JOINT
VENTURE
INTRODUCTION
What does the term “Joint
Venture” stand for?
“Joint Venture” is not a strict legal term, but a
description of a certain business relation.
The term describes a business situation where 2 or more
parties join their capacities in order to achieve a
certain common objective with a benefit for every
party and mostly over a long period of time.
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Joint ventures have become an important
strategic option for many businesses. Due
to increased globalisation, the proliferation
of modern technology as the means of
conducting business, and increased
international travel, businesses are now
operating in a world without borders, albeit
that there are still cultural and language
issues. This guide summarises the key
considerations in establishing a joint
venture or other strategic partnership.
The term ‘joint venture’ is an umbrella term which
describes the commercial arrangement between two or
more economically independent entities.
In practice, the legal form of a joint venture is likely to
be determined by a number of factors including the
nature and size of enterprise, the anticipated length of
the venture, the identity and location of the venturers
and the commercial and financial objectives of the
participants.
While the
CONTRACT
tends to realize an
EXCHANGE
between the parties
In the JOINT
VENTURE the
emphasis is put on
the
COOPERATION
among the parties
Alliances
Goals
Type of
alliances
• Joint Ventures
“alliances”
or
companies”.
are often called
“matrimony
of
• This alliance is made to achieve
results that the parties could not or did
not want to achieve alone.
• such an alliance may take place
between:
“friends”
market competitors
8
Joint Venture
performed
with
“friends”
Joint Venture
with market
competitors
• the new Joint Venture Company
mostly appears on the market and
sells new products.
• the parties often try to reduce costs on
research or development by establishing a
joint venture company, so that it would
not appear on the market.
• Such costs could be divided among the
Joint Venture parties
The parties always hope to save
money and time by unifying their
capacities to achieve a common
target and profit both
Negative aspects of the Joint
Venture
The main disadvantage is the loss of
autonomy of the parties.
The decisions concerning the Joint Venture must
always be made in consent with the other party,
which means that this party has to be chosen
carefully.
Furthermore a party might feel tied to the JV, as it
can hardly contract with other parties or work
autonomously on the same market that is covered by
the JV.
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Characteristic elements of JV
There
is
a For that reason
the parties unify
common target, resources and
Every partner has
that the parties
capacities.
the possibility to
want to achieve
participate in the
by cooperation in
administration of
order to make a
the JV
common benefit.
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Costs, risks and profits are attributed to
the parties almost in adequate shares.
There is generally an obligation of noncompetition among the parties and
between the parties and the JV company
There must be balance between risks and
limitation of autonomy on one side and
the profits on the other side.
NEGOTIATION PHASE
The Parties, in the determination
of the content of the Joint Venture,
have to pass through a negotiation
phase, as follows:
as the Joint Venture is a complex business, that involves high
investment costs and generally a long period of time, there will
be the need for substantial resources and other capacities
16
fiscal
conditions
market
conditions
THE PARTIES
SHALL DEAL
WITH
banking
systems
legal rules
CHOOSING A
PARTNER
The JV partner must have the right capacities and
resources
He must be willing to accept cooperation for a longer
time and a certain loss of autonomy.
As the parties want to achieve a common target, there is no sense in
weakening the other party and protecting own rights – cooperation is
the basis.
Every party has to make sure to avoid dominance from the other party
by introducing clauses that secure a certain control on the
administration of the JV (right to approve contracts, right to resolve
cooperation,…).
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Verify feasibility
Then the parties have to verify the economic,
technical and commercial feasibility of the JV.
These feasibility studies are based on assumptions
about the market and principally regard the
financial burdens of constituting the JV and
positioning it on the market.
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At the same time they provide the basis for
the legal structure of the JV
It must be examined the market status of competitors and
result in the determination of the size and form of the JV.
The
feasibility
studies
are
often
accompanied by letters of intent and
confidentiality agreements.
Three basic legal structures can be used for joint
venture, these being:
a limited
liability
company
(i.e corporate
vehicle)
a partnership
or limited
partnership
(i.e. an
unincorporated
vehicle;
a purely contractual
co-operation
agreement
PARTNERSHIP
A partnership is the relation which subsists between
persons carrying on a business in common with a view
to a profit.
There are also certain “hybrid” vehicles or
arrangements, such as a limited liability partnership,
with characteristics from more than one of the above
categories.
In any case people are getting used to
distinguish 2 main different ways to set
up a Joint Venture
by contract
by establishing a
company
Contractual
Joint Venture
Equity Joint
Venture
Contractual
Joint
Venture
the
cooperation
of the
parties is
ruled by a
series of
contracts.
Equity Joint
Venture
the parties
cooperate via a
new company, of
which both parties
are shareholders
Both forms (i.e. contractual and equity J.V.) require
different solutions for similar problems, such as:
attribution of investment costs, attribution of
controlling powers, distribution of risks and profits,
dissolution of the JV.
Each form is more suitable for a
certain business target
CONTRACTUAL JOINT VENTURE
The relation is easier to dissolve. The
cooperation is generally dissolved when the
target is achieved.
The duration of the
cooperation is shorter.
Fiscal effects: All
taxes are attributed
to the parties of
the contract.
The relationship is more flexible and
does not have such a high impact on the
organisation of the parties involved as a
JVC. It does not create a third legal
person.
There is mostly a single,
individual target. (e.g.: An
international contract for
work)
EQUITY JOINT
VENTURE
Fiscal effects: Taxes
are attributed to the
new company.
A JVC has its own representatives,
which makes it easier for the parties
to coordinate control and other
activities
The parties do not intend to
dissolve the relation, if not in case
of insuperable differences or
conflicts between the parties.
There is a common target,
mostly not a single one,
but a general, wide
objective (common
development and
distribution of a certain
product).
The cooperation is planned
for a long period of time
As a new company must
be established it needs
high investment costs and
has a huge impact on the
organisation of the
parties.
It lays out he objectives for which the JVC shall be
constituted.
It provides rules for the constitution itself and the
relation between the contracting parties and the JVC
It rules who is responsible for the administration and
representation of the new JVC.
It states the duration of the JVC and some solutions
for possible disputes
PURPOSES OF THE
AGREEMENT
The objectives determine the targets of the JV; what it
was constituted for.
They show what the future should bring. The purpose of
this Agreement is to provide for the establishment,
ownership and operation by the Parties of the New
Company, which shall be the exclusive vehicle of the
Parties for the manufacturing, marketing and sale of
Commercial Products and Components in the Territory
and the supplying of technical assistance and service in
relation thereto
DISSOLUTION OF
THE JOINT
VENTURE
The JV can
survive or it can
be dissolved
IN CASE IT SURVISES: one
party leaves the JVC, if it is
profitable and the other party
wants to continue work.
This is often made by granting
put or call options to the
remaining or leaving part
THE DISSOLUTION often
results in its liquidation in
cases of hardship or
deadlock, as also ruled out by
law in many jurisdictions.
DEADLOCK
This reference stands for a standstill resulting from the
opposition of two unrelenting forces or factions.
Deadlock can arise either in a 50/50 joint venture where
the shareholders’ appointed directors take opposing
views or where a director appointed by a minority
shareholder exercises the right to veto.
Similarly, deadlock can arise at shareholder level in
relation to matters which require shareholder approval.
It is helpful to have a policy to revert to when an insoluble
deadlock arises. The aim of the policy should be to ensure
that a sensible compromise is reached before the deadlock
occurs.
When there is an insoluble deadlock, the following options
are usually available:
Transfer of shares – a deadlock could serve as a trigger
leading one party to transfer its shares to a third party
subject to pre-emption rights.
Voluntary liquidation – the assets of the venture will be
sold and the venturers will share the proceeds according to
their equity interest
Furthermore, the JV agreement has to determine the
price of the shares. In case of non-performance of one
party the price might have a penalizing character.
A situation of dispute can arise in determining the party
who has to leave the JV. Especially in cases of deadlock it
is not easy to decide which party can stay.
Such a dispute is often solved in an auction procedure
(also called Russian roulette) or by the decision that the
minority party has to leave.
PUT OPTION
After the occurrence of the Completion and during the
continuance of this Agreement, provided that a
Termination Event occurs as hereinafter set forth in
article ……..without prejudice to any further right to
claim for damages, shall have the right to sell its New
Company's Shares to NN and NN shall be bound to
purchase said Shares, the transfer price being equal to the
actual value of the Shares at that time owned by AA as
assessed at that time in accordance with the price
formula(s) herein referred to in Enclosure <...>.
Experience
of
Indian
excelling with Foreign Collaboration
Companies
Hero Honda Motors Ltd. is the world's largest
manufacturer of two – wheelers, based in India.
The company was a joint venture between India's
Hero Group and Honda Motor Company, Japan that
began in 1984.
In 2001, the company achieved the coveted position
of being the largest two-wheeler manufacturing
company in India and the ‘World No.1’ two-wheeler
company in terms of unit volume sales in a calendar
year by a single company. Hero Honda has retained
that coveted position till date.
Today, every second motorcycle sold in the country
is a Hero Honda bike. Every 30 seconds, someone in
India buys Hero Honda's top-selling motorcycle –
Splendor.
Honda selected the Hero Group for a variety of
reasons, which included:
 Its engineering capability
 Relevance and salience of HERO brand
 Distribution network
 Commitment to Quality
 Tight focus on financial and raw material
process
 Low employee turnover
 Cordial Industrial Relations
The success of Hero-Honda venture was
underpinned on five core strengths:
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Relationship Management with all stakeholders
Global Scale of operations
Maximizing Customer Value
Best-in-breed products and solutions
Efficient Asset Management
“Hero Honda motors is the most successful Honda
joint venture worldwide”
K. Suzuki, Senior Managing Director, Honda Motor, Japan
“Without Hero Honda management it is very difficult
to achieve these results with Honda technology
alone. It is with mutual cooperation that this is
happening.”
Y Munekuni, Chairman Honda Motor
Present Scenario……..
The breakup of Hero Honda in December, 2010
after a collaboration spanning 25 years sent
shockwaves across the entire Indian auto
industry. Hero Honda had brought the
concept of a two–wheeler in India’s collective
consciousness.
The Honda group in the past had invested a lot
into technology and R & D.
But now to adhere to latest Euro-V norms the upgradation means greater investment in technology
and innovation while fact is that at the end of the
day Honda and Hero Group are competitors.
And therefore Honda India is vary of sharing this
technology with the Hero Group
The other important reason being Honda,
which provided the technology to the
company, was never too happy with its 26 per
cent share of the dividends and royalty; it felt
its contribution was way bigger.
The Future:
 The Hero group has announced that it will buy
Honda’s 26% stake.
 Analysts expect Hero group to lose market share,
currently around 40-50 percent, in the long term
as Honda becomes more aggressive.
 The name Hero – Honda can be used till 2015.
 Honda’s first move will be to launch two entry-level
bikes. It is building a new factory for two-wheelers
in Andhra Pradesh besides beefing up distribution
outlets.
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INDIAN ECONOMY-AN OVERVIEW
Why are American Companies in India?
Excerpts from President Obama’s Speech
Types of FOREIGN COLLABORATIONS
Benefits to Indian Companies with
Collaboration
Great Experiences
Foreign
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India is world's largest democracy & among the
strongest emerging markets in all business field.
India is a liberalized economy with 1.5 billion
people with 300 million in the middle class
bracket, with well matured financial and securities
market and time-tested judicial systems.
India has 5 major metropolitan urban centers
growing @ 2.1 % p.a. India's urban population was
218 million as on 2002, and expected to be 500
million by 2012.
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India is a WTO member committed to providing
opportunity to the global market. The Indian
Government is constantly undertaking reforms in
every sector with Infrastructure Sector receiving
Government's fullest attention.
India now permits foreign investment virtually in
every sector of the economy. Majority foreign
equity, even upto 100 per cent in some sectors, is
encouraged and special investment incentives are
provided.
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Foreign investment up to 50, 51, 74 and 100 percent in
priority industries/activities, is eligible for automatic approval
by the RBI.
Automatic approval is also available for holding equity up to
51 per cent in trading companies engaged primarily in export
activities.
In addition, 100 % Export Oriented Units (EOUs) and units set
up in designated Export Processing Zones (EPZs) are eligible
for automatic approval provided they satisfy stipulated
criteria.
Foreign technology agreements are also eligible for automatic
approvals within certain limits.
India has become a favorite destination for business houses
world wide for the following reasons:
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Large pool of educated low manpower cost in India.
Disposable income is continuously increasing with the
economy growing at more than 8.5% p.a.
Cities booming with world class integrated infrastructure.
India has potential to attract more than US $ 100 billion over
next five years.
Potential for creation of 1 Million direct and indirect jobs each
year.
Indian economy has a favorable
business environment in India
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The biggest reason is the high potential of Indian market
and economy.
Along with China, India is the only fast-growing country
that can make a difference to the ' bottom lines of major
companies.
As per simple statistics the reason why American
companies are coming down to India is that the gross
domestic product of U.S. has come down by 0.8% in 2009
while India was growing at 6.6%
Besides,
established
big
brands
have
already
impregnated the U.S. and European markets. But, the
Indian market still offers a lot of scope and space for
those to grow.
India is also a large depository of skilled yet cheap labor.
Hence, it becomes easy for the American companies to
optimize their productions in India.
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The American companies in India started their dream runs
during 1990 when they reaped huge profits. The companies
have seen double digit year-on-year growth in various
sectors like Technology, Colas, Agriculture, Automobiles,
Equipments, Finance and Banking.
According to the American Chamber of Commerce in India,
their membership base has soared up from zero in 1992 to
more than 300 till date.
The major success in terms of investment and growth came in
technology sector. Many of the top IT companies in India are
American. In fact, out of the top 20 IT companies operating in
India, 9 are from the U.S.
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“The United States sees Asia-and especially
India-as a market of the future. We don’t
simply welcome your rise-as a nation, and a
people-we ardently support it. We want to
invest in it. And I’m here because I believe
that in our interconnected world, increased
commerce between the United States and
India can be and will be a win-win
proposition for both nations.”
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“Our relationship is also about more than the
goods that we sell or the investments we make-it’s
about the innovative partnerships we forge in the
name of progress.”
“I’m confident that we can and will forge new
economic partnerships and deliver the jobs and
broad-based growth that our peoples so richly
deserve. And I am absolutely certain that the
relationship between the United States and India is
going to be one of the defining partnerships of the
21st century.”
There are two types of foreign collaborations:
 a)
Financial
collaboration
(foreign
equity
participation) where foreign equity alone is
involved.
 b) Technical collaboration (technology transfer)
involving licensing of technology by the foreign
collaborator on due compensation.
There are two approving authorities
 1) Reserve Bank of India, and
 2) Department of Industrial Development in the
Ministry of Industry, Government of India.
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Collaboration Increases Productivity
Collaboration Increases Profitability
Collaboration Foster Diversity
Collaboration offers new products and services to customers
Collaboration results in better employee attraction and
retention strategies
Collaboration helps in profitable alliances with other
businesses
Collaboration assists in fighting competition
Collaboration builds long lasting business relationships
There are four major benefits to
collaboration
 Reducing costs
 Enhancing quality
 Accelerating speed
 Creating business agility

Reducing costs
Lower transaction cost
 Elimination of number of cycles
 Waste Reduction

Quality
 Better decision making
 Reduction in Product defects
 Enhanced customer experience
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Speed
Reduction in cycle time
 Accelerated go-to-market timeline
 Rapid concept of commit to production

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Business Agility
Accelerated rate of innovation
 Flexible capacity deployment

Great
Experiences
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Maruti-Suzuki
Bharti-Walmart
Tata DoCoMo
Toyota Kirloskar Motor Private Limited
Agro Tech Foods Ltd (ATFL)
Kwality Walls Ice Cream
According to maruti vision statement its goals
include maintaining leadership in the Indian
automobile industry, creating customer
delight, increasing shareholder wealth and
being “a pride of India.”
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The company offers a wide range of cars
across different segments. It offers 14 brands
and over 150 variants.
In fiscal 2009-10 Maruti Suzuki became the
only Indian company to manufacture and sell
One Million cars in a year.
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Excellent customer service
Tops in customer satisfaction surveys
Cost leadership
Renewed focus on Style and aesthetics
Straddling all segments with latest launch of
Kizashi.
Bharti and Walmart have a joint venture in Retail.
Walmart manages the Supply chain while Bharti manages the
front end of the new stores. This win win deal has given
Wal-Mart
access
to
Bharti’s
domestic
communications network and an understanding of
India customer, while Bharti got access to Wal-Mart’s
cutting edge logistics prowess, management systems
and overseas network.
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What does this really mean for India and
Indians?
World class stores with good customer
service
Everyday Low Prices
Quality assortment of merchandise
More jobs & More related jobs across the
supply chain
 The cash and carry store of Bharti Walmart would throw open
its doors by the end of 2011.
 The wholesale cash and carry operation is aimed at business
to business customers and caters to retailers, caterers,
businessmen, and the neighborhood kirana stores among
other institutional customers.
 The cash and carry stores are typically spread over a huge
area and stock thousands of food and non food items. They
keep both fresh and frozen food items and sell a wide range
of personal and home care products, electronic gadgets,
garments etc.
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Over 90% of the goods will be sourced locally,
helping keep down costs.
Bharti Wal-Mart, in association with the Punjab
government, has also started a training centre
offering full scholarship to bridge the shortage of
skilled workers for cash-and-carry and organised
retail formats.
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TATA DoCoMo, usually referred to as DoCoMo is a
Tata Teleservices Limited's (TTSL) cellular service
provider on the GSM platform-arising out of the
Tata Group's strategic joint venture with Japanese
telecom giant NTT Docomo in November 2008.
Tata Teleservices received a pan-India license to
operate GSM telecom services, under the brand
"TATA DoCoMo". Tata Teleservices is the country's
fourth largest operator in terms of wireless
subscribers (including both CDMA and GSM), after
Bharti Airtel, Reliance Communications and
Vodafone.
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Tata DOCOMO offers both prepaid and postpaid
GSM cellular phone in 18 circles. It has become
very popular with its one second pulse especially in
semi-urban and rural areas. They are launching
their service from the south of India to central, east
and north.
Tata DOCOMO had about 32.82 million users at the
end of June 2010.
On 5 November 2010, Tata DOCOMO became the
first private sector telecom company to launch 3G
services in India .
3G offers:
 Great & fast Internet Experience
 Richer Live Communications
 24X7 Live Entertainment whenever and wherever
 Mobile becomes a complete infotainment zone that
one can carry around in pocket.
 New Services like, Google Maps, GPS, live multiplayer gaming or interactive applications.
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Toyota Kirloskar Motor Private Limited (1997) is joint venture
between Toyota Motor Corporation and the Kirloskar Group,
for the manufacture and sales of Toyota cars in India. It
currently is the 8th largest car maker in India after Maruti
Suzuki, Hyundai, Tata, Mahindra, Chevrolet, Ford, and Honda.
The company Toyota Kirloskar Motor Private Limited (TKMPL)
according to its mission statement aims to play a major role
in the development of the automotive industry and the
creation of employment opportunities, not only through its
dealer network, but also through ancillary industries with a
business philosophy of "Putting Customer First”.
TKMPL sold 74,759 vehicles in India in the year 2010
registering a growth rate of 38% compared to 2009 sales.
Whether it is time-tested Innova or recently
launched Etios Toyota’s USP has always been
consistent performance and reliability and the
combination of both will be hard to beat in
the value and brand conscious Indian car
market.
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Agro Tech Foods Ltd (ATFL) is a public
limited company affiliated to ConAgra
Foods Inc. of USA, which is one of the
world’s
largest
food
companies
engaged in the business of marketing
food
and
food
ingredients
to
consumers
and
institutional
customers.
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Sundrop Superlite was first innovative product for the
Indian consumer. It was the first REFINED SUNFLOWER
OIL in the market in 1988.
Sundrop Heart has been to-date the only Blended Oil
with a proven claim of cholesterol reduction. In
addition, it is the oil which has the right amount of
Oryzanol to stake and prove this claim; also, it is the
oil which has the best MUFA-PUFA ratio as
recommended by the American Heart Association
(AHA).
ACT II Instant Popcorn is a very innovative offering,
enabling the consumer to make her own hot and fresh
popcorn in just 3 minutes, whether or not she has a
microwave oven at home. This innovation was
triggered due to the understanding of the consumer
infrastructure.
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ACT II Microwave Popcorn, when launched,
was the only microwave popcorn in the
market. Till then, popcorn as a snack existed
in the consumers’ minds only as an outdoor
snack.
Healthy World Dried Green Peas is the first
and only offering of Dehydrated, Long-ShelfLife (24 months) Green Peas in the Indian
market. This allows consumers to have their
delicious green-peas laced food "Whenever
they want“.
Snack Break is the only shelf-stable pudding,
made healthy, nourishing and wholesome
because of its contents.
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Kwality Ice Cream was the pioneer in the
Indian ice-cream manufacturing industry and
in 1956 became the first company in the
country to use imported technology for
manufacturing ice-cream on a commercial
scale. As the ice-cream industry exploded in
India, in 1995 Kwality Group joined hands
with Hindustan Lever Limited and then there
was no looking back.
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The Indian consumer market was introduced to
“KWALITY WALLS” – the result of a collaboration
between global brand Walls and the leading Indian
ice-cream brand Kwality. Today, Kwality is not just
a brand – it is the ice-cream associated with the
Indian summer; it’s the first choice in ice-cream
during the scorching Indian summers.
Kwality ice-creams are trusted not only for their
rich, creamy flavours, but also for their trusted
quality and nutritious food value.
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The Kwality Wall’s brand is one of the power brands of HUL
and is one of the leading players in the Ice Cream Category in
India. It’s fun-filled ice cream parlour concept is called Kwality
Wall’s
Swirl’s.
Swirl’s ice cream parlour is an International concept that was
launched in 1994 in Netherlands. It now has over 2000
Heartbrand Parlours across the globe. The concept was
launched in India in 2004, and till date, there are over 85
Kwality Wall’s Swirl’s Parlours.
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The core concept of Swirl’s is ‘Create your Own’ ice cream.
Consumers can select their ingredients from an array of
options and chose the flavour of their ice cream, which is then
crafted for them ‘fresh’ and in Swirl’s ‘style’ as they wait for
their delicious dessert.
Swirl’s Parlours attempt to capture the ‘on the move’
consumer trends and are located at high footfall areas such as
malls and shopping centers and are classified under the
impulse range of products.
“Continue
Collaborating,
Continue
Progressing,
Growing and Succeeding”