Joint Venture between Japanese and British companies
A joint venture (JV) is a cooperative arrangement between two or more business entities, often for the purpose of starting a new project or business activity. Each entity contributes assets to the joint venture and shares responsibilities for profits, losses, and costs associated with it. JV can be ideal for companies that want to share risk in uncertain markets or share the cost of large-scale capital investments. In other words, this is a very effective instrument for strategic growth and can provide fast access to new technologies and local knowledge.
Harvard Business Review conducted research where they analysed the trends related to joint ventures across the past 35 years till 2020. It shows that JV activity is highest in the recovery period following an economic downturn. JVs are considered a viable alternative to M&A due to capital constraints and risk minimisation.
Compared to organic growth, investments via the JV can generate returns more quickly.
Source: Harvard Business Review
The popularity of JVs have decreased during recent years, but they are making a comeback—especially among multinational corporations and Asian companies seeking to make inroads into new markets. According to an INREV survey, globally, 27% of investors plan to increase their investments into Joint Ventures.
The United Kingdom can be a stepping stone for Asian companies that want to trade in Europe. Despite Brexit, the UK still receives some of the highest value Japanese foreign direct investments in Europe. Japanese companies usually establish regional head offices here or acquire firms to enter the market. The UK is one of the world’s largest economies and according to the World Bank research, it ranks 7th for the ease of doing business. Easy access to highly skilled professionals, finance, and business services as well as the convenient time zone for trading with Asia and America makes the UK one of the most attractive places for Asian businesses. Moreover, in October 2020, the UK signed an economic partnership agreement with Japan. The deal is tailored to both economies and has secured collaboration that goes beyond existing EU deals, with big benefits for digital and data, financial services, food and drink, and creative industries.
For the Asian companies that have a goal to conquer the UK market and scale up rapidly with lower investments than acquisition, a joint venture can be one of the most convenient ways. Developing a JV with a domestic player could increase the upside for a Japanese business as both parties are equally incentivised to maximise growth. In this model, the business benefits from the strengths of its partner, including reputation, existing trade relationships, distribution networks and possible economies of scale.
Thus, through a joint venture, a non-resident company can get prompt access to knowledge, the know-how of the local marketplace or distribution and marketing channels. These benefits can be especially critical to a small or medium-sized business that does not have the capital, resources, or expertise necessary to pursue the opportunity unless it is able to share the risks and the costs through a joint venture.