Presented by: Group B

Joint venture is a mode of entry to International business, which comes under Foreign Direct Investment with Alliances. FDI with alliances can be divided into two; a. Mergers and Acquisitions b. Joint venture
Examples of other modes of entries are Exporting, Licensing, Franchising etc.

Joint venture:

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

 In a Joint venture, the partnering companies share the equity and a separate firm is formed for the joint venture Thus, the partners share benefits (profit) as well as the risks from the venture.

The share of the equity need not be equal, It can be as low as 1 per cent by one partner and the rest by the other Toyota Kirloskar Motor Ltd. in India one such example where the Kirloskars equity holding is quite low.
The management of the company (Joint venture) is shared by the partners as per mutual agreement For instance, in Toyota Kirloskar Motor Ltd, the MD is from Toyota Motor Company of Japan while the Deputy managing director (DMD) is from the Kirloskar group. Joint venture provides require strength in terms of required capital, latest technology, required human talent etc.

Example of a successful joint venture: Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones

JV in India Before and after liberalization:

Government of India earlier believed in alliances between a home company and a foreign company basically with the intention of obtaining technology through the foreign company. This restrictive thinking has now on liberalizing the economy, Indian companies are therefore, now entering into many Joint venture with foreign firms. India is now perceived as a large and fast growing market and the foreign firms lack in specific expertise in sales and distribution network and marketing knowledge about India. This is the propose to get through a Joint venture with an Indian company. Foreign players saw India as a land of opportunity to take advantage of low cost of production.

Example of some JV in India:

Tata Motors & Fiat: The JV will manufacture cars from Tata & Fiat stables. Tata Motors will also buy diesel engines for it cars from Fiat, while Fiat will distribute Tata cars in Europe. Mahindra & Renault: This JV is the market entry strategy for Renault. The JV will manufacture Renaults Logan cars in India. Renault will gain market knowledge - while Mahindras will learn how to make good cars, and leverage its dealership network to additional profits.

Tata-AIG: This JV was created to take advantage of the new government regulations on private insurance companies. While the current regulations prevent foreign insurance companies setting up a green field venture in India. Similarly other JV in this field are: ICICI Lombard, ICICI Prudential, Bajaj- Allianze etc.

Bharthi-Walmart: JV was primarily created by Wal-Marts desire to enter India and the government regulations regarding large foreign retail firms operating in India. This 50:50 venture with Bharti will give WalMart an entry into India ( a long awaited one at that)

Contd The two-wheeler company Hero Cycle with famous Honda motor company of Japan(over)

Indian company Maruti and Suzuki(Japan)

Indian pharmaceutical company Ranbaxy with Eli Lily of USA

The Indian IT giant Wipro with General electric of the US

Virgin Mobile India Limited is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group

Reasons for joint venture:

JV provides a lower risk option of entering into a new country, example- motorola entered India in JV with blue star company, a brand with reputated and vast distribution network. It also provides an opportunity for both the partners to leverage their core strengths and increase the profits. When M&A is not a good option -Partners are not willing for M&A -Firm is not capable of M&A

 It also provides a learning opportunity for both the partners. Technology. Geographical Location. Government Regulations. Access to Capital.

Gains through a Joint venture:

For foreign firm:
Knowledge about marketing in that country
Distribution network

Government regulation
Help in tacking with local rules and regulations

Ward off protectionist sentiment and negative actions by the local government & others
Benefits of tax concessions to certain category of local firms

Entry into the market in which wholly owned subsidiaries are not permitted Learning experience of the local market prior to starting full scale wholly owned operations there Learning of technology relevant to the local market and similar markets elsewhere, from the local partner

For the local firm:

Technology (Process/Engineering/Design) Capital Brand name Quality up gradation International outlook, perspective and knowledge Organizational learning of a global level

Advantage of Joint-Ventures: Joint provide large capital funds. Joint ventures are suitable for major projects.

Joint ventures spread the risk between or among partners.

Different parties to the joint venture bring different kinds like technical skills, technology, human skills, expertise, marketing skills or marketing networks. Joint ventures make large projects and turn key projects feasible and possible. Joint venture provide synergy due to combined efforts of varied parties.

Disadvantage of Joint-venture: Joint venture are also potential for conflicts. They result in disputes between or among parties due to varied interests. For example, the interest of a host countrys company in developing countries would be to get the technology from its partner while the interest of a partner of an advanced county would be in get the marketing expertise from the host countrys company.

The partners delay the decision-making once the dispute arises. Then the operations become unresponsive and inefficient.
Decision-making is normally slowed down in joint ventures due to the involvement of a number of parties. Scope for collapse of a joint venture is more due to entry of competitors, changes in the business environment in the two countries, changes in the partners strengths etc.

 Life cycle of a joint venture is hindered by many causes of collapse.

Stages in Internalization:
New firm

WOS

M&A

Direct investment

Joint venture

Licensing

Production/ Operations abroad

Export

Huadian, GE build JV to develop aeroderivative gas turbines

SHANGHAIChina's power giant Huadian Group and US conglomerate GE (General Electric) has signed a contract to set up a joint venture to deve lop aeroderivative gas turbines, core devices in distributed energy systems.

Distributed energy systems, also known as distributed energy resources (DER), refer to the generation of energy from small energy sources.
The $100 million joint venture will be called Huadian GE Aero Gas T urbine Equipment Co Ltd, with Huadian owning a majority share of 51 percent. Located in Shanghai, it will be completed for production in 2013.

Aug. 23, 2011, 8:30 a.m.

SPAR Group Signs Joint Venture in Turkey

TARRYTOWN, NY, Aug 23, 2011 SPAR Group, a diversified international merchandising and marketing services company that provides a broad array of services worldwide to help companies improve their sales, announced the signing of a joint venture agreement to expand its operations into Turkey. The new venture, SPAR NDS, in which SPAR will hold a 51% ownership interest, expects to generate $4 million in annualized profitable revenue over the next twelve months. The New Venture has best-in-class clients that will provide immediate accretive revenues and credibility to the newly formed endeavor. The Company will specialize in the areas of in-store merchandising and demonstrative services.

Life Cycle of a joint venture:

Exploratory Phase
Alliance making Project collaboration Feasibility study

Stability phase

Collapse Dislocation caused by, Entry of new competitors Change in business environment Change in partners strengths Change in partners interest Todays partners may become tomorrows competitors

How to make Joint venture successful?

It is indicated that Joint ventures mostly failed due to potential problem and cultural variations. Harrijan suggested the following measures to make Joint venture successful; dont accept a JV agreement to quickly, weigh the pros and cons. Get to know a partner by initially doing a limited project together, if a small project is successful, bigger projects are more feasible. Companies with similar culture and relatively equal financial resources work best together; keep this in mind when looking for an appropriate partner

Contd.. Small companies are venturable to having their expertise loss to larger JV partners; small companies must structure such deals with great care and guard against potential losses.

Contd.. Protect companies core business through legal means, such as unassailable patents; if this is not possible, dont let the partner learn you methods.

The Joint enterprise must fit the corporate strategy of both partners, if this is not the case their will inevitably be conflicts.
Keep the mission of the joint enterprise small and well defined. Give the joint enterprise autonomy to function on its own and set up mechanisms to monitor its results, it should be separate entity from both parents. Learn from the Joint enterprise and use in the parents organization. Limit the time frame of joint enterprise and review its progress frequently

The applications for joint ventures are approved by the:

Inter-ministerial Committee under the Ministry of Commerce. Indian JVs is covered by the Foreign Exchange Regulation Act, 1973 (FERA). To facilitate and encourage Indian JVs, 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.

Conclusion:
Launching and running a world class JV is complex and demanding task. It done right, JV promises a better ROI than Merger & Acquisition

It is necessary for all executives involved to understand the unique demands of JV and invest in early planning

Conclusion:

Launching and running a world class JV is complex and demanding task. It done right, JV promises a better ROI than Merger & Acquisition It is necessary for all executives involved to understand the unique demands of JV and invest in early planning Right investment during launch phase will reap big rewards

Thank You