JOINT VENTURES IN

INDIA

INDIAN FOREIGN TRADE

INTRODUCTION

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

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REASON FOR JV’s
 JV provides a lower risk option of entering
into a new country. .example- motorola enterred
india in JV with blue star company, a brand with
repute and vast distribution network.
 It also provides an opportunity for both
the partners to leverage their core
strengths and increase the profits.
 It also provides a learning opportunity
for both the partners.
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Others Reasons…
• Technology.
• Lower Risk of Geographical
Location.
• Government Regulations.
• Access to Capital.

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Types Of JV’s
1. Jointly controlled operations.

2. Jointly controlled assets.

3. Jointly controlled entities.

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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.
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Post-Liberalization Scenario
• 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.
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Need for setting up a Joint
Venture

INTERNAL REASONS COMPETITIVE GOALS

STRATEGIC GOALS

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INTERNAL REASONS
1) Building on company's strength.

2) Spreading costs and risks.

3) Improving access to financial resources.

4) Economies of scale and advantages of size.

5) Access to new technologies and customers.

6) Access to innovative managerial practices.

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 COMPETITIVE GOALS
1) Influencing structural evolution of the industry.
2) Pre-empting competition.
3) Defensive response to blurring industry
boundaries.
4) Creation of stronger competitive units.
5) Speed to market.
6) Improved agility.

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STRATEGIC GOALS

1) Synergies.

2) Transfer of technology/skills.

3) Diversification.

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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 100%
and Development, SEZ’s and
Free Trade
Warehousing Zones, Trading
etc..

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 Regulations governing JV in india

• Press note 18
• Denied the use of the automatic investment route and
required a foreign investor who had an existing joint
venture, trademark or technology transfer agreement in
the “same or allied” field in India to seek FIPB approval for
further investments in India.
• The foreign investor also had to prove that the new
investment would not harm the existing joint venture or its
stakeholders and obtain a No Objection Certificate from
the Indian partner. Foreign investors often felt that such
restrictions held them hostage to their Indian partners..

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 Regulations governing JV in india

• Press note-1
• Whereas Press Note 18 required government approval for
investment in “same or allied” field, Press Note 1 requires
government approval only if the foreign investor invests in
the “same” field
• While Press Note 18 completely denied the use of
automatic route, Press Note 1 permits the automatic route
where investments are made by venture capital funds
registeredSEBI as Foreign Venture Capital Investors or
where either of the parties have less than 3% investment in
the existing joint venture or where the existing joint venture
is defunct.
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 Regulations governing JV in india

• Press note 1 cont..

• Earlier the onus to justify and prove to the satisfaction of

the government that the new proposal would not
jeopardize the interests of the existing Indian joint
venture partner or technology/trademark partner was
only on the foreign investors or technology suppliers.
Now,The onus to provide requisite justification to the
govt. that the new proposal would or would not in any
way jeopardise the interests of the existing partner or
other stakeholders would lie equaly on both.
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 Regulations governing JV in india
• Press note 1 contd..

• Press Note 1 provides that all joint ventures entered

into after January 12, 2005 may contain a “conflict of
interest” clause in the joint venture agreement. Such a
clause is critical because, if drafted well, it essentially
provides the foreign investor with a type of no
objection from the Indian partner regarding foreign
investments in the “same” field.

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 Regulations governing JV in india
• There are cases where indian partners of failed jv’s alleged
to have made efforts to block foreign partners from ventures
refferring to PN1, without any sound reasons.
• In 2001 Walt Disney’s local paertner, the KK group objected
to Disney’s attempt to establish a wholly owned subsidiary
in india.
• TVS group , for about three years, kept denying the much
needed no objection certificate to suzuki to start a new
investment venture in india after the TVS- Suzuki joint
venture was called off in 2001.
• Wadia group is objecting to Danone’s invstments in Bio-
nutrition firm Avesthagen.
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Problems of JV’s
1. Valuation Problems.
2. Transparency.
3. Conflict Resolution.
4. Division of management responsibility
and degree of management
independence
5. Changes in ownership shares.

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6. Dividend Policy.

7. Marketing and Staffing Issue.

8. Cultural Problems.

9. Multinationality problems.

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Before entering a Joint Venture..
• Both partners should appreciate the need for the
joint venture.

•The partners should clearly agree on the way the

joint venture will be managed. 

•Take measures to be sure that the partner has a

compatible work culture.

•Be sure about the organisational behaviour of the

partner to ensure synergies.
Before entering a Joint Venture..
• It is important that both partners work towards a
system based on trust and transparency.
• To make for the long term success of the joint
venture, it is also important that both partners are
equally able to service its growing need for capital
as the business expands.
• Need to have a clear long term goal and set the
terms and conditions of the JV.
• Clarly define the role and responsibility of each
partner.
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Indian Joint Ventures Abroad
• India, is one of the largest sources of private investments in
the Third World.
• The maximum Indian equity that a IJV could have was fixed at
49 per cent.
• IJVs were sought to be promoted as instruments of promoting
Indian private interests abroad in term of
(i) acquiring larger assets in the host countries;
(ii) export markets; and
(iii) rich and high profit bearing investments.
this process India instituted export subsidies, export credit,
finance, through bilateral agreements for IJV.
• first case of an IJV abroad was the textile mill established by
the Birla’s in Ethiopia commenced operation in 1964.
The applications for joint ventures are
approved by the:
• Inter-ministerial Committee under the Ministry of
Commerce.
• IJVs is covered by the Foreign Exchange Regulation Act,
1973 (FERA).
• To facilitate and encourage IJVs, the Government of India has
established economic divisions in the
 Ministries of Commerce,
 External Affairs,
 Industry, and Indian Embassies outside,
 Indian Investment Centre (IIC)
• The Federation of Indian Chamber of Commerce and Industry
(FICCI) is also active in promoting the idea of joint ventures
with other developing countries.
 Sanmar Holdings Ltd
Sanmar Chemicals Corporation
   Chemplast Sanmar Ltd
   TCI Sanmar Chemicals LLC, Egypt
Sanmar Speciality Chemicals Ltd
   Performance Chemicals   Intec
Polymers
   ProCitius Research
   Bangalore Genei
Cabot Sanmar Ltd
Sanmar Shipping Ltd
Sanmar Engineering Corporation 
   Flowserve Sanmar Ltd
   BS&B Safety Systems (India) Ltd
   Sanmar Engineering Services Ltd
   Fisher Sanmar Ltd
   Xomox Sanmar Ltd
   Tyco Sanmar Ltd
Sanmar Metals Corporation 
   Sanmar Foundries Ltd
   Matrix Metals LLC, USA 
   Sanmar Ferrotech Ltd 
   Eisenwerk Erla GmbH, Germany 
 TAXATION
IN
JOINT VENTURE
• PROVISIONS RELATING TO TAXATION
OF JOINT VENTURE
• COMPUTATION OF TAXATION INCOME
OF AOP/BOI
• TAX PROVISIONS RELATED TO
SHARES OF A MEMBER.
Successful joint venture require:
• 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

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Example :-

• Virgin Group and Tata Tele Services

• Maruti Suzuki
• Tyson Foods and Godrej Agrovet
• Marks & Spencer and Reliance Retail of
India

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 Concerns of doing a JV
• Change of strategy of either of the partners
creats rift in certain JV’s
• The JV between Hotline group(india) and Haier(china) missed
at that point.
• Haier planned to increase its share to 49% to introduce wide
ranges of products including washing machines, multi-split A?
S’s etc.
• Haier wanted to focus in imports.
• Hotline disagreed to theses, the JV broke off before the
operations started
• Haier re-entered indian market with a 100% susidiary in 2003.

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 Concerns of doing a JV
• In some cases accecss to technology or
capital provides sufficient confidence in
the partners to go alone, making the JV
redundant
• For example- JV between TVS group
(INDIA) and Suzuki(japan) formed in 1983
was called off in 2001.

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 Concerns of doing a JV
• AT times either of the partners are
accused of breaching the terms of the JV<
creating tensions in it.
• For example- Wadia accused Danone of
using the popular Britannia brand Tiger
products outside india, not permitted as
per the existing agreement between the
two.

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 Concerns of doing a JV
There are cases of JV falling apart due to
lack of synergy.
• For example- the 40:60 JV between Godrej and GE
formed in 1993 , was called off in 2001because-
• The JV failed to meet the projected turnover of Rs 35
billion and managed only 1.83 billion in 1998-99.
• There was poor cultural integration between the two
partners. GE alleged lack of professionalism in the
Indian partner.

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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
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Example :-
• Lufthansa and Modi Group
• Daewoo and Proctor & Gamble
• Kinetic Honda
• Tata IBM
• LML Piaggio

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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.
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 Jindal Poly Films Limited

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