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 it’s goals the entity ceases to exist. What are the Advantages of forming a 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' exposure.  In the era of divestiture and consolidation, JV’s 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. The 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 involved.

You should set out the terms and conditions agreed upon in a written contract. Embarking on a Joint Venture can represent a significant reconstruction to your business. weaknesses. It can enable a firm to achieve market penetration into new areas overtime. It may be difficult to foster effective working relationships if your partner has a different way of doing business. a small firm in a highly concentrated industry can negotiate joint ventures with . You will almost certainly want to identify a joint venture partner that complements your own skills and failings. This should help you define what you can sensibly expect. There is an imbalance in levels of expertise. oint ventures perform a useful role in assisting companies in the process of restructuring.  Different cultures and management styles result in poor integration and cooperation. Seeing how they use joint ventures could help you decide on the best approach for your business. you could try to identify the skills they use to partner successfully. Thus. They can also be used by smaller firms protectively as an element of long-range strategic planning. 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. particular those that operate in similar markets to yours. Be realistic about your strengths and weaknesses . expand into new geographic areas and participate in new technology driven value activities.consider performing strengths.  Success in a joint venture depends on thorough research and analysis of the objectives. However favourable it may be to your potential for growth. When embarking on a joint venture it’s imperative to have your understanding in writing.  The partners don't provide enough leadership and support in the early stages. it needs to fit with your overall business strategy. At the same time. opportunities and threats analysis (swot) to identify whether the two businesses are compatible. you might decide there are better ways to achieve your business aims. It's important to review your business strategy before committing to a joint venture. You can benefit from studying your own enterprise. enter and develop new product markets. You may also want to study what similar businesses are doing. In fact. investment or assets brought into the venture by the different partners. Remember to consider the employees' perspective and bear in mind that people can feel threatened by a joint venture.

The larger firm might be able to carry the financial risks and be interested in becoming involved in a new business activity that promises growth and profitability. the Government industrial and foreign investment policies. Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture. The Government has set up a Indian Investment Centre in the Ministry of Finance as a single window agency for authentic information or any assistance that may be required for investments. The hoped-for technology never developed. Key executives must be assigned to implement the joint ventures. The basic reasons for failure of a joint venture are:-      Inadequate preplanning for the joint venture. People with expertise in one company refused to share knowledge with their counterparts in the joint venture. A distinct unit be created in the organisational structure which has the authority for negotiating and making decisions. It also helps in expanding the firm's operations into foreign countries. the larger firm might thereby gain experience in the new area of activity that may represent the opportunity for a major new business thrust in the future. Joint ventures are formed with several motives:-      The main motive is to share the risks. marketing or product servicing. A joint venture may be subjected to several difficulties. The agreement or contract should provide for flexibility in the future. the contract might be too inflexible to permit the required adjustments to be made. In addition. which are essential to the success of the venture. As circumstances change. Joint Ventures by Foreign Companies A foreign company can invest in an Indian company through a joint venture agreement (or as a wholly owned subsidiary) in the areas which are otherwise not reserved exclusively for the public sector or which are not under the prohibited categories such as real estate. agriculture and plantation. A small firm with a new product idea that involves high risk and requires relatively large amounts of investment capital may form a joint venture with a large firm.several of the industry's dominant firms to form a self-protective network of counterbalancing forces. production. insurance. Tax advantages are a significant factor in many joint ventures. The expressed purpose of most of the joint ventures is knowledge acquisition. A successful joint venture needs to fulfill the following requirements:-       Each participant has something of value to bring to the venture. Foreign investment into India is governed by theForeign Direct Investment (FDI) policy and the Foreign Exchange Management Act. The local partners contribute in the form of specialised knowledge about local conditions. There should be provision in the agreement for termination including buyout by one of the participants. This might concern all aspects of the activity or a limited segment like R&D. The complexity of the knowledge to be transferred is a key factor in determining the contractual relationship between the partners. . The participants should engage in careful preplanning. It reduces the risks in a number of ways as the activities can be expanded with smaller investment outlays than if financed independently. One or more participants may seek to learn more about a relatively new product market activity. Parent companies are unable to share control or compromise on difficult issues. taxation laws and facilities and incentives and also assists them in identifying collaborators in India. 1999 (FEMA). technical collaborations and joint ventures. It advises foreign investors on setting up industrial projects in India by providing information regarding investment environment and opportunities.

investor facilitation and receiving and processing all applications which require Government approval. Foreign Investment Promotion Board (FIPB) Approval Route:. details thereof and the justification for proposing the new venture or technical collaboration. they often find ways and means of evading their obligations. It also notifies all Government Policy decisions relating to investment and technology and collects monthly production data for select industry groups. and If so. Foreign companies. he joint venture's aim is to provide the best and most practical training at the lowest cost. as also to provide appropriate institutional arrangements. Both host countries and multinational companies tend to overemphasize the importance of ownership in relation to management control. to insist on specifying in the contract the arrangements for keeping a check on the fulfilment of the obligations. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors. the Secretariat for Industrial Assistance (SIA) has been set up by the Government of India in the Ministry of Commerce & Industry to provide a single window service for entrepreneurial assistance. Decisions on management control 97. A minority partner has .The FIPB has been set up in the Ministry of Finance to promote inflows of FDI into the country. Even where they have agreed to provide on-the-job training. On-the-job training on board ship or in processing plants is usually less expensive and produces faster results than any other form. Also. such as training vessels.FDI in sectors or activities to the extent permitted under automatic route does not require any prior approval either by Government of India or Reserve Bank of India (RBI). Foreign investment proposals received in the Department of Economic Affairs are generally placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt. often complain that the training of unskilled cadres on the job has an adverse effect on the efficiency of. in this connection.FDI in activities not covered under the automatic approval route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). The developing country will do well. the partners should agree on some form of on-the-job training.For such foreign investments into India. is generally too high to be considered in a commercial venture. a two tier approval mechanism has been provided:-   Automatic Approval Route:. especially for staff at levels of skill not requiring much academic instruction. transparent procedures and guidelines for investment promotion and to consider and approve/recommend proposals for foreign investment. commercial operations. Since the cost of providing special facilities. Applications can also be submitted with Indian Missions abroad who will forward them to the Department of Economic Affairs for further processing. Approvals of composite proposals involving foreign investment or foreign technical collaboration are also granted on the recommendations of the FIPB. however. The companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. and consequently economic returns from. The proposals to FIPB shall contain the following information:- • • • • Whether the applicant has any existing financial or technical collaboration or trade mark agreement in India in the same field for which approval has been sought.

101.many opportunities for frustrating the policies pursued by the majority partner if intent on so doing. and selection of key personnel. the availability of management talents. at least for an initial period. and other entrepreneurial and management functions. Some believe that a local partner should accept management responsibilities in proportion to his equity ratio. Use of the microinsurance to get the brand into a new market. 99. The international company in turn must make sure that responsibility for joint ventures does not fall between chairs. If at all possible. Multinational companies with experience in joint fishery ventures feel strongly about the need to obtain effective local management support. icro-agent model: Tata-AIG’s new distribution methodology of microinsurance in India This paper provides a broad overview of how the microinsurance program at TATA-AIG emerged and how it operates. This led them to:    Explore other distribution channels. and the size of individual capital commitments largely determine whether or not this is feasible. To have local executives who are owners and not just professional managers is often a definite advantage. to the overseas partner. Wherever a partner can claim superiority of experience or is providing equipment and technology unfamiliar to his colleagues. . “Involved” means that the local part owner looks at all aspects of the business as an entrepreneur. and that they receive the kind of management support companies give their wholly owned subsidiaries. This can be done by spelling out in the contract specific responsibilities assigned to him as. Rely on MFIs and NGOs for information about the local community. but should leave such responsibilities as locating sources of finance. it is better to have both partners participating in management. and the “becoming acquainted with each other's problems” that this entails. 98. enhances the likelihood of the overall common interest being served more adequately. 100. sales promotion. for design and construction facilities (vessel and plant). While the type of joint venture involved. It states that according to TATA-AIG. not merely as a functional speciality. and complain about lack of a feeling of such responsibility by local partners who tend to insist on a majority shareholding. microinsurance has the following benefits:    Fulfillment of corporate social responsibility. essential management controls. he will want to retain. for example. It further states that TATA-AIG realized that relying solely on MFIs to sell its products would not be sufficient in the Indian context. technical management of (fishing and processing) operations. A means of developing a good relationship with the Indian insurance regulator. to help build trust with the local community. Outsource some operations to the MFI/NGOs to lower servicing and selling costs. the sharing of management responsibilities.

Tata-AIG obtains recommendations from NGOs that have good relationships with the local community in an area targeted by TATA-AIG. The CEO of TATA-AIG realised that microinsurance would require innovative thinking because insurance products for low-income households are not just normal insurance with lower premiums and benefits. allowing the agents to use their offices to conduct business. premium collection. the rural and social team developed a model of micro-agents. In return for a fee.the microagents. 2. The NGO may play additional roles such as aggregating the premiums. 4. the model will provide a major means of overcoming the microinsurance distribution problem. operates in a similar fashion to an insurance agent’s firm. Qqqqqqqqqqqq Tata-AIG entered into microinsurance as a condition for acquiring a license to sell insurance in India. Unlike many other insurance companies. fulfilment of corporate social responsibility. they are then asked to form into groups of peers. The agents are trained by TATA-AIG. which help for the CRIG leader to obtain an agent’s license. claims management. referred to in the Tata-AIG model as a CRIG (Community Rural Insurance Group). The model works as follows: 1. risk management and controls for the products offered by the scheme. premium calculation. he realised that selling microinsurance would require a new distribution mechanism. 5. the company immediately saw the many benefits of microinsurance including. If successful. paying the benefits in public ceremonies and training the micro-agents. The group. and a means of developing a good relationship with the Indian insurance regulator. 6. 3. He created a specialised microinsurance department within Tata-AIG called the rural and social team and gave it latitude to consider alternative distribution strategies. use of microinsurance to get the brand into a new market. distribution channels.The paper then discusses the partnerships. The model relies on direct marketing similar to that used by firms such as Tupperware . In particular. the NGO provides suggestions on members of the community who could be good agents for microinsurance policies . If these micro-agents accept. It concludes that the development of micro-agents and their firms is the most significant innovation of TATAAIG’s microinsurance work. In addition to the usual partner-agent model.

(J. If a CRIG disbands. micro-agents tend to be women who are either office bearers of an SHG or a voluntary worker of an NGO. the model creates new employment opportunities (micro-agents) and provides a new income stream for rural NGOs. provide a major new means of overcoming the microinsurance distribution problem. adapted to specific conditions. there is likely to be limited Case_Study_14. 14: TATA-AIG Life Insurance Company Ltd. the CRIGs face the problem that eventually the agents will have approached everyone they know and need to approach strangers.pdf . Roth and V. this model could. Tata-AIG plans to open up branch offices in “new” areas with a permanent vehicle. Often these clients live further away which will raise the costs of selling. In the event of a member or leader dropping out. Athreve. the CRIGs appear reasonably stable. CGAP Working Group on Microinsurance Good and Bad Practises Case Study No. micro-agents are encouraged to source business from the geographical vicinity of their homes. which may extend to 4 or 5 villages depending on the size of the village. like all direct marketing schemes. the micro-agent model could also be done on an individual basis. thus mitigating the risk of orphaned policies. India. To address this issue. If successful. Although still early days. product details and sales techniques. As long as the financial incentives remain sufficiently enticing. the NGO can facilitate the transfer of the orphaned policies to another CRIG. they could be replaced by another from the community. However. After being certified. Like the CRIGs. Besides the group approach of the CRIGs. In addition to being a new microinsurance distirubiton model.. Source: http://microfinancegateway. September 2005).and Avon. This vehicle would be used by CRIGs to sell policies outside of their immediate area. It will only succeed if the frontline personnel have been properly selected and are sufficiently trained in general insurance awareness.