neha joint venture

8/4/2019 Neha Joint Venture

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There are many good business and accounting reasons to participate in a JointVenture (often shortened JV). Partnering with a business that has complementary

abilities and resources, such as finance, distribution channels, or technology, makesgood sense. These are just some of the reasons partnerships formed by joint venture

are becoming increasingly popular.

A joint venture is a strategic alliance between two or more individuals or entities toengage in a specific project or undertaking. Partnerships and joint ventures can besimilar but in fact can have significantly different implications for those involved. A

partnership usually involves a continuing, long-term business relationship, whereas ajoint venture is based on a single business project.

Parties enter Joint Ventures to gain individual benefits, usually a share of the projectobjective. This may be to develop a product or intellectual property rather than joint

or collective profits, as is the case with a general or limited partnership.

A joint venture, like a general partnership is not a separate legal entity. Revenues,

expenses and asset ownership usually flow through the joint venture to the

participants, since the joint venture itself has no legal status. Once the Joint venturehas met its goals the entity ceases to exist.

What are the Advantages of forming a Joint Venture?

Provide companies with the opportunity to gain new capacity and expertise

Allow companies to enter related businesses or new geographic markets or

gain new technological knowledge

access to greater resources, including specialised staff and technology

sharing of risks with a venture partner

Joint ventures can be flexible. For example, a joint venture can have a limited

life span and only cover part of what you do, thus limiting both your

commitment and the business' exposure.

In the era of divestiture and consolidation, JVs offer a creative way for

companies to exit from non-core businesses.

Companies can gradually separate a business from the rest of the

organisation, and eventually, sell it to the other parent company. Roughly 80%

of all joint ventures end in a sale by one partner to the other.

The Disadvantages of Joint Ventures

It takes time and effort to build the right relationship and partnering with

another business can be challenging. Problems are likely to arise if:

The objectives of the venture are not 100 per cent clear and communicated to

everyone involved.


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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 enough leadership and support in the early stages.

Success in a joint venture depends on thorough research and analysis of the

objectives.

Embarking on a Joint Venture can represent a significant reconstruction to your

business. However favourable it may be to your potential for growth, it needs to fitwith your overall business strategy.

It's important to review your business strategy before committing to a joint venture.

This should help you define what you can sensibly expect. In fact, you might decidethere are better ways to achieve your business aims.

You may also want to study what similar businesses are doing, particular those thatoperate in similar markets to yours. Seeing how they use joint ventures could help

you decide on the best approach for your business. At the same time, you could tryto identify the skills they use to partner successfully.

You can benefit from studying your own enterprise. Be realistic about your strengthsand weaknesses - consider performing strengths, weaknesses, opportunities and

threats analysis (swot) to identify whether the two businesses are compatible. Youwill almost certainly want to identify a joint venture partner that complements your

own skills and failings.

Remember to consider the employees' perspective and bear in mind that people can

feel threatened by a joint venture. It may be difficult to foster effective workingrelationships if your partner has a different way of doing business.

When embarking on a joint venture its imperative to have your understanding in

writing. You should set out the terms and conditions agreed upon in a written

contract, this will help prevent misunderstandings and provide both parties withstrong legal recourse in the event the other party fails to fulfil its obligations while

under contract.

oint ventures perform a useful role in assisting companies in the process of restructuring. It can

enable a firm to achieve market penetration into new areas overtime, enter and develop newproduct markets, expand into new geographic areas and participate in new technology driven value

activities. They can also be used by smaller firms protectively as an element of long-range strategicplanning. Thus, a small firm in a highly concentrated industry can negotiate joint ventures with


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several of the industry's dominant firms to form a self-protective network of counterbalancingforces. Joint ventures are formed with several motives:-

The main motive is to share the risks. It reduces the risks in a number of ways as the

activities can be expanded with smaller investment outlays than if financed independently.

The expressed purpose of most of the joint ventures is knowledge acquisition. The

complexity of the knowledge to be transferred is a key factor in determining the contractual

relationship between the partners. One or more participants may seek to learn more abouta relatively new product market activity. This might concern all aspects of the activity or a

limited segment like R&D, production, marketing or product servicing.

A small firm with a new product idea that involves high risk and requires relatively large

amounts of investment capital may form a joint venture with a large firm. The larger firm

might be able to carry the financial risks and be interested in becoming involved in a newbusiness activity that promises growth and profitability. In addition, the larger firm mightthereby gain experience in the new area of activity that may represent the opportunity for amajor new business thrust in the future.

Tax advantages are a significant factor in many joint ventures.

It also helps in expanding the firm's operations into foreign countries. The local partners

contribute in the form of specialised knowledge about local conditions, which are essentialto the success of the venture.

A joint venture may be subjected to several difficulties. As circumstances change, the contractmight be too inflexible to permit the required adjustments to be made. The basic reasons for failureof a joint venture are:-

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.

A successful joint venture needs to fulfill the following requirements:-

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 organisational structure which has the authority for

negotiating and making decisions.

Joint Ventures by Foreign Companies

A foreign company can invest in an Indian company through a joint venture agreement (or as awholly owned subsidiary) in the areas which are otherwise not reserved exclusively for the publicsector or which are not under the prohibited categories such as real estate, insurance, agriculture

and plantation. Foreign investment into India is governed by theForeign Direct Investment(FDI) policyand the Foreign Exchange Management Act, 1999 (FEMA). The Government has

set up a Indian Investment Centre in the Ministry of Finance as a single window agency forauthentic information or any assistance that may be required for investments, technicalcollaborations and joint ventures. It advises foreign investors on setting up industrial projects inIndia by providing information regarding investment environment and opportunities, the

Government industrial and foreign investment policies, taxation laws and facilities and incentivesand also assists them in identifying collaborators in India.
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For such foreign investments into India, a two tier approval mechanism has been provided:-

Automatic Approval Route:- FDI in sectors or activities to the extent permitted under

automatic route does not require any prior approval either by Government of India

or Reserve Bank of India (RBI). The investors are only required to notify the Regionaloffice concerned of RBI within 30 days of receipt of inward remittances and file the requireddocuments with that office within 30 days of issue of shares to foreign investors.

Foreign Investment Promotion Board (FIPB) Approval Route:- FDI in activities not covered

under the automatic approval route requires prior Government approval and are considered

by the Foreign Investment Promotion Board (FIPB).The FIPB has been set up in theMinistry of Finance to promote inflows of FDI into the country, as also to provideappropriate institutional arrangements, transparent procedures and guidelines forinvestment promotion and to consider and approve/recommend proposals for foreign

investment.

Approvals of composite proposals involving foreign investment or foreign technicalcollaboration are also granted on the recommendations of the FIPB. The companies havingforeign investment approval through FIPB route do not require any further clearance from

RBI for receiving inward remittance and issue of shares to the foreign investors. Theproposals to FIPB shall contain the following information:-

Whether the applicant has any existing financial or technical collaboration or trade

mark agreement in India in the same field for which approval has been sought; and

If so, details thereof and the justification for proposing the new venture or

technical collaboration;

Applications can also be submitted with Indian Missions abroad who will forward

them to the Department of Economic Affairs for further processing;

Foreign investment proposals received in theDepartment of Economic

Affairs are generally placed before the Foreign Investment Promotion Board (FIPB)within 15 days of receipt.

Also, theSecretariat for Industrial Assistance (SIA)has been set up by the Government of

India in the Ministry of Commerce & Industry to provide a single window service forentrepreneurial assistance, investor facilitation and receiving and processing all applications which

require Government approval. It also notifies all Government Policy decisions relating to investmentand technology and collects monthly production data for select industry groups.

he joint venture's aim is to provide the best and most practical training at the lowestcost. On-the-job training on board ship or in processing plants is usually lessexpensive and produces faster results than any other form, especially for staff atlevels of skill not requiring much academic instruction. Foreign companies, however,often complain that the training of unskilled cadres on the job has an adverse effecton the efficiency of, and consequently economic returns from, commercialoperations. Even where they have agreed to provide on-the-job training, they oftenfind ways and means of evading their obligations. Since the cost of providing specialfacilities, such as training vessels, is generally too high to be considered in a

commercial venture, the partners should agree on some form of on-the-job training.The developing country will do well, in this connection, to insist on specifying in thecontract the arrangements for keeping a check on the fulfilment of the obligations.

Decisions on management control

97. Both host countries and multinational companies tend to overemphasize theimportance of ownership in relation to management control. A minority partner has
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many opportunities for frustrating the policies pursued by the majority partner if intenton so doing. If at all possible, it is better to have both partners participating inmanagement. While the type of joint venture involved, the availability of managementtalents, and the size of individual capital commitments largely determine whether ornot this is feasible, the sharing of management responsibilities, and the becomingacquainted with each other's problems that this entails, enhances the likelihood ofthe overall common interest being served more adequately.

98. To have local executives who are owners and not just professional managers isoften a definite advantage. Involved means that the local part owner looksat all aspects of the business as an entrepreneur, not merely as a functionalspeciality.

99. The international company in turn must make sure that responsibility for jointventures does not fall between chairs, and that they receive the kind of managementsupport companies give their wholly owned subsidiaries.

100. Multinational companies with experience in joint fishery ventures feel stronglyabout the need to obtain effective local management support. Some believe that alocal partner should accept management responsibilities in proportion to his equityratio, and complain about lack of a feeling of such responsibility by local partnerswho tend to insist on a majority shareholding, but should leave such responsibilitiesas locating sources of finance, sales promotion, and other entrepreneurial andmanagement functions, to the overseas partner.

101. Wherevera partner can claim superiority of experience or is providingequipment and technology unfamiliar to his colleagues, he will want to retain, at leastfor an initial period, essential management controls. This can be done by spelling out

in the contract specific responsibilities assigned to him as, for example, for designand construction facilities (vessel and plant), technical management of (fishing andprocessing) operations, and selection of key personnel.

icro-agent model: Tata-AIGs new distribution methodology of microinsurance in India

This paper provides a broad overview of how the microinsurance program at TATA-AIG emerged and how it

operates. It states that according to TATA-AIG, microinsurance has the following benefits:

Fulfillment of corporate social responsibility;

Use of the microinsurance to get the brand into a new market;

A means of developing a good relationship with the Indian insurance regulator.

It further states that TATA-AIG realized that relying solely on MFIs to sell its products would not be sufficient

in the Indian context. This led them to:

Explore other distribution channels,

Rely on MFIs and NGOs for information about the local community, to help build trust with the local

community,

Outsource some operations to the MFI/NGOs to lower servicing and selling costs.


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The paper then discusses the partnerships, distribution channels, premium calculation, premium collection,

claims management, risk management and controls for the products offered by the scheme.

It concludes that the development of micro-agents and their firms is the most significant innovation of TATA-

AIGs microinsurance work. If successful, the model will provide a major means of overcoming the

microinsurance distribution problem.

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Tata-AIG entered into microinsurance as a

condition for acquiring a license to sell insurance in India. Unlike many other insurancecompanies, the company immediately

saw the many benefits of microinsurance

including, fulfilment of corporate social responsibility; use of microinsurance to get thebrand into a new market; and a means of developing a good relationship with the Indian

insurance regulator.

The CEO of TATA-AIG realised that microinsurance would require innovative thinking

because insurance products for low-income

households are not just normal insurancewith lower premiums and benefits. In particular, he realised that selling microinsurance

would require a new distribution mechanism.He created a specialised microinsurance

department within Tata-AIG called the rural

and social team and gave it latitude to consider alternative distribution strategies.In addition to the usual partner-agent model,

the rural and social team developed a model

of micro-agents. The model works as follows:1. Tata-AIG obtains recommendations

from NGOs that have good relationships with the local community in an

area targeted by TATA-AIG.2. In return for a fee, the NGO providessuggestions on members of the community who could be good agents for

microinsurance policies - the microagents.

3. If these micro-agents accept, theyare then asked to form into groups of

peers.

4. The group, referred to in the Tata-AIGmodel as a CRIG (Community Rural

Insurance Group), operates in a similar fashion to an insurance agents

firm.

5. The agents are trained by TATA-AIG,which help for the CRIG leader to obtain an agents license.

6. The NGO may play additional roles

such as aggregating the premiums, allowing the agents to use their officesto conduct business, paying the bene-

fits in public ceremonies and training

the micro-agents.The model relies on direct marketing similar to that used by firms such as Tupperware


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and Avon. It will only succeed if the frontline

personnel have been properly selected and

are sufficiently trained in general insuranceawareness, product details and sales techniques.

Besides the group approach of the CRIGs,

the micro-agent model could also be doneon an individual basis. Like the CRIGs,

micro-agents tend to be women who are

either office bearers of an SHG or a voluntary worker of an NGO. After being certified,micro-agents are encouraged to source business from the geographical vicinity of their

homes, which may extend to 4 or 5 villages

depending on the size of the village.

In addition to being a new microinsurancedistirubiton model, the model creates new

employment opportunities (micro-agents)

and provides a new income stream for rural

NGOs.Although still early days, the CRIGs appear

reasonably stable. As long as the financial incentives remain sufficiently enticing, there islikely to be limited dropouts. In the event of

a member or leader dropping out, they could

be replaced by another from the community,

thus mitigating the risk of orphaned policies.If a CRIG disbands, the NGO can facilitate

the transfer of the orphaned policies to another CRIG.

However, like all direct marketing schemes,the CRIGs face the problem that eventually

the agents will have approached everyone

they know and need to approach strangers.Often these clients live further away which

will raise the costs of selling. To address this

issue, Tata-AIG plans to open up branch of-fices in new areas with a permanent vehicle. This vehicle would be used by CRIGs to

sell policies outside of their immediate area.

If successful, this model could, adapted to

specific conditions, provide a major newmeans of overcoming the microinsurance

distribution problem.

CGAP Working Group on Microinsurance Good andBad Practises Case Study No. 14: TATA-AIG Life Insurance Company Ltd., India. (J.

Roth and V. Athreve,

September 2005). Source:http://microfinancegateway.org/files/28285_file_Tata_AIG_Good_and_Bad_

Case_Study_14.pdf

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