortium is a more informal agreement between a bunch of different businesses, rather than creating a new one. A consortium of travel agencies can negotiate and give members special rates on hotels and airfares, but it does not create a whole new entity.
Requirements for Joint Ventures
The key elements to a joint venture may include (but are not limited to):
- The number of parties involved
- The scope in which the JV will operate (geography, product, technology)
- What and how much each party will contribute to the JV
- The structure of the JV itself
- Initial contributions and ownership split of each party
- The kind of arrangements to be made once the deal is complete
- How the JV is controlled and managed
- How the JV will be staffed