Joint Ventures Make Big Bucks for Fast-Growing Companies
American companies expect to contribute 10.6% of their business assets to joint ventures this year, yet generate 12% of their revenue growth in return – and these figures are set to double over the next two to three years.
But JVs are about more than pure growth. Because they enable participants to share risks and leverage complementary resources, they are highly prized for the efficiencies they produce, and their effectiveness in increasing profit margins.
An unheralded benefit of JVs is their contribution to the economy, as reflected in their disproportionate new hiring and major new investments of capital.
These are highlights from the latest PricewaterhouseCoopers Trendsetter Barometer, which interviewed CEOs of 421 product and service companies identified in the media as the fastest-growing US businesses over the last five years. The surveyed companies range in size from approximately $1 million to $50 million in revenue/sales.
"In addition to this breadth of involvement, its depth is noteworthy," said G. Steve Hamm of PricewaterhouseCoopers. "Those active in JVs have participated in an average of three over the past three years."
Service companies have greater involvement than their counterparts in the product sector: 36% are participating, including 24% with current JVs, and another 12% in the planning stage. In contrast, 29% of product companies are playing: with 23% active and 6% planning.
"Up-and-coming service businesses are often labor-intensive. Joint ventures enable them to tap into specialized skills and expertise they often can’t attract, or afford on their own," added Hamm.
Of course, participation in joint ventures doesn’t come without a price. Present and planned JVs for Trendsetter companies involve a composite commitment of 10.6% of business assets, including people, materials, and dollars. And this investment is expected to nearly double over the next 2-3 years, to 20.4%.
But what do fast growth CEOs get in return for their investment? They attribute 12% of current business growth to joint ventures, and this is expected to more than double over the next two to three years, to 25.5%. For service businesses, JVs are expected to contribute 29.5% of growth; for product sector businesses, 20.7% of growth.
"Clearly, joint ventures are seen as an efficient engine for growth and profitability," said Hamm. "They enable up-and-coming businesses to share risks and tap into complementary resources, including their partner’s equipment, processes, scientists and professionals."
Joint ventures produce important economic benefits in addition to those enjoyed directly by the participants. "New hiring plans for those involved in joint ventures greatly exceed those of the uninvolved," said Hamm. "Over the next 12 months, 81% of JV participants plan to add new workers, in an amount averaging 13.3% of their composite workforce. This compares to 75% of non-participants planning to add 11.1% additional workers. Overall, this nets out to 29% more new hires for those involved in JVs."
Further, new investments of capital planned for the same period are notably higher among those involved in joint ventures. For JV participants, 58% expect to make major new investments, committing 19.6% of revenues. This compares to only 43% among their counterparts on the sidelines, who are planning to spend at a rate of 15%. Overall, 85% more will be spent by those in JVs.
PricewaterhouseCoopers’ Trendsetter Barometer is compiled with assistance from the opinion and economic research firm of BSI Global Research.