INTERNATIONAL JOINT VENTURES IN INDIA

INDIAN FOREIGN TRADE

INTRODUCTION
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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REASON FOR IJVs

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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Others Reasons
Technology. Lower Risk of Geographical Location. Government Regulations. Access to Capital.
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Types Of IJVs
1. Jointly controlled operations. 2. Jointly controlled assets. 3. Jointly controlled entities.

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Pre-Liberalization Scenario
Indian industry was unaware and unconscious about the danger of International Business. Most businesses did not have economies of scale by global standards. Control on collaborations restricted the choice of technology and manufacturing methods.
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Post-Liberalization Scenario
International players become major threats because of their limitless resources. Indian players has an option either to increase production or entering into JV with Global players. Foreign players saw India as a land of opportunity to take advantage of low cost of production.
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Need for setting up a Joint Venture

INTERNAL REASONS COMPETITIVE GOALS

STRATEGIC GOALS

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INTERNAL REASONS
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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COMPETITIVE GOALS
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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STRATEGIC GOALS
1) Synergies. 2) Transfer of technology/skills. 3) Diversification.

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Problems of IJVs
1. 2. 3. 4. Valuation Problems. Transparency. Conflict Resolution. Division of management responsibility and degree of management independence 5. 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.

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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Indian Joint Ventures Abroad

India, is one of the largest sources of private investments in the Third World. The maximum Indian equity that a IJV could have was fixed at 49 per cent. IJVs were sought to be promoted as instruments of promoting Indian private interests abroad in term of (i) acquiring larger assets in the host countries; (ii) export markets; and (iii) rich and high profit bearing investments. this process India instituted export subsidies, export credit, finance, through bilateral agreements for IJV. first case of an IJV abroad was the textile mill established by the Birlas in Ethiopia commenced operation in 1964.

The applications for International joint ventures are approved by the:

Inter-ministerial Committee under the Ministry of Commerce. IJVs is covered by the Foreign Exchange Regulation Act, 1973 (FERA). To facilitate and encourage IJVs, the Government of India has established economic divisions in the  Ministries of Commerce,  External Affairs,  Industry, and Indian Embassies outside,  Indian Investment Centre (IIC) The Federation of Indian Chamber of Commerce and Industry (FICCI) is also active in promoting the idea of joint ventures with other developing countries.

Successful joint venture require:

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

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Concerns of doing a JV
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. 12 January 2012 Class Presentation 21

Concerns of doing a JV
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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Concerns of doing a JV
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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Concerns of doing a JV
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 2001because The JV failed to meet the projected turnover of Rs 35 billion and managed only 1.83 billion in 1998-99. There was poor cultural integration between the two partners. GE alleged lack of professionalism in the Indian partner.

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Reasons for failure of a joint venture

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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Example : Lufthansa and Modi Group Daewoo and Proctor & Gamble Kinetic Honda Tata IBM LML Piaggio

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FUTURE of IJV
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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RAJAN PRATAP SINGH CHAUHAN

TAPAS KUMAR PAL

DEEPAK SNEHI
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