BIMS

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A joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and then they share in the revenues, expenses, and control of the enterprise
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JV provides a lower risk option of entering into a new country. .example- motorola enterred india in JV with blue star company, a brand with repute and vast distribution network. It also provides an opportunity for both the partners to leverage their core strengths and increase the profits. It also provides a learning opportunity for both the partners.

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Technology. Lower Risk of Geographical Location. Government Regulations. Access to Capital.

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Jointly controlled operations.

Jointly controlled assets. Jointly controlled entities.

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3.

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JV is a strategic alliance of two or more business or company. Key characteristic of alliance is as under viz.. Union for some common goal They remain together or separate as per agreement. Contribution by partners firm Capital-Exp-control. Ex:- Wall Mart & Bharti

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Entry in International Market 2. Over come of legal barriers 3. Diversification 4. Avoiding competition 5. Focus on new products Example page 95-96 1. Hitachi 2. GE- Mitsui 3. Ifb 4. TATA-IBM
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2. 3. 4. 5. 6.

Identifying objectives Selecting a partner Choosing business form Identifying legal problems Identifying conflict between partners Drafting JV agreement

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Residential company+ Foreign company Contractual JV Consortium or teaming arrangement

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No advantage available on JV - Only tax reduction if it is in back word area or in export promotion zone
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INTERNAL REASONS

COMPETITIVE GOALS

STRATEGIC GOALS

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1) Building on company's strength.

2) Spreading costs and risks. 3) Improving access to financial resources. 4) Economies of scale and advantages of size. 5) Access to new technologies and customers.

6) Access to innovative managerial practices.

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1) Influencing structural evolution of the industry. 2) Pre-empting competition. 3) Defensive response to blurring industry boundaries. 4) Creation of stronger competitive units. 5) Speed to market. 6) Improved agility.

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1) Synergies. 2) Transfer of technology/skills.

3) Diversification.

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There are cases where indian partners of failed jvs alleged to have made efforts to block foreign partners from ventures refferring to PN1, without any sound reasons. In 2001 Walt Disneys local paertner, the KK group objected to Disneys attempt to establish a wholly owned subsidiary in india. TVS group , for about three years, kept denying the much needed no objection certificate to suzuki to start a new investment venture in india after the TVS- Suzuki joint venture was called off in 2001. Wadia group is objecting to Danones invstments in Bio- nutrition firm Avesthagen.
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2. 3.

4.
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Valuation Problems. Transparency. Conflict Resolution. Division of management responsibility and degree of management independence Changes in ownership shares.

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6. Dividend Policy.
7. Marketing and Staffing Issue.

8. Cultural Problems.
9. Multinationality problems.

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Before entering a Joint Venture..

Both partners should appreciate the need for the joint venture. The partners should clearly agree on the way the joint venture will be managed. Take measures to be sure that the partner has a compatible work culture. Be sure about the organisational behaviour of the partner to ensure synergies.
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Before entering a Joint Venture..

It is important that both partners work towards a system based on trust and transparency. To make for the long term success of the joint venture, it is also important that both partners are equally able to service its growing need for capital as the business expands. Need to have a clear long term goal and set the terms and conditions of the JV. Clarly define the role and responsibility of each partner.

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TAXATION IN JOINT VENTURE

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PROVISIONS RELATING TO TAXATION OF JOINT VENTURE COMPUTATION OF TAXATION INCOME OF AOP/BOI TAX PROVISIONS RELATED TO SHARES OF A MEMBER.

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Each participant has something of value to bring to the venture. The participants should engage in careful preplanning. The agreement or contract should provide for flexibility in the future. There should be provision in the agreement for termination including buyout by one of the participants. Key executives must be assigned to implement the joint ventures. A distinct unit be created in the organizational structure which has the authority for negotiating and making decisions

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Virgin Group and Tata Tele Services Maruti Suzuki Tyson Foods and Godrej Agrovet Marks & Spencer and Reliance Retail of India

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Change of strategy of either of the partners creats rift in certain JVs

The JV between Hotline group(india) and Haier(china) missed at that point. Haier planned to increase its share to 49% to introduce wide ranges of products including washing machines, multi-split A?Ss etc. Haier wanted to focus in imports. Hotline disagreed to theses, the JV broke off before the operations started Haier re-entered indian market with a 100% susidiary in 2003.

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In some cases accecss to technology or capital provides sufficient confidence in the partners to go alone, making the JV redundant For example- JV between TVS group (INDIA) and Suzuki(japan) formed in 1983 was called off in 2001.

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AT times either of the partners are accused of breaching the terms of the JV< creating tensions in it. For example- Wadia accused Danone of using the popular Britannia brand Tiger products outside india, not permitted as per the existing agreement between the two.

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There are cases of JV falling apart due to lack of synergy.

For example- the 40:60 JV between Godrej and GE formed in 1993 , was called off in 2001becauseThe JV failed to meet the projected turnover of Rs 35 billion and managed only 1.83 billion in 199899. There was poor cultural integration between the two partners. GE alleged lack of professionalism in the Indian partner.

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Inadequate preplanning for the joint venture. The hoped-for technology never developed. Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture. People with expertise in one company refused to share knowledge with their counterparts in the joint venture. Parent companies are unable to share control or compromise on difficult issues
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Lufthansa and Modi Group Daewoo and Proctor & Gamble Kinetic Honda Tata IBM LML Piaggio

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The number of joint ventures will continue to increase in the near future More and more companies are adopting the JV approach as a part of their growth strategies. Foreign companies can benefit mutually by combining their technological and monetary resources and taking advantage of respective market conditions.

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