JITIN SHARMAMBA-I

ROLL NO. 2013

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

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 CostsOpening Access

to Financial Resources

Connection to Technological

Resources

Improving Access to New

Markets

Help Economies of Scale

INTERNAL REASONS

EXTERNAL REASONS

Develop Stronger Innovative

Product

Improve Speed to Market

Strategic Move Against

Competition

STRATEGIC REASONS

Synergistic Reasons

Share and Improve Technology and

Skills

Diversification

Finding partners

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.

PARTNER SELECTION

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

availability of appreciated or

depreciated property contributed to the joint venture

the most appropriate

structure and invitation/bid

foreign investor buying an interest in

a local company

LEGAL STRUCTUREWhen 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.

OWNERSHIPWhen 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.

Difference in Joint Ventureand Mergers

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 your two cultures may clash.

4 SECRETS OF SUCCESSFUL JOINT VENTURE

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.

EXAMPLES

REASONS FOR FAILURE OFJOINT VENTURE

Cultural Differences: Cultural and ideological differences top the list. In evaluating joint venture partners, most companies don’t 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 don’t agree from the very beginning who will have day-to-day operational control of the project and how fundamental decision will be made, the JV is bound to fail.

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 party’s 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

EXAMPLES

TOSHIBA

APPLE COMPUTER

S

MICROSOFT

MOTOROLAGE

IBM, SIEMEN

S

COMPANY TECHNOLOGY

GE Light Bulb Filament

APPLE COMPUTERS Multimedia Computers Product

MICROSOFT Hand held computer system

MOTOROLA Memory chips

IBM, SIEMENS Semiconductors

TOSHIBA JOINT VENTURES

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.

Globalization, Privatization& Liberalization

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.

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.

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.

Pre-Globalization Scenario in India

O Indian industry was unaware and 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

O International players become major 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.