Joint venture
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JOINT VENTURE. INTRODUCTION. A joint venture is when two or more businesses pool their resources and expertise to achieve a particular goal, and were the risks and rewards are also been shared amongst the enterprise.

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JOINT VENTURE

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Joint venture

JOINT VENTURE


Introduction

INTRODUCTION

  • A joint venture is when two or more businesses pool their resources and expertise to achieve a particular goal, and were the risks and rewards are also been shared amongst the enterprise.

  • In sectors where 100 percent FDI is not allowed like India, a joint venture is the best medium, offering a low risk option for companies wanting to enter into the vibrant Indian market.

  • For any successful JV into India, compatibility is important for both the parties.

  • To maintain a successful joint venture in India both of the associated parties should have a long term goal and conditions should be written in the clauses in JV.


Joint venture

Reasons for JV

  • Overseas business

  • Business expansion

  • Development of new products or moving into new markets

    What can a JV give?

  • More resources

  • Greater capacity

  • Increased technical expertise

  • Access to established markets and distribution channels


Methods of joint ventures in india

Methods of joint ventures in India

  • Equity joint venture: The equity joint venture is an understanding whereby an independent legal entity is created in accordance with the agreement of two or more parties.

  • Contractual joint venture: The contractual joint venture might be used where the organization of a detached legal entity is not needed or the creation of such a separate legal entity is not feasible.


Joint venture

When you decide to create a joint venture, you should set out the terms and conditions in a written agreement. This will help prevent any misunderstandings once the joint venture is up and running.

A written agreement should cover:

  • The structure of the joint venture. e.g. whether it will be a separate business in its own right

  • The objectives of the joint venture

  • The financial contributions by each.

  • Transfer any assets or employees to the joint venture

  • Ownership of intellectual property created by the joint venture

  • Management and control. E.g. respective responsibilities and processes to be followed

  • Sharing of profits & losses and liabilities.

  • Resolution of disputes amongst the partners if any.

  • Exit strategy options


Examples

EXAMPLES

  • The world’s largest retailer, Wal-Mart, entered into a 50:50 joint venture with Bharti Enterprises for the wholesale cash-and-carry business in India that will roll out 10-15 such outlets over seven years. This also covers a supply chain and back-end logistics.

  • Nissan Motors signed a 50:50 JV deal with Ashok Leyland to make commercial vehicles, engine and components in India.


Joint venture

Advantages

  • Provide opportunity to gain new capacity and expertise.

  • Allow companies to enter related businesses or new geographic markets or gain new technological knowledge.

  • Access to greater resources, including specialized staff and technology, sharing of risks with a venture partner.

  • Joint ventures can be flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting both your commitment and the business' exposure.

  • In the era of divestiture and consolidation, JV’s offer a creative way for companies to exit from non-core businesses.

  • Companies can gradually separate a business from the rest of the organization, and eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one partner to the other.


Joint venture

Disadvantages

  • It takes time and effort to build the right relationship and partnering with another business.

  • The objectives of the venture are not 100 per cent clear and communicated to everyone involved.

  • There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners.

  • Different cultures and management styles result in poor integration and co-operation.

  • The partners don't provide enough leadership and support in the early stages.

  • Success in a joint venture depends on through research and analysis of the objectives.


Some of the major points that are to be taken into consideration

SOME OF THE MAJOR POINTS THAT ARE TO BE TAKEN INTO CONSIDERATION

  • Management: It is important to have the opinion over the proposed management structure and to categorize the work of both the parties.

  • Royalty payments: For the automatic route, RBI permits lump sum payments not exceeding US$2 million. Royalty payable is restricted to 5 percent for local sales and 8 percent for exports, without any constraint on the period of the royalty payments and are calculated according to standard conditions.

  • Profit repatriation: India allows free of charge repatriation of profits once the entire domestic & central (tax) liabilities and other compulsions are met.


Joint venture

  • Exit strategy: The general exit options are:

  • Buy-sell agreements: In a buy-sell agreement, either IJV party will decide to purchase the interest of the other by sending a buy-sell trigger notice to the other party specifying a cash purchase price at which the offered party is willing to buy the assets.

  • Unilateral sale rights: Although unilateral sales rights are not so common, in some instances, one or both partners may have the unilateral right to sell their interest in the venture to a third party.


Joint venture

  • Put/call rights: Put/call rights are incorporated in an IJV agreement when one partner wants to liquidate as soon as possible, while the other partner wants to hold the venture assets long-term. A "call right" would give the foreign firm the right, but not the obligation to buy the IJV from the local partner at a certain time (triggering event) for a certain price. Conversely, a "put right" would force the local partner to buy its interest when the foreign firm decides that it wants to liquidate.

  • Termination of operations and the liquidation and closure of the venture.


Bibiolography

BIBIOLOGRAPHY

  • http://www.scribd.com/doc/36839210/Joint-Ventures-in-India-Bloomberg-Article

  • http://www.india-briefing.com/news/establishing-joint-venture-india-4833.html/

  • http://www.usibc.com/sites/default/files/committees/files/jointventuresinindiaanoverview.pdf


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