Joint Venture Alliances

Mishaal Hamza

Joint Ventures Abroad

Contents
Joint Venture Definition & Overview

Reasons to form Joint Ventures

Joint Venture Agreement Government Policies

Problems with Joint Venture

Benefits & Risks in a Joint Venture Ending a Joint Venture

Secrets of a successful Joint Venture

Examples of Joint Venture

Definition & Overview

Joint Venture/JV is a entity formed

between 2 or more parties to undertake economic activity together The venture can be for one specific project only, or a continuing business relationship It belongs to the family of alliances, Strategic alliances being characterized by the fact that they

Overview
A typical International Joint Venture is between; Two International parties, (individual or companies), incorporate a company The above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business Promoter shareholder of an existing company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash

When a JV is done
To enter a new or existing market

Technology Transfer
Common in oil and Gas industry

Government regulations

Why JV?
Internal Reasons Spreading costs &

Risks , Access to new Technologies, Customers & Innovative Managerial Practices Strategic Goals Synergies , Transfer of Technology/Skills , Diversification Competitive Goals Creation of stronger competitive units , Influencing structural evolution of the industry

JV Agreement
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 JV The financial contributions you will each make Whether you will transfer any assets or employees to the Joint Venture Ownership of intellectual property by the JV Management and control, e.g. respective responsibilities and processes to be followed

Government Policies & Opportunities

Companies Act FER Section 27 of Foreign Exchange

Regulation Act, 1973 Approval of Reserve Bank For sending representatives Remittance of Cash Holding shares & Securities abroad Tax concessions under Income-tax Act Deduction of 50% of royalties, commission, etc., received from foreign enterprises

The Bharti-Wal Mart Joint Venture

Announces a 50:50 Joint Venture for a

Wholesale Cash and carry business To roll out 10-15 outlets in the next 7 years Covers a Supply Chain and Back-end Logistics The JV will source 90% of the goods from India, while the rest will be imported Wal-Mart sources goods worth nearly $600 million from India, expected to be multiplied many times over once the cash-

Problems in a JV
Valuation Problems Transparency Conflict resolution

Ownership & Management control problems

Changes in ownership shares

Tax issues

Marketing & Staffing issues

Cultural Problems

Export Rights

Benefits/Advantages of JV
Access to New markets & Distribution

Networks Increased Capacity Sharing of risks with a partner Access to greater resources including specialized staff & Technology

Risks with JV
Problems are likely to arise if: The objectives of the venture are not totally clear and communicated to everyone involved The partners have different objectives for the joint venture 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 sufficient leadership and support in the early stages

Ending a JV
A Contractual JV, such as a distribution agreement, can include termination conditions
The Company can give a time periods notice to terminate the JV

One company can buy out the other

Secrets of a Successful Joint Venture

Understanding cultural backgrounds of all

the countries involved Negotiating win-win contract Having Comprehensive JV Agreements which lays down a road map of duties and obligations of all the parties involved Having a workable and efficient Dispute Resolution Mechanism

Examples of JV
The Bharti-Wal Mart Joint

Venture Lee Cooper Joint Ventures with Pantaloon Retail (India) to Market Lee Coopers Denim apparel in India Fossil in 50:50 JV with Rajesh Exports

Thank You