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Introduction to Strategic Management



Before we proceed any further, it is essential to define strategic management. Strategic

management is a field of study that involves the process through which firms define their
missions, visions, goals, and objectives, as well as craft and execute strategies at various levels
of the firms hierarchies to create and sustain a competitive advantage. It helps organizations to
prioritize what is important for them and provides a holistic view of an organization. It entails
two distinct phases that deal with formation and implementation of strategy within an
organizational setting. Figure 1.1 shows the strategic management framework/process, which is
described in more detail later in this chapter and in Chapter 5. Historic origins of strategic
management have been linked to the military. The word strategy comes from the Greek strategos,
which means general. In literal terms, it means leader of the army. Military strategy deals
with planning and execution in a war setting, while taking into consideration the strategy and
tactics required to implement the plan. Outmaneuvering the enemy in a chesslike situation
requires a wellthought-out plan with emphasis on the plans execution. Internal Analysis
(Strengths & Weaknesses) Strategic Analysis External Analysis (Opportunities & Threats)
Strategy Formation Corporate Level, Business Level, and Functional Level Strategies Strategy
Implementation Strategy Control Mission, Vision, Goals and Objectives.The Strategic
Management Framework. Historical Origins of Strategy and Strategic Management 5 The basis
of strategic management can be linked to the works of Sun Tzu that date back to 400 B.C. and to
Carl von Clausewitz in the eighteenth century. Sun Tzus reference to space, quantities, and other
factors related is similar to the characteristics of the positioning school (Mintzberg, Ahlstrand,
and Lampel, 1998). According to Sun Tzu, calculations underlie victorious situations in wars.
Carl von Clausewitzs considered strategy a variation of themes in war situations (Mintzberg et
al., 1998). According to von Clausewitz, strategy was open-ended and creative in a situation of
chaos and disorganization (Mintzberg et al., 1998). This makes a more
Joint Ventures: An Overview

A joint venture is a legal organization that takes the form of a short
term partnership in which the persons jointly undertake a transaction for mutual profit. Generally
each person contributes assets and share risks. Like a partnership, joint ventures can involve any
type of business transaction and the "persons" involved can be individuals, groups of individuals,
companies, or corporations.

Joint ventures are also widely used by companies to gain entrance into foreign markets. Foreign
companies form joint ventures with domestic companies already present in markets the foreign
companies would like to enter. The foreign companies generally bring new technologies and
business practices into the joint venture, while the domestic companies already have the
relationships and requisite governmental documents within the country along with being
entrenched in the domestic industry.

In the United States, joint ventures are governed bystate Partnership, Contracts, andCommercial
Transactions law. A joint venture is also treated like a partnership for Federal Income
Tax purposes. A joint venture corporation involves the same type of activity as above but within
a corporate framework. Foreign joint ventures are subject to the international trade laws and the
laws within the foreign countries.

When two or more parties, whether individuals or entities, enter into an agreement to combine
resources for a specific business undertaking, it is referred to as a joint venture. The
organization of a joint venture serves as a short term partnership for the duration of the project,
in which each participant shares responsibility for the projects associated costs, profits, and
losses. Although the parties share responsibility, the joint venture is its own legal entity that
remains separate from the parties other business interests. To explore this concept, consider the
following joint venture definition.

Definition of Joint Venture
1. An association of two or more individuals or entities for the purpose of engaging in a
specific business enterprise for profit.

Late 19th century first used in the building of the U.S. railroad system

Purpose of a Joint Venture

Parties enter into joint venture contracts in order to combine strengths and increase competitive
advantage while minimizing risk. For example, a tech firm may collaborate with a manufacturing
company to bring a new high-tech idea to the marketplace. One party provides the product
expertise, the other provides the means for production. Additionally, joint ventures provide a way
for companies to enter foreign markets. For example, a foreign company enters into a joint
venture with a U.S. company for sale of its product. The foreign company then benefits from the
domestic companys governmental approval and business relationships in the industry. This is
referred as an international joint venture.

Joint Venture Agreement
A joint venture (JV) begins when the parties enter into a contract or joint venture agreement,
the specifics of which are of crucial importance for avoiding problems later on. In creating the
agreement, the parties should state specifically the purpose and goal of the venture, as well as the
ventures limitations. The agreement should be very specific in outlining each partys duties and
rights under the agreement, taking into account that all parties are entitled to share in the profits
as well as the losses incurred in the venture.
Each party to a JV has a responsibility to act in good faith in all matters regarding the venture,
taking care to uphold the interests of all parties involved. This amounts to a legalfiduciary duty to
the venture, even if it becomes necessary for a party to place individual interests below those of
the group.

The joint venture agreement should specify both the formation and termination dates, or that the
venture terminates when its purpose has been accomplished. Some JV agreements specify that
the venture will automatically terminate if one of the members dies.

More specifically, a JV agreement should specifically detail the following:

Structure whether the JV will be a separate business entity in its own right, or simply a
short term project
Objective the purpose and goals of the JV
Confidentiality an agreement for the parties to protect any trade and commercial
secrets disclosed during the venture
Financial Contributions how much money each party will contribute to the venture
Assets and Employees whether each party will contribute assets, and whether they will
assign employees to, or hire new employees for the venture
Intellectual Property Ownership which party will have ownership of any intellectual
property created by the venture
Management specific responsibilities of each party, and the procedures to be followed
in operations of the venture
Profits, Losses, and Liabilities specifics of how any profits and losses are to be
6 as the assignment of liabilities
distributed or shared among the parties, as well
Disputes specific instructions for the resolution of disputes that may arise between the
Exit Strategy specific details on when and how the JV will end, including the final
distribution of assets and debts

Bharti and SingTel establish Network i2i

Bharti and SingTel establish Network i2i Limited Launches India's first private submarine
cable company

Network i2i to build and operate Singapore-India submarine cable network

Bharti Aquanet to operate and maintain cable stations in India

Bharti Telesonic to provide backhaul traffic distribution for all relevant cities in India

Work on new Chennai cable station begins

About Bharti

Bharti, India's leading telecom conglomerate, has been at the forefront of technology and has
revolutionised telecommunications with its world-class products and services. Established in
1976, Bharti has been a pioneering force in the telecom sector with many firsts and innovations
to its credit. Bharti has many joint ventures with telecom leaders like SingTel, Singapore; British
Telecom, UK; E.M.WarburgPincus, USA; Intel, USA; Telia, Sweden and New York Life
International, USA.

Bharti has many firsts to its credit, ranging from being the first cellular service in Delhi, first
private basic telephone service provider in the country, first Indian company to provide
comprehensive telecom services outside India (Seychelles), fastest growing VSAT company in
India, and first multinational Internet Service Provider. AirTel, the premier cellular service from
Bharti in Delhi, Himachal, Andhra Pradesh and Karnataka, has defined the cellular business
through continuous marketing and technological innovations, consistently setting the benchmark
for the Indian cellular industry. AirTel has the unique distinction of having been named India's
best cellular service for four years in a row by receiving the Techies '97, Techies '98, Techies '99
and Techies 2000. Today, Bharti is India's largest telecom services company in the private sector.

Mantra Online, under which Bharti-BT provides Internet services, is the first multi-national
Internet service provider in the country. Bharti Telenet created history with the launch of the first
private sector fixed line service in the state of Madhya Pradesh, which is today India's largest
private basic telephone service. Bharti-BT VSAT is the fastest growing VSAT company in India,
expanding the market through innovation and service leadership.

Bharti also plans to add long distance telephony and broadband services to its existing
telecommunications portfolio in addition to extending its mobile and fixed line services to new
markets within India.

Bharti also manufactures and exports telephone terminals and cordless phones. Apart from being
the largest manufacturer of telephone instruments, it is also the first company to export its
products to the USA.

Bharti is today recognized as a true infrastructure builder of the nation. Amongst it's series of
rewards & recognitions, Bharti was recently awarded the first National Infrastructure
Development Finance Corporation (IDFC) award for "Excellence in Infrastructure - 2000".

Chennai, March 8, 2001 - Bharti Group, India's leading telecom conglomerate and Singapore
Telecommunications Ltd (SingTel) today announced the formation of Network i2i Limited,

About SingTel

SingTel is Asia's leading communications company with a comprehensive portfolio of services

that include voice and data services over fixed, wireless and Internet platforms. Serving both the
corporate and residential markets, SingTel is committed to bringing the best of global
communications to its customers in the Asia Pacific and beyond. It has built the infrastructure
11hub and is today the country's largest company
that has helped transform Singapore into a global
in terms of market capitalisation (about US$23billion).

The SingTel Group is expanding rapidly into overseas markets, with current investments of more
than S$5 billion (US$2.9 billion) in about 100 joint ventures and associated companies in over
20 countries and territories. Its major investments include Belgacom of Belgium, Advanced Info
Service of Thailand, New Century Infocomm of Taiwan, the Bharti Telecom Group of India and
Globe Telecom of the Philippines. With a heritage of over 120 years, SingTel aims to be the
Asian partner of choice for telecommunications operators across the world. More information
can be found @ .

About Network i2i Limited

Network i2i is a private cable development company co-owned by Singapore

Telecommunications Ltd (SingTel), Asia's leading communications company; and the Bharti
Group, India's leading telecom conglomerate. Network i2i will build the world's largest cable
network in terms of bandwidth capacity, with a total bandwidth of 8.4 Terabits per second,
linking Singapore, Chennai and Mumbai.

The entire i2i cable network utilizes the latest Dense Wavelength Division Multiplexing
(DWDM) technology to provide transmission facilities, which can be upgraded, to ensure
durability. It will have a self-healing, completely redundant ring configuration for greater
network resilience and route diversity.

Joint Venture Examples

Since two of the nations burgeoning railroads entered into a joint venture to expand rail service
to a rapidly growing West Coast population in themed 1800s, the concept has experienced
phenomenal growth. The idea of being able to join forces with another individual or company
solely for the purpose of taking on a single business enterprise offers solutions to companies
large and small. Below are two famous joint venture examples.

1] Kellogg Company Joins with Wilmar International Limited

Anticipating Chinas rise to the top of the food and beverage global market, Kellogg Company
entered into a joint venture agreement with Wilmar International Limited for the purpose of
selling and distributing cereal and snack foods to consumers in China. While Kellogg brings to
the table an extensive collection of globally renowned products as well as their expertise in the
industry, Wilmar offers marketing and sales infrastructure in China, including an extensive
distribution network and supply chain. Joining together allows both companies to profit from a
synergistic relationship.

2] The Joint Venture of Hulu

The 2008 joint venture launched by NBC Universal Television Group (Comcast), Fox
Broadcasting Company (21st Century Fox), and Disney-ABC Television Group (The Walt
Disney Company) to create the enormously popular video streaming website Hulu is one
example of a large scale partnering of companies that has been very profitable.

Though individually the companies are competitors over the U.S. airwaves, combining their
efforts to provide streaming content to billions of homes, computers, and mobile devices proved
a powerful way to increase revenues. The success of Hulu has potential buyers lining up with
offers topping $1 billion.

Joint Venture Accounting

Setting up accurate Joint Venture accounting is crucial, and best assigned to a professional. For
accounting purposes, there are three main types of JV, each of which recognizes assets and
liabilities a bit differently:

1. Jointly Controlled Operations while the JV with jointly controlled operations

utilizes the resources and assets of each of the parties, each party incurs its own expenses,
raises its own financing, and contributes its own assets to the venture.

2. Jointly Controlled Assets the parties jointly own and control the assets
contributed to the JV, as well as the assets acquired by the venture, each receiving a share of
the income and expenses of the venture.

3. Jointly Controlled Entities this type of JV requires the formation of a separate
legal entity in which each party owns an interest. The newly created entity then controls the
assets, liabilities, revenues, and expenses, of the venture. This jointly controlled entity
maintains its own records for accounting purposes, preparing financial statements on a
regular basis. If a party to the venture contributes money or other assets to the jointly
controlled entity, the contribution is regarded as an investment.

The Qualified Joint Venture

IRS law permits certain joint venture businesses owned by a married couple to file business taxes
as a Qualified Joint Venture (QJV), rather than a standard partnership. When filing as a
partnership on IRS Schedule C, only one spouse is credited for social security and Medicare
coverage. Filing as a Qualified Joint Venture, with each spouse reporting a share of the business
profits and losses, enables both spouses to receive social security and Medicare coverage credit.
In order to qualify as a Qualified Joint Venture, the business must meet the following three

1. The only members of the JV are a married couple who file a joint IRS tax return
2. Both spouses actively participate in the business
3. Both spouses choose not to treat the business
15 as a partnership

Related Legal Terms and Issues

1. Asset Any valuable thing or property owned by a person or entity, regarded as being of
2. Intellectual Property Anything created by the human intellect, such as artistic and
literary works, designs, images, symbols, and names.
3. Liabilities A companys legal obligations or debts that come up during the course of
4. Legal Entity An individual, company, association, trust, or other organization that is
legally recognized in the eyes of the law. A legal entity is able to enter into contracts, take
on obligations, pay debts, be sued, and be held responsible for its actions.

Company incorporation:

A JV can be brought about in the following major ways:

Foreign investor buying an interest in a local company

Local firm acquiring an interest in an existing foreign firm

Both the foreign and local entrepreneurs jointly forming a new enterprise

Together with public capital and/or bank debt

In the U.K and India - and in many Common Law countries - a joint-venture (or else a company
formed by a group of individuals) must file with the appropriate authority the Memorandum of
Association. It is a statutory document which informs the outside public of its existence. It may
be viewed by the public at the office in which it is filed. A sample can be seen at
Together with the Articles of Association, it forms the 'constitution' of a company in these

The Articles of Association regulate the interaction between shareholders and the directors of a
company and can be a lengthy document of up to 700,000+ pages. It deals with the powers
relegated by the stockholders to the Directors and those withheld by them, requiring the passing
of ordinary resolutions, special resolutions and the holding of Extraordinary General Meetings to
bring the Directors' decision to bear.

A Certificate of Incorporation[6] or the Articles of Incorporation[7] is a document required to form

a corporation in the US (in actuality, the State where it is incorporated) and in countries
following the practice. In the US, the 'constitution' is a single document. The Articles of
Incorporation is again a regulation of the Directors by the stock-holders in a company.

By its formation the JV becomes a new entity with the implication:

that it is officially separate from its Founders, who might otherwise be giant corporations,
even amongst the emerging countries

the JV can contract in its own name, acquire rights (such as the right to buy new
companies), and
it has a separate liability from that of its founders, except for invested capital

it can sue (and be sued) in courts in defense or its pursuance of its objectives.

On the receipt of the Certificate of Incorporation a company can commence its business.

Shareholders' agreement[edit]

This is a legal area and is fraught with difficulty as the laws of countries differ, particularly on
the enforceability of 'heads of' or shareholder agreements. For some legal reasons it may be
called a Memorandum of Understanding. It is done in parallel with other activities in forming a
JV. Though dealt with briefly for a shareholders' agreement,[8] some issues must be dealt with
here as a preamble to the discussion that follows. There are also many issues which are not in the
Articles when a company starts up or never ever present. Also, a JV may elect to stay as a JV
alone in a 'quasi partnership' to avoid any nonessential disclosure to the government or the

Some of the issues in a shareholders' agreement are:

Valuation of intellectual rights, say, the valuations of the IPR of one partner and,say, the
real estate of the other

the control of the Company either by the number of Directors or its "funding"

The number of directors and the rights of the founders to their appoint Directors which
shows as to whether a shareholder dominates or shares equality.

management decisions - whether the board manages or a founder

transferability of shares - assignment rights of the founders to other members of the


dividend policy - percentage of profits to be declared when there is profit

winding up - the conditions, notice to members

confidentiality of know-how and founders' agreement and penalties for disclosure

first right of refusal - purchase rights and counter-bid by a founder.

There are many features which have to be incorporated into the Shareholders Agreement which
is quite private to the parties as they start off. Normally, it requires no submission to any

The other basic document which must be articulated is the Articles which is a published
document and known to members.

This repeats the Shareholders Agreement as to the number of Directors each founder can appoint
to the (see Board of Directors). Whether the Board controls or the Founders. The taking of
decisions by simple majority (50%+1) of those present or a 51% or 75% majority with all
Directors present (their alternates/proxy); the deployment of funds of the firm; extent of debt; the
proportion of profit that can be declared as dividends; etc. Also significant is what will happen if
the firm is dissolved; one of the partner dies. Also, the 'first right' of refusal if the firm is sold,
sometimes its puts and calls.

Often the most successful JVs are those with 50:50 partnership with each party having the same
number of Directors but rotating control over the firm, or rights to appoint the Chairperson and
Vice-chair of the Company. Sometimes a party may give a separate trusted person to vote in its
place proxy vote of the Founder at Board Meetings.[9]

Recently, in a major case the Indian Supreme Court has held that Memorandums of
Understanding (whose details are not in the Articles of Association) are "unconstitutional" giving
more transparency to undertakings.

Chinese Law:

According to a report of the United Nations Conference on Trade and Development 2003, China
was the recipient of US$53.5 billion in direct foreign investment, making it the world's largest
recipient of direct foreign investment for the first time, to exceed the USA. Also, it approved the
establishment of nearly 500,000 foreign-investment enterprises.[10] The US had 45,000 projects
(by 2004) with an in-place investment of over 48 billion.[11]

Until recently, no guidelines existed on how foreign investment was to be handled due to the
restrictive nature of China toward foreign investors. Following the death of Mao Zedong in 1976,
initiatives in foreign trade began to be applied, and law applicable to foreign direct investment
was made clear in 1979, while the first Sino-foreign equity venture took place in 2001.[12] The
corpus of the law has improved since then.

Companies with foreign partners can carry out manufacturing and sales operations in China and
can sell through their own sales network. Foreign-Sino companies have export rights which are
not available to wholly Chinese companies, as China desires to import foreign technology by
encouraging JVs and the latest technologies.

Under Chinese law, foreign enterprises are divided into several basic categories. Of these, five
will be described or mentioned here: three relate to industry and services and two as vehicles for
foreign investment. Those 5 categories of Chinese foreign enterprises are: the Sino-Foreign
Equity Joint Ventures (EJVs), Sino-Foreign Co-operative Joint Ventures (CJVs), Wholly
Foreign-Owned Enterprises (WFOE), although they do not strictly belong to Joint Ventures, plus
foreign investment companies limited by shares (FICLBS), and Investment Companies through
Foreign Investors (ICFI). Each category is described below.

Equity joint ventures

The EJV Law is between a Chinese partner and a foreign company. It is incorporated in both
Chinese (official) and in English (with equal validity), with limited liability. Prior to China's
entry into WTO and thus the WFOEs EJVs predominated. In the EJV mode, the partners
share profits, losses and risk in equal proportion to their respective contributions to the venture's

registered capital. These escalate upwardly in the same proportion as the increase in registered

The JV contract accompanied by the Articles of Association for the EJV are the two most
fundamental legal documents of the project. The Articles mirror many of the provisions of the JV
contract. In case of conflict the JV document has precedence These documents are prepared at
the same time as the feasibility report. There are also the ancillary documents (termed "offsets"
in the US) covering know-how and trademarks and supply-of-equipment agreements.

The minimum equity is prescribed for investment (truncated),[3][13] where the foreign equity and
debt levels are:[14]

less than US$3 million, equity must constitute 70% of the investment;

between US$3 million and US$10 million, minimum equity must be US$2.1 million and
at least 50% of the investment;

between US$10 million and US$30 million, minimum equity must be US$5 million and
at least 40% of the investment;

more than US$30 million, minimum equity must be US$12 million and at least 1/3 of the

There are also intermediary levels.

The foreign investment in the total project must be at least 25%. No minimum investment is set
for the Chinese partner. The timing of investments must be mentioned in the Agreement and
failure to invest in the indicated time, draws a penalty.


The JV is not a permanent structure. It can be dissolved when:

Aims of original venture met 21

Aims of original venture not met

Either or both parties develop new goals

Either or both parties no longer agree with joint venture aims

Time agreed for joint venture has expired

Legal or financial issues

Evolving market conditions mean that joint venture is no longer appropriate or relevant

One party acquires the other

Advantages & Disadvantage of a Joint Venture

There are many good business and accounting reasons to participate in a Joint Venture (often
shortened JV). Partnering with a business that has complementary abilities and resources, such as
finance, distribution channels, or technology, makes good sense. These are just some of the
reasons partnerships formed by joint venture are becoming increasingly popular.

A joint venture is a strategic alliance between two or more individuals or entities to engage
in a specific project or undertaking.

Partnerships and joint ventures can be similar but in fact can have significantly different
implications for those involved. A partnership usually involves a continuing, long-term business
relationship, whereas a joint venture is based on a single business project.

Parties enter Joint Ventures to gain individual benefits, usually a share of the project objective.
This may be to develop a product or intellectual property rather than joint or collective profits, as
is the case with a general or limited partnership.

A joint venture, like a general partnership is not a separate legal entity. Revenues, expenses
and asset ownership usually flow through the joint venture to the participants, since the joint
venture itself has no legal status. Once the Joint venture has met its goals the entity ceases to

[A] Advantages of Joint Venture

Provide companies with the opportunity to gain new capacity and expertise

Allow companies to enter related businesses or new geographic markets or gain new
technological knowledge

access to greater resources, including specialised staff and technology

sharing of risks with a venture partner

Joint ventures can be flexible. For example, a joint venture can have a limited life span
and only cover part of what you do, thus limiting both your commitment and the business'

In the era of divestiture and consolidation, JVs offer a creative way for companies to exit
from non-core businesses.

Companies can gradually separate a business from the rest of the organisation, and
eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a
sale by one partner to the other.

Businesses of any size can use joint ventures to strengthen long-term relationships or to
collaborate on short-term projects.

Creating a JV provides an opportunity for the parties to benefit from one anothers expertise.
Other benefits include:

Enables the parties to offer their customers new products and services
Helps the parties to save money in operating, marketing, and advertising costs
Helps the parties save time
Helps the parties acquire new business associates and referrals

Enables the parties to gain new technological know-how or new geographical market
Does not require a long-term commitment

A joint venture can help your business grow faster, increase productivity and generate greater
profits. A successful joint venture can offer:

access to new markets and distribution networks

increased capacity
sharing of risks and costs with a partner
access to greater resources, including specialised staff, technology and finance

Joint ventures often enable growth without having to borrow funds or look for outside investors.
You may be able to use your joint venture partner's customer database to market your product, or
offer your partner's services and products to your existing customers. Joint venture partners also
benefit from being able to join forces in purchasing, research and development.

A joint venture can also be very flexible. For example, a joint venture can have a limited life
span and only cover part of what you do, thus limiting the commitment for both parties and the
business' exposure.

Joint ventures are especially popular with businesses in the transport and travel industries that
operate in different countries.

[B] Disadvantages of Joint Ventures
It takes time and effort to build the right relationship and partnering with another business can be
challenging. Problems are likely to arise if:

The objectives of the venture are not 100 per cent clear and communicated to everyone

There is an imbalance in levels of expertise, investment or assets brought into the venture
by the different partners.

Different cultures and management styles result in poor integration and co-operation.

The partners don't provide enough leadership and support in the early stages.

Success in a joint venture depends on thorough research and analysis of the objectives.

Embarking on a Joint Venture can represent a significant reconstruction to your business.

However favourable it may be to your potential for growth, it needs to fit with your overall
business strategy.

It's important to review your business strategy before committing to a joint venture. This should
help you define what you can sensibly expect. In fact, you might decide there are better ways to
achieve your business aims.

You may also want to study what similar businesses are doing, particular those that operate in
similar markets to yours. Seeing how they use joint ventures could help you decide on the best
approach for your business. At the same time, you could try to identify the skills they use to
partner successfully.

You can benefit from studying your own enterprise. Be realistic about your strengths and
weaknesses - consider performing strengths, weaknesses, opportunities and threats analysis
(swot) to identify whether the two businesses are compatible. You will almost certainly want to
identify a joint venture partner that complements your own skills and failings.

Remember to consider the employees' perspective and bear in mind that people can feel
threatened by a joint venture. It may be difficult to foster effective working relationships if your
partner has a different way of doing business.

When embarking on a joint venture its imperative to have your understanding in writing.
You should set out the terms and conditions agreed upon in a written contract, this will
help prevent misunderstandings and provide both parties with strong legal recourse in the
event the other party fails to fulfil its obligations while under contract.

The risks of joint ventures

Partnering with another business can be complex. It takes time and effort to build the right
relationship. Problems are likely to arise if:

the objectives of the venture are not totally clear and communicated to everyone involved
the partners have different objectives for the joint venture

there is an imbalance in levels of expertise, investment or assets brought into the venture
by the different partners
different cultures and management styles result in poor integration and co-operation
the partners don't provide sufficient leadership and support in the early stages

Success in a joint venture depends on thorough research and analysis of aims and objectives.
This should be followed up with effective communication of the business plan to everyone

A written Joint Venture Agreement should cover:

The parties involved

The objectives of the joint venture

Financial contributions you will each make whether you will transfer any assets or
employees to the joint venture

Intellectual property developed by the participants in the joint venture

Day to day management of finances, responsibilities and processes to be followed.

Dispute resolution, how any disagreements between the parties will be resolved

How if necessary the joint venture can be terminated.

The use of confidentiality or non-disclosure agreements is also recommended to protect
the parties when disclosing sensitive commercial secrets or confidential information.

Joint ventures often occur between businesses for a number of reasons; most commonly where
two or more businesses collaborate on a particular project or business enterprise. They may be
similar businesses, which are pooling their resources, or completely merging with one another.
Alternatively, they may operate in different spheres and be collaborating on a project which
involves the application of both of their areas of expertise.

Types of Joint Ventures

1. Short-term collaborations

The length of the joint venture is of importance here as it is often that such collaborations
will only take place for a particular project, rather than to create a long lasting business

2. Limited-function joint ventures

The powers in a limited-function joint venture are based largely on co-operation or co-
ordination between the joint venture parties rather than a complete merge of businesses.

3. Full-function joint ventures

A full-function joint venture on the other hand is designed on a much larger scale
compared to the limited function, with the intent to merge the businesses involved to
create an autonomous economic entity, often a new company, in exchange for shares.

4. Full-scale world wide mergers

This type of joint venture is on the largest scale, which is often with the involvement of
international companies, creating a new company or subsidiary, for example the merger
between Shell and Texaco, to create Equilon to deal with a particular product, namely
industrial lubricants.

5. Structures for Joint Ventures

There are a number of methods businesses can adopt when entering into a joint venture.
Possible structures include; entering into a contractual arrangement, specific
collaboration agreements between the parties, a corporate joint venture can be established
or a general/limited liability partnership can be created. Such partnerships can exist in the
form of a fixed term, can be an at will partnership; which is continuous until dissolution
occurs, or it may be created for specific project; which will end the joint venture upon
completion of the project.

How you set up a joint venture depends on what you are trying to achieve.

One option is to agree to co-operate with another business in a limited and specific way. For
example, a small business with an exciting new product might want to sell it through a larger
company's distribution network. The two partners could agree a contract setting out the terms
and conditions of how this would work.

Another option is to set up a separate joint venture business, possibly a new company, to
handle a particular contract. A joint venture company like this can be a very flexible option. The
partners each own shares in the company and agree how it should be managed.

In some circumstances, other options may work better than a limited company. For example, you
could form a business partnership or a limited liability partnership. You might even decide to
completely merge your two businesses. For more information, see legal structures: the basics.

To help you decide what form of joint venture is best for you, you should consider whether you
want to be involved in managing it. You should also think about what might happen if the
venture goes wrong and how much risk you are prepared to accept.

It's worth taking legal advice to help identify your best option. The way you set up your joint
venture affects how you run it and how any profits are shared and taxed. It also affects your
liability if the venture goes wrong.

You need a clear legal agreement setting out how the joint venture will work and how any
income will be shared. See create a joint venture agreement.

Reasons for Joint Ventures

One of the main reasons for businesses entering into a joint venture is to save costs; in particular
the costs of research and development. Businesses are also able to share any financial risks
involved, which can be considerable depending on the nature of the business. Other reasons for
joint ventures can include sharing resources, such as providing access to technology or sharing
skills with one another. The customer base of each business can increase with a joint venture, in
particular if an international market is involved, providing a larger geographic scope and the
ability to utilise one partys distribution or sales network within another territory. The pressures
of global competition can be significantly reduced as a merger can lead to wider access to
customers throughout the world with better purchasing powers. As well as entry into new
geographical markets, joint ventures provide the opportunity of entering into new technical
markets if collaborating with businesses that have an advanced technical start in the field.

Problems with Joint Ventures

1) Management

The management of a business can often lead to conflicts in joint venture as a joint
venture requires the input from both or all of the parties involved. However, it is likely
that one party may dominate the management of the project or of the new company and
so tensions may arise within the joint venture. There may also be confusion as to who the
management consists of, it may be that each party brings in his own management team,
or that a new joint venture management team needs to be created.

Disagreements will also have to be resolved by senior management.

2) Differences

Although ultimately the parties have the same interest in the joint venture, their
objectives for the outcome may differ; causing conflicts. Joint ventures also require
parties to work in close proximity, which may highlight different working patterns
adopted by respective parties. This can affect the harmony amongst the management team
and may make the operation of the joint venture lengthy and costly.

3) Competition

Of there is no appropriate clause in the contract or the agreement between the parties
when creating the joint venture, it may be possible for one party to take the market
knowledge from the other party or parties in the joint venture and set up a business in
direct competition. This is of particular significance when the joint venture comes to an
end, with each business taking away from the joint venture what they have learned from
each other.

Case Study

The move follows the government's decision to permit 100% FDI in telecom sector against the
74% stipulated earlier. While Bharti has 9.9% holding in SingTel Global, the share of Leela is
16%. SingTel owns the remaining 74% through SingTel Australia Holding, Singapore (STAH)
and INS Holdings (INS). SingTel Global was incorporated on December 7, 2007, to provide ISD
and STD services to the Singapore-based group's international and Indian clients. Licences for
the same were granted in 2009 by the Department of Telecommunications (DoT).

SingTel group is also the biggest shareholder in Bharti Airtel with a direct and indirect holding of
32.5%. STAH is an investment holding company and is a wholly-owned subsidiary of SingTel.
The application to the FIPB was made last month, sources said, adding that the equity of the
Indian promoters will be picked up by STAH. The sources said that the SingTel proposal sent to
the FIPB also carries no-objection letters from Bharti and Leela in support of the transaction.

The government's nod for 100% FDI in telecom is expected to see many foreign companies
increase their holding in Indian JVs. The Union Cabinet had cleared the proposal on August 1
and the government said that this will help bring in fresh funds into the telecom sector. British
mobile giant Vodafone is also believed to be preparing to buy minority shareholders from its
Indian operations and may spend over $2 billion for the same.

Other foreign operators like Russia's Sistema and Norway's Telenor may also hike stakes in their
Indian joint ventures following the 100% nod. SingTel Global's corporate office is in Delhi and it
provides global connectivity though international gateways in Mumbai and Chennai, which
connect to SingTel's global submarine cable infrastructure. The company has Indian clients
across industries and has a special focus in IT and ITeS, banking and financial services and
FMCG segments. Its overseas customers include companies in technology, automotive, banking,
manufacturing and FMCG.


At the end of the day, running a successful joint venture is a matter of give and take. One
disadvantage, of course, is that Castrol does not have 100% of the ownership and takes only a
part share of profits and dividends. However, this is counterbalanced by the benefits of working
in partnership with a local company - a better understanding of the culture, market and ways of
operating in an emerging nation


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