JOINT VENTURE (JV)

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 JOINT VENTURE
In a “Joint Venture (JV)”, two or more firms join their hands to
form a separate, independent organization for strategic
purposes.
Joint ventures are typically focused on specific market
objectives.
As a part of joint venture agreement, ownership, operational
responsibilities and financial risks & rewards are allocated to
each participant.
Each partner in a joint venture retains its own corporate identity
& independence.
Joint Ventures may run from few months to a few years, & often
involve cross border relationship called as “cross-border joint
venture”.
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 JOINT VENTURE (In Brief)

 The Joint venture entity is managed by a separate

management team.
 The Joint venture may own its assets independently from
its parent firms.
 Partner firms play an active role in the joint venture’s
strategic decisions.
 Joint venture is a preferred vehicle of choice for international
market entry in countries which do not permit wholly-owned
subsidiaries.
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 REASONS FOR JOINT VENTURE

 POOLING OF COMPLEMENTARY RESOURCES

 ACCESS TO RAW MATERIALS

 ACCESS TO NEW MARKETS

 DIVERSIFICATION OF RISKS

 ECONOMIES OF SCALE

 COST REDUCTION

 TAX SHELTER
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 KEY ISSUES IN THE JOINT VENTURE
1) MANAGEMENT ISSUES
 The agreement should be clear in terms of arrangements for
managing the joint venture company.
 Clear assignment of responsibilities to all full-time directors.
 Board of directors should have a higher representation of the
majority shareholders. Chairman should be nominated by the
majority shareholders.
2) FINANCING ISSUES
 Provision of funds on a regular basis.
 Meeting day-to-day funds (working capital needs).
 Profits gained or losses incurred by the joint venture.
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 Expansion and development cost.
 Proportion of contribution of the partners in the original
investment.
3) ISSUES REGARDING TRANSFER OF SHARES
 Degree of participation of partners in the shareholding.
 Transfer of shares if the joint venture winds up in case one of
the parties intends to sell the whole shares.
 Intra-group transfer issues.
 Price of shares in case of transfer.
 Issues related to naming the joint venture in case of change in
shareholding pattern.
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 Issues relating to transfer of shares in case one of the parties
turns out to be insolvent.
 Transfer of shares in case one of the partners become liable for
breach of the joint venture agreement.

4) ISSUES RELATED TO TERMINATION

 Recognizing situations in which the joint venture is automatically
terminated or cases where one of the partners is entitled to
terminate the joint venture.
 Preparation / arrangements of termination

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5) CONTINGENCY ISSUES
 Alteration in government regulations and policies.
 Changes in the competition scenario & market forces.
 Requirement of more funds.

6) COMMERCIAL ISSUES
 Limitation & scope of activities / geographic location, offices
under consideration, operation of office activities, etc.
 Rights to imports and exports.

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 PARTNER SELECTION
 The company in search of a partner must meet a number of
potential companies and discuss the plans with them.
 The company should prepare a list of criteria for evaluation of
the potential partners. This list should include both tangible &
intangible factors & weights should be given to them.
 Local consultants must be contacted as their suggestions and
inputs may help in selecting a right partner & right market.
 Proper identification of short-term & long-term goals of the
potential partner.
 Both the partners in the joint venture should be of near-equal
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strengths and both should gain from the deal.
 ADVANTAGES OF JOINT VENTURE

 Achieving economies of scale in purchase of raw materials,

production & marketing.
 Flexibility in obtaining capital for expansion & other purposes.
 Guaranteed market for output.
 Guaranteed source of supply for raw materials.
 Achieving a greater degree of quality & quantity control.
 Maintaining a steady buyer.
 Achieving a stronger bargaining power.
 Sharing in the growth & profits from a branded product.
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 REASONS FOR FAILURE

 The expected technology is never developed.

 Inadequate preplanning.
 Disagreements between management regarding decision making.
 Managers with experience & knowledge in one company refuse
to share knowledge with their colleagues in the joint venture.
 Cultural differences.
 Inadequate profits from foreign operations.
 Conflicts on financial issues.
 Unsupportive government policies.
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 Definition

• A syndicated facility is a lending facility defined by a

single loan agreement in which or several bank
participate.

• Syndication is an arrangement where a group of banks,

which may not have any other business relationship
with the borrower, participate for a single loan

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 Role within the syndication process

 Arranger / Lead Manager

 Underwriting Bank
 Participating Bank
 Facility Manager / Agent

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 Stages involved in the process

• Pre mandate phase

• Placing the loan

• Post closure phase

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 Benefit to the borrower

• Deals with a single bank

• Quicker & Simpler than other ways of raising capital (E.G

Issue of Bonds or Equity)

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 Benefit to the Lead Bank

• Good arrangement and other fees can be

earned without committing capital

• Enhancement of Bank Reputation

• Enhancement of Bank Relationship with the

client
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 Benefit to the Participating Bank

• Access to lending opportunities with low

marketing costs.
• Opportunities to participate in future
syndication.
• In case the borrower runs into difficulties
participant banks have equal treatment.

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