ADEKUNLE AJASIN UNIVERSITY, AKUNGBA-AKOKO ONDO STATE, NIGERIA

CENTRE FOR ENTREPRENEURSHIP DEVELOPMENT (CED)

Enterprise Formation, Partnership and Networking (Basics of joint ventures)

Meaning of an Enterprise

➢ An enterprise is a business plan, or project, especially one that is difficult or that may
fail or lose money.
➢ An organization, especially a business or a difficult and important plan, such as one that
earns money
➢ A firm, business, or corporation

Enterprise Formation
The process of setting up or establishing a business. Businesses, whether small or great, don’t
exist until they are commenced particularly by entrepreneurs who are creative and innovative. It
entails identifying opportunities, deciding/ascertaining the structure of the business, and
registering the business.
Advancement in knowledge and in business research has refined the way enterprises are set up.
More so, the process of setting up an enterprise will depend largely on the type of enterprise.
According Bozward (2024) there are 9 Stages/processes of enterprise creation, that is based on
entrepreneurial mindset and the business community ecosystem.
Stage 1 – Discovery
Entrepreneurs identify and evaluate potential new business opportunities. This requires research,
exploration, and understanding of current needs, demands, and trends from consumers and others.
Stage 2 – Modeling
This is split into three parts and starts by setting out a Strategy, formulating a business model and
setting the business processes to achieve the strategy. The model should be underpinned by the
resources available and those which may still need to be secured.
Stage 3 – Startup
Once the resources detailed in the business plan are mobilized the entrepreneurial process can be
activated and implementation can take place. In this stage the business may be trading or begin
to research or develop a product.
Stage 4 – Existence
At this stage the business has two core focuses; to gain enough customers to create a profitable
business and, at the same time establishing production or product quality. The majority of
businesses fail at this stage due, in part, to either one or both of these factors.
Stage 5 – Survival
At this stage the business should be a viable entity in terms of cash flow and resources, it has
enough customers and satisfies them sufficiently with its products or services to gain repeat sales.
Stage 6 – Success
Entrepreneurs at this point capitalize on the company’s accomplishments, expand or, keep the
company stable and profitable.
Stage 7 – Adaptation
Businesses which reach this stage normally have a number of factors pushing them to adapt, these
are normally grounded in changes either to the micro or macro environments.
Stage 8 – Independence
A business at this stage should now has the advantages of size, financial resources, market share
and managerial talent. Innovation and Intrapreneurship are now key factors in keeping the
business in market position.
Stage 9 – Exit
The last of the Enterprise Creation stages is focused on exiting the business and making their
separation permanent. An exit strategy will give the entrepreneur a way to reduce or eliminate
their stake in the business and, if the business is successful, make a substantial profit. The
organization at this stage is generally profitable, has a definable set of resources with a clear and
realistic strategy to continue. The CEO and founder(s) are separate.
Types of business enterprise
There are different types of businesses to choose from when forming a company, each with its
own legal structure and rules. Typically, there are four main types of businesses:
➢ Sole Proprietorship – owned and managed by a single person
➢ Partnerships – owned and managed by 2 or more individuals
➢ Limited Liability company – has is a separate legal entity in which the liability of owners
are limited either by share or guarantee.
➢ Corporation – majorly government’s own establishments that provide essential services
Before establishing/creating a business, entrepreneurs should carefully consider which type of
business structure is best suited to their enterprise, as each of the listed type of business.
Partnership and Networking
Networking and building strategic partnerships are essential elements of success in today's
business world.
➢ Networking is about building a wide range of connections.
➢ Strategic partnerships take it a step further. A strategic alliance is a mutually beneficial
collaboration between two or more entities to achieve a shared goal. This is the basis for
establishing a joint venture.
A joint venture
A joint venture is a cooperative business venture where two or more entities combine their
resources and capabilities to achieve a specific goal. These entities, often separate companies,
form a new entity or collaborate without creating a new legal entity.
Joint ventures can take various forms, each catering to specific business needs and objectives.
Types of joint ventures (JV)
There are four main types of JV. They are mentioned below:
• Project-based joint venture
• Vertical Joint Venture
• Horizontal Joint Venture
• Functional-based Joint Venture
Project-Based Joint Venture
Under this the partners come together to accomplish a fixed task. Since these collaborations are
usually done for an exclusive purpose, they stand cancelled once the project is accomplished.
These joint ventures exist for a particular task, project, or time span.
Function-Based Joint Venture
In this, parties form an agreement to mutually benefit from the arrangement. This agreement is in
order that they gain from each other’s expertise in different areas. This enables them to work
efficiently and effectively. Before entering an agreement, the would-be partner companies
ascertain whether they will be able to function and perform efficiently together or not.
Vertical Joint Venture
In this type of joint ventures, the transaction is between the buyers and the suppliers. Not an
economically viable option, it is termed bilateral trading. In such a joint ventures, different
manufacturing stages of a single product are integrated to create economies of scale that reduce
the per-unit cost of the finished product. Usually, this category of joint venture proves to be very
successful. The relationship between the buyer and supplier also remains good. The business
prospers, and quality products reach consumers at a reasonable price.
Horizontal Joint Venture
In this venture, companies dealing in/ selling similar products and direct competitors in the market
join hands to create an output that can be reached to customers of either party. In this JV, disputes
often arise because both companies are dealing in identical/ similar businesses. The parties also
face opportunistic behavior from each other. The gains from this alliance are shared according to
the agreement by the parties. Such ventures are not very satisfying as, despite the cooperation, a
feeling of resentment stays.
Advantages of a Joint Venture
Companies enter into a joint venture to combine their expertise and resources, thus reaping gains
from this new partnership. It is to be understood that no venture is without risk. The advantages
of a joint venture are mentioned below:
• A joint venture, if managed efficiently, helps the partners to grow
• It results in increased productivity
• Rise in profits
• The partners can utilize each other’s distribution networks and access new markets
• Increase in production capacity
• Avail of new knowledge and expertise
• Efficient and specialized staff
• Access to each other’s resources like finance and technology
• Growth without the need to borrow outside funds or scout for investors
• In a joint venture the parties can use the partner’s customer database for marketing
products
 • Invest together in development and research
• A joint venture is very flexible
• It has a limited lifespan and covers a part of what you do. This limits the commitment of
all the parties
• Joint ventures are very popular with businesses operating overseas.
Disadvantages of Joint Venture
There are significant risks relating to liabilities, possible conflicts, and disputes between the
partners. Reasons for this can be:
• Unclear objectives of the venture
• Lack of communication between the partners
• Expectation also not met
• Discrepancies in the level of expertise and investment of either party
• Unequal distribution of work and resources
• Lack of cooperation due to different cultures and management
• Lack of leadership and support
• Conflict between the workers
Reasons to form a Joint Venture
There are four main reasons to form a joint venture:
• Leverage Resources
A joint venture is an advantage since it can avail of the combined resources of all partners to
achieve the target. One partner might possess the expertise, while another has a well-established
manufacturing unit. Some have good distribution channels, while others include a very efficient
and motivated workforce. Channeling all these together can help achieve excellent results.
• Cost-Saving
Today, with the costly implementation of technical advances, joint ventures can apply economies
of scale and increase their production at a lower cost than if they were working separately. Cost
savings can also be made in advertising and labour costs.
• Combined Expertise
The companies can combine their expertise and gain from the other partner’s talent within their
company.
 • Enter Foreign Markets
Companies also use joint ventures to enter a foreign market by partnering with a local business
of the said country. Companies that desire to spread their distribution networks in foreign lands
can enter a Joint Venture agreement to supply goods to a local business in that country.
Selected References for Further Reading
Aghion, P., & Howitt, P. (1992). A Model of Growth Through Creative Destruction.
Econometrica, 60(2), 323-351.
Bathia, .D.( 2013). Theories of entrepreneurship. Retrieved from [Link]
[Link]
Bozward, D. (2024). Stages of enterprise creatiom. [Link]
of-enterprise-creation/
Ynkamat, O. (2009). Theories of entrepreneurship. [Link] of entrepreneurship
Taylor, E. (2024). 15 theories of entrepreneurship: All you need to know about.
[Link]

Compiled for ENT 211 Lecture Module Eight