JOINT VENTURE

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

JOINT VENTURE TYPES

Jointly controlled operations Jointly controlled assets Jointly controlled entity

Jointly Controlled operations

There may not be a joint venture legal entity. Instead, the joint venture uses the assets and other resources of the venturers. Each venturer uses its own assets, incurs its own expenses, and raises its own financing. The joint venture agreement states how the revenue and expenses related to the joint venture are to be shared among the venturers.

Jointly Controlled Assets

Venturers may jointly control or own the assets contributed to or acquired by a joint venture. Each venturer may receive a share of the assets output and accept a share of the expenses incurred. There may not be a joint venture legal entity.

Jointly Controlled Entity

This type of joint venture involves a legal entity in which each venturer has an interest. The new legal entity controls the joint venture's assets and liabilities, as well as its revenue and expenses; it can enter into contracts and raise financing. Each venturer is entitled to a share of any output generated by the new entity. A jointly controlled entity maintains its own accounting records and prepares financial statements from those records. If a venturer contributes cash or other assets to a jointly controlled entity, the venturer records this transfer as an investment in the jointly controlled entity.

JOINT VENTURE REASONS

INTERNAL REASONS

EXTERNAL REASONS

STRATEGIC REASONS

Spreading Costs

Opening Access to Financial Resources

Connection to Technological Resources

Help Economies of Scale

Develop Stronger Innovative Product

Improve Speed to Market

Strategic Move Against Competition

Synergistic Reasons

Share and Improve Technology and Skills

Diversification

In the era of the Internet, finding opportunities for exploiting an idea is sizeable together with remote, or advertised, communicating. There are also the blogging networks as well the social networking sites and search engines. There are also other venues to find a JV partner such as seminars, exhibitions, directories and the plain newspaper advertising of opportunities. Forming JVs with distributor and marketing agencies is possible in this flat world to market a product. But finding an entrepreneur for a JV is another task.

screening of prospective partners

short listing a set of prospective partners and some sort of ranking

due diligence checking the credentials of the other party

foreign investor buying an interest in a local company

the most appropriate structure and invitation/bid

availability of appreciated or depreciated property contributed to the joint venture

LEGAL STRUCTURE
When two firms merge, they cease to exist as independent firms. In a joint venture, a new separate firm is formed, but the original companies continue to exist on their own.

OWNERSHIP
When a merger is created, it is owned by the original firms that created it. In the case of a joint venture, the owners of the newly formed company are the same as the owners of the original two companies.

COMMITMENT
A joint venture involves a lower level of commitment from the two parties than a merger. A joint venture can be a good way to test the waters to see how well two firms work together. It can also be used for a temporary arrangement to work on a short-term project. A merger, in contrast, involves a virtually permanent commitment. Although it is possible to break up a company, doing so can be difficult, costly and disruptive to business.

SCOPE
A merger is useful when two businesses wish to become fully integrated -that is, when two firms have enough overlap that they can perform most of their business together. A joint venture, on the other hand, typically has a much more limited scope. A joint venture normally focuses on a specific area where two firms overlap and can work together, but the bulk of their business remains separate.

 Set Clear Goals: Know from the beginning what you want to accomplish. Is it reduced product costs, expanded sales, or market credibility? Your partners' goals may be different but complementary to yours. Find a Partner: The best partnership is based on a mutual win-win relationship. Take the time to locate a company with an honest interest in joint ventures and a similar corporate culture. If your small business is focused on long-term customer relations and your strategic partner cares about gaining market share quickly, then

 Plan the Venture: Map out your negotiation tactics and understand the legal aspects of the deal. Keep win-win agreement in mind. Manage the Relationship: Once a winning joint venture is formed the real work takes place. A good alliance is like a marriage. It is built on communication, trust and understanding.

 Cultural Differences: Cultural and ideological

differences top the list. In evaluating joint venture partners, most companies dont perform a proper compatibility and integration analysis. Neither make they a thorough evaluation of corporate culture and management style. As a result, they fail to find a way to blend their differences, which makes their joint ventures unstable. Poor Leadership: Poor or unclear leaders is another top reason of joint venture failure. Too often, joint venture partners insist on sharing a project leadership role. When the parties disagree, a standoff occurs. If the parties dont agree from the very beginning who

 Insufficient Planning: Insufficient planning is

also one of the most prevalent reasons for failed joint ventures. Too often, a joint venture plan consists of nothing more than a statement of each partys intended contributions to the project and their respective share of the profits. This seldom works. Other Failure Reasons: Other reasons of joint venture failure include poor commitment; disagreement over operating policies, strategies, and tactics; and differences in the approach towards management style and systems

APPLE COMPUTERS

IBM, SIEMENS

MICROSOFT

TOSHIBA

GE

MOTOROLA

TOSHIBA JOINT VENTURES

GE
APPLE COMPUTERS MICROSOFT MOTOROLA IBM, SIEMENS

Light Bulb Filament

 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.

Globalization is the tendency of investment of funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets. Privatization is the transfer of property or responsibility from the public sector (government) to the private sector (business).The term can refer to partial or complete transfer of any property or responsibility held by government. Liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization.

Pre-Globalization Scenario in India

unconscious about the danger of International Business. O Most businesses did not have economies of scale by global standards. O Control on collaborations restricted the choice of technology and manufacturing methods.

Post-Globalization Scenario in India

threats because of their limitless resources. O Indian players has an option either to increase production or entering into JV with Global players. O Foreign players saw India as a land of opportunity to take advantage of low cost of production.