Joint ventures

Joint Ventures

Joint Ventures are partnerships in which two or more firms carry out a specific project or corporate in a selected area of business. Ownership of the firms remains unchanged

Examples

Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Both companies have stopped making their own mobile phones. Virgin Mobile India Limited is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group. Currently, the company uses Tata's CDMA network to offer its services under the brand name Virgin Mobile, and it has also started GSM services in some states.

Examples

Tata Motors & Fiat: The JV will manufacture cars from Tata & Fiat stables. Tata Motors will also buy diesel engines for it cars from Fiat, while Fiat will distribute Tata cars in Europe. Mahindra & Renault: This JV is the market entry strategy for Renault. The JV will manufacture Renaults Logan cars in India. Renault will gain market knowledge - while Mahindras will learn how to make good cars, and leverage its dealership network to additional profits. Tata-AIG: This JV was created to take advantage of the new government regulations on private insurance companies. Private insurance companies need foreign collaboration for technical know how. While the current regulations prevent foreign insurance companies setting up a green field venture in India. Similarly other JV in this field are: ICICI Lombard, ICICI Prudential, Bajaj- Allianze etc. Bharthi-Walmart: JV was primarily created by Wal-Marts desire to enter India and the government regulations regarding large foreign retail firms operating in India. This 50:50 venture with Bharti will give Wal-Mart an entry into India

When do JVs Form?

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When an activity is uneconomical for an organization to be done alone When the risk of business has to be shared and therefore is reduced for the participating firms When the distinctive competence of two or more organizations can be poled together When setting up of an organization requires surmounting hurdles such as govt restrictions etc.

Characteristics of JV

Every JV has a scheduled life cycle, which will end sooner or later Every JV has to be dissolved when it has outlived its life cycle Changes in the environment force JVs to be redesigned regularly JVs between Indian companies and transnational's also follow life cycle Transnational seek to absorb their partners competencies

Reasons for the formation of JV

In some countries, foreign firms are allowed to operate only if they enter into a JV with a local partner Size of the project may be so large and one company cannot accomplish it. Then one company enters into a JV with another firm to accomplish the project Some projects require technology that no one firm possesses A foreign firm with technological competence joins with a domestic firm marketing competence

Advantages of JV

Firms undertake JV to spread development costs JV allow firms with expertise in different fields to combine their knowledge and resources Are useful as a form of trail marriage to see if firms can work together before undertaking a merger Are more useful in entering international market Provide quick access to channels of distribution thus reducing marketing cost Partner in domestic country assist in interpreting local customs and culture and translating technical language A means of achieving the legally required joint ownership Minimize commercial/business risks to both the partners Facility of technology transfer to the host partner Chance to combine the strengths of two partners and utilize the opportunities provided by the environment

Disadvantages of JV

Foreign exchange regulations imposed by both the governments Absence of proper coordination between /among partners Difference of culture and customs of both the partners Division of profits with other firms Loss of control to the other firm Possible conflict and blaming each other at the time of failure