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Joint ventures take advantage of two of the fundamental principles of wealth that Adam Smith talked about in Wealth of Nations: division of labor and unrestricted trade. The principle of division of labor is that wealth is produced more efficiently and in greater abundance when working people divvy up the workload according to what sort of work each worker can do best. The theory behind free trade is that wealth is not a limited quantity - such as a pie - that must be sliced up and shared, but an organic thing – like a weed – that will grow naturally if allowed to do so freely.
These principles give rise to the following characteristics of successful joint ventures:
- Good joint ventures are those that pair up businesses with asymmetrical resources and skills.
- The stronger the resources and skills brought to the table, the stronger the potential of the joint venture.
- All other things being equal, joint-venture deals grow more quickly and strongly when there are few restrictions impeding their growth.
- Trust and respect are essential ingredients in good joint venture relationships.
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