INTERNATIONAL JOINT VENTURES IN INDIA

INDIAN FOREIGN TRADE

INTRODUCTION
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
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12 January 2012 Class Presentation 3 . .REASON FOR IJV·s JV provides a lower risk option of entering into a new country.motorola enterred india in JV with blue star company. a brand with repute and vast distribution network. It also provides an opportunity for both the partners to leverage their core strengths and increase the profits. It also provides a learning opportunity for both the partners.example.

‡ Lower Risk of Geographical Location. ‡ Access to Capital. ‡ Government Regulations. 12 January 2012 Class Presentation 4 .Others Reasons« ‡ Technology.

12 January 2012 Class Presentation 5 . 2. Jointly controlled entities. Jointly controlled operations. Jointly controlled assets. 3.Types Of IJV·s 1.

12 January 2012 Class Presentation 6 . ‡ Most businesses did not have economies of scale by global standards.Pre-Liberalization Scenario ‡ Indian industry was unaware and unconscious about the danger of International Business. ‡ Control on collaborations restricted the choice of technology and manufacturing methods.

Post-Liberalization Scenario ‡ International players become major threats because of their limitless resources. ‡ Indian players has an option either to increase production or entering into JV with Global players. 12 January 2012 Class Presentation 7 . ‡ Foreign players saw India as a land of opportunity to take advantage of low cost of production.

Need for setting up a Joint Venture INTERNAL REASONS COMPETITIVE GOALS STRATEGIC GOALS 12 January 2012 Class Presentation 8 .

INTERNAL REASONS 1) Building on company's strength. 3) Improving access to financial resources. 5) Access to new technologies and customers. 6) Access to innovative managerial practices. 4) Economies of scale and advantages of size. 2) Spreading costs and risks. 12 January 2012 Class Presentation 9 .

4) Creation of stronger competitive units. 3) Defensive response to blurring industry boundaries. 5) Speed to market. 12 January 2012 Class Presentation 10 .COMPETITIVE GOALS 1) Influencing structural evolution of the industry. 6) Improved agility. 2) Pre-empting competition.

3) Diversification.STRATEGIC GOALS 1) Synergies. 2) Transfer of technology/skills. 12 January 2012 Class Presentation 11 .

12 January 2012 Class Presentation 12 . Valuation Problems.Problems of IJV·s 1. Changes in ownership shares. 4. 3. 2. Transparency. Conflict Resolution. Division of management responsibility and degree of management independence 5.

6. Marketing and Staffing Issue. 9. 7. Cultural Problems. 12 January 2012 Class Presentation 13 . 8. Dividend Policy. Multinationality problems.

Before entering a Joint Venture. ‡The partners should clearly agree on the way the joint venture will be managed. .. ‡ Both partners should appreciate the need for the joint venture. ‡Take measures to be sure that the partner has a compatible work culture. ‡Be sure about the organisational behaviour of the partner to ensure synergies.

12 January 2012 Class Presentation 15 . ‡ To make for the long term success of the joint venture. ‡ Clarly define the role and responsibility of each partner. it is also important that both partners are equally able to service its growing need for capital as the business expands.. ‡ Need to have a clear long term goal and set the terms and conditions of the JV. ‡ It is important that both partners work towards a system based on trust and transparency.Before entering a Joint Venture.

through bilateral agreements for IJV. . this process India instituted export subsidies.Indian Joint Ventures Abroad ‡ India. finance. and (iii) rich and high profit bearing investments. export credit. ‡ The maximum Indian equity that a IJV could have was fixed at 49 per cent. ‡ first case of an IJV abroad was the textile mill established by the Birla¶s in Ethiopia commenced operation in 1964. is one of the largest sources of private investments in the Third World. ‡ IJVs were sought to be promoted as instruments of promoting Indian private interests abroad in term of (i) acquiring larger assets in the host countries. (ii) export markets.

and Indian Embassies outside. .The applications for International joint ventures are approved by the: ‡ Inter-ministerial Committee under the Ministry of Commerce. 1973 (FERA). the Government of India has established economic divisions in the  Ministries of Commerce.  Industry.  External Affairs. ‡ IJVs is covered by the Foreign Exchange Regulation Act. ‡ To facilitate and encourage IJVs.  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.

‡ There should be provision in the agreement for termination including buyout by one of the participants.Successful joint venture require: ‡ Each participant has something of value to bring to the venture. ‡ The participants should engage in careful preplanning. ‡ A distinct unit be created in the organizational structure which has the authority for negotiating and making decisions 12 January 2012 Class Presentation 18 . ‡ The agreement or contract should provide for flexibility in the future. ‡ Key executives must be assigned to implement the joint ventures.

Example :‡ ‡ ‡ ‡ Virgin Group and Tata Tele Services Maruti and Suzuki Tyson Foods and Godrej Agrovet Marks & Spencer and Reliance Retail of India 12 January 2012 Class Presentation 19 .

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12 January 2012 Class Presentation 21 . the JV broke off before the operations started ‡ Haier re-entered indian market with a 100% susidiary in 2003. ‡ Haier wanted to focus in imports. ‡ Haier planned to increase its share to 49% to introduce wide ranges of products including washing machines. ‡ Hotline disagreed to theses. multi-split A?S¶s etc.Concerns of doing a JV ‡ Change of strategy of either of the partners creats rift in certain JV¶s ‡ The JV between Hotline group(india) and Haier(china) missed at that point.

JV between TVS group (INDIA) and Suzuki(japan) formed in 1983 was called off in 2001.Concerns of doing a JV ‡ In some cases accecss to technology or capital provides sufficient confidence in the partners to go alone. making the JV redundant ‡ For example. 12 January 2012 Class Presentation 22 .

12 January 2012 Class Presentation 23 . not permitted as per the existing agreement between the two. ‡ For example.Wadia accused Danone of using the popular Britannia brand Tiger products outside india.Concerns of doing a JV ‡ AT times either of the partners are accused of breaching the terms of the JV< creating tensions in it.

the 40:60 JV between Godrej and GE formed in 1993 . ‡ There was poor cultural integration between the two partners. 12 January 2012 Class Presentation 24 . was called off in 2001because‡ The JV failed to meet the projected turnover of Rs 35 billion and managed only 1.83 billion in 1998-99.Concerns of doing a JV There are cases of JV falling apart due to lack of synergy. ‡ For example. GE alleged lack of professionalism in the Indian partner.

‡ People with expertise in one company refused to share knowledge with their counterparts in the joint venture. ‡ Parent companies are unable to share control or compromise on difficult issues 12 January 2012 Class Presentation 25 . ‡ Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture. ‡ The hoped-for technology never developed.Reasons for failure of a joint venture ‡ Inadequate preplanning for the joint venture.

Example :‡ ‡ ‡ ‡ ‡ Lufthansa and Modi Group Daewoo and Proctor & Gamble Kinetic Honda Tata IBM LML Piaggio 12 January 2012 Class Presentation 26 .

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12 January 2012 Class Presentation 28 .FUTURE of IJV ‡ The number of joint ventures will continue to increase in the near future ‡ More and more companies are adopting the JV approach as a part of their growth strategies. ‡ Foreign companies can benefit mutually by combining their technological and monetary resources and taking advantage of respective market conditions.

RAJAN PRATAP SINGH CHAUHAN TAPAS KUMAR PAL DEEPAK SNEHI 12 January 2012 Class Presentation 29 .

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