Joint Venture

Presented By: Group 1

 DEFINITION

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.
REASONS FOR SETTING UP A JOINT VENTURE

INTERNAL REASONS COMPETITIVE GOALS

STRATEGIC GOALS
 REASONS FOR SETTING UP A JOINT
VENTURE
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 (CONTINUED)
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
 TYPES OF JOINT VENTURES

• Jointly controlled operations

• Jointly controlled assets
• Jointly controlled entities
 PRE-LIBERALIZATION SCENARIO
•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.
 ADVANTAGES OF JV
•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
 DISADVANTAGES 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
REGULATIONS GOVERNING JV IN
INDIA
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 100%
Development, SEZ’s and Free Trade
Warehousing Zones, Trading etc..
 PROBLEMS OF JV’S
• Valuation Problems
• Transparency
• Conflict Resolution
• Division of management responsibility and degree of
management independence
• Changes in ownership shares.
 PROBLEMS (CONTINUED)

• Dividend Policy

• Marketing and Staffing Issue

• Cultural Problems

• Multinationality problems
 REQUIREMENTS FOR SUCCESSFUL JOINT
VENTURE

•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
 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
NOT SO SUCCESSFUL JOINT VENTURE

•Mahindra-Renault joint venture

•Online marketing giants eBay and Craigslist
 REASONS FOR FAILURE OF A 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
 UNSUCCESSFUL 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
HOW TO MAKE THE JV SUCCESSFUL
•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
 FUTURE OF JV

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.