Presented By: Group 1

Joint Venture

A joint venture (often abbreviated JV) 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 they then share in the revenues, expenses, and control of the enterprise.

DEFINITION

REASONS FOR SETTING UP A JOINT VENTURE

INTERNAL REASONS COMPETITIVE GOALS

STRATEGIC GOALS

Internal reasons

• Build on company's strengths • Spreading costs and risks • Improving access to financial resources • Economies of scale and advantages of size • Access to new technologies and customers • Access to innovative managerial practices

REASONS FOR SETTING UP A JOINT VENTURE

Competitive goals

• Influencing structural evolution of the industry • pre-empting competition •Defensive response to blurring industry boundaries • Creation of stronger competitive units • Speed to market • Improved agility

REASONS (CONTINUED)

Strategic goals

• Synergies • Transfer of technology/skills •Diversification

REASONS (CONTINUED)

• Jointly controlled operations

• Jointly controlled assets

• Jointly controlled entities

TYPES OF JOINT VENTURES

•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.

•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.

PRE-LIBERALIZATION SCENARIO

•Access to new technologies

•Cost reduction

•Provide participants the opportunity to learn

•Sharing risks

•Improves market credibility, penetration and access

•Lesser chance of your partner becoming a competitor

•Better market feedback

ADVANTAGES OF JV

•Loss of competitive advantage

•Lack of control

•Governmental relations

•Time consuming

•Increased managerial burden

•Loss of management autonomy

•Co-venturers are jointly liable for each other’s negligence

DISADVANTAGES OF JV

SECTORS PERCENTAGES

Mining (commercial) 51%

Banking (Pvt), Airport (Existing)

74%

Insurance 26%

Telecommunication 49%

Alcohol distillation and brewing, Floriculture, Horticulture , Animal Husbandry, Petroleum and Natural gas, Construction and Development, SEZ’s and Free Trade Warehousing Zones, Trading etc..

100%

REGULATIONS GOVERNING JV IN INDIA

• Valuation Problems

• Transparency

• Conflict Resolution

• Division of management responsibility and degree of management independence

• Changes in ownership shares.

PROBLEMS OF JV’S

• Dividend Policy

• Marketing and Staffing Issue

• Cultural Problems

• Multinationality problems

PROBLEMS (CONTINUED)

•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

REQUIREMENTS FOR SUCCESSFUL JOINT VENTURE

•Virgin Group and Tata Tele Services

•Maruti Suzuki

•Tyson Foods and Godrej Agrovet

•Marks & Spencer and Reliance Retail of India

•Hero Honda

•Godrej Sara Lee

SUCCESSFUL JOINT VENTURE

•Mahindra-Renault joint venture

•Online marketing giants eBay and Craigslist

NOT SO SUCCESSFUL 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

REASONS FOR FAILURE OF A JOINT VENTURE

•Chinese consumer electronics, IT and telecom products major TCL Corporation 

•Lufthansa and Modi Group

•Kinetic Honda (1972-2008)

•Tata IBM

•LML Piaggio

•Philips – Lucent technologies

UNSUCCESSFUL JOINT VENTURE

•Write Out the Intention of the JV as a Mission Statement

•Explicitly Write Out the Partner Responsibilities

•Shelter Your Proprietary Information

•Define the Exit Strategy

HOW TO MAKE THE JV SUCCESSFUL

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.

FUTURE OF JV