What is a Joint Venture?

A Joint Venture may be defined as any arrangement whereby two or more parties co-operation order to run a business or to achieve a commercial objective. This co-operation may take various forms, such as equity-based or contractual JVs. It may be on a long term basis involving the running of a business in perpetuity or on a limited basis involving the realization of a particular project. It may involve an entirely new business, or an existing business that is expected to significantly benefit from the introduction of the new participant. A JV is therefore, a highly flexible concept. The nature of any particular JV will depend to a great extent on its own underlying facts and characteristics and on the resources and wishes of the involved parties. Overall, a JV may be summarized as a symbiotic business alliance between two or more companies whereby the complimentary resources of the partners are mutually shared and put to use. It is an effective business strategy for enhancing marketing, positioning and client acquisition which has stood the test of time. The alliance can be a formal contractual agreement or an informal understanding between the parties.

Reason for Joint Ventures

Joint ventures provides a lower risk option of entering into a new country. For ExampleMOTOROLA entered India in Joint ventures 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.

Sharing Capabilities, Expertise and Liabilities Parties to a JV may have complementary skills or resources to contribute to the JV; or parties may have experience in different industries which it is hoped will produce synergistic benefits. The basic tenet of a JV is the sharing of capabilities, expertise and liabilities of both the partners on mutually agreed terms. Such sharing grants a competitive advantage to the JV partners over other players in the market. Technology etc.

Types of Joint Ventures

Joint ventures (JVs) may be either contractual or structural, or both. They may be broad based or narrowly defined. The main classification of JVs is that it is either Equity / Corporate JV Contractual JV. An Equity JV is an arrangement whereby a separate legal entity is created in accordance with the agreement of two or more parties. The parties undertake to provide money or other resources as their contribution to the assets or other capital of that legal entity. This structure is best suited to long-term, broad based JVs. The Contractual JV might be used where the establishment of a separate legal entity is not needed or the creation of such a separate legal entity is not feasible. This agreement can be entered into in situations where the project involves a temporary task or a limited activity or is for a limited term.

Need For Joint Venture

Joint ventures are very common and in fact, more common than one might think. Particularly, JVs are quite prevalent amongst big business. Oil and gas companies are common allies when it comes to forming joint ventures for drilling purposes. Electronics joint ventures, such as Sony Ericsson, fuel innovation and global access to untapped markets. Heres a look at why big businesses form JVs.

Internal Reasons to Form a JV

Spreading Costs and risks In a JV partners can share costs and risks associated with marketing, product development, and other expenses, reducing the financial burden. Improving access to financial resources Together JV partners might have better credit or more assets to access bigger resources for loans and grants than could have been obtained on their own. Access to new technologies and customers - People might want access to technological resources that couldnt have been afforded on theirr own, or vice versa. Sharing innovative and proprietary technology can improve products, as well as their own understanding of technological processes. Improving Access to New Markets The JV partners can combine customer contacts and together even form a joint product that accesses new markets.

Economies of scale and advantages of size - Economies of scale can be achieved when two or more firms pool their resources together, maximizing efficiency based on the project's needs. Cooperative strategies also allow small companies to join together to compete against an industry giant. Companies of different sizes may also benefit from joining together. The large company offers its capital and resources in exchange for the efficiencies or innovations found at the smaller company. Access to innovative managerial practices

Competitive goals
Influencing structural evolution of the industry pre-empting competition Defensive response to blurring industry boundaries Creation of stronger competitive units Speed to market Improved agility

Strategic Reasons
Synergistic Reasons People may find JV partners with whom you can create synergy, which produces a greater result together than doing it on your own. Share and Improve Technology and Skills Two innovative companies can share technology to improve upon each others ideas and skills. Diversification There could be many diversification reasons: access to diverse markets, development of diverse products, diversify the innovative working force, etc.

Before entering a Joint Venture

Both partners should appreciate the need for the joint venture. The partners should clearly agree on the way the joint venture will be managed. 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. It is important that both partners work towards a system based on trust and transparency. To make for the long term success of the joint venture, 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 Joint ventures Clearly define the role and responsibility of each partner.

Successful joint venture require

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

Examples of successful Joint Ventures Bharati Walmart

Wal-Mart StoreInc. operates Wal-Mart discount stores, Super centers, Neighborhood Markets and Sams Club locations in the United States, while Bharti Enterprises is one of Indias leading business groups with interests in telecom, agribusiness, insurance and retail. The two have now joined hands to sign a memorandum to establish a joint-venture for a cash and carry and wholesale retail chain in India. Both retail groups will hold a 50-50 stake in their joint-venture, which will be called Bharti Wal-Mart Private Ltd. The combined operations of the two retail giants will make available for small retailers and business owners a wide range of quality products at competitive wholesale prices, which will further enhance their businesses and profitability. Those that will be served by this joint-venture include kirana stores, fruit and vegetable resellers, restaurants and other business owners. Bharti Wal-Mart Private Limited will make investments to set up an efficient supply chain, linking farmers, mall manufacturers and retailers. Additionally, farmers and small manufacturers with limited infrastructure and distribution strength can expect support from the joint venture. The aim will also be to enable minimum wastage, particularly of fresh foods and vegetables. Sunil Bharti Mittal, Chairman and Group CEO, Bharti Enterprises expressed his delight at being able to partner with Wal-Mart for wholesale cash-and-carry and back-end supply chain management operations in India. He went on to say that Wal-Marts global expertise in supply chain and logistics will bring enhanced efficiencies across the retail ecosystem. This venture promises to bring great value to millions of farmers, artisans, small manufacturers and retailers across India. We are pleased to be a partner in developing this sector which is set to become a significant engine of Indias economic growth. Wal-Mart Stores, Inc. has picked Bharti for the latters deep understanding of the local market. The first wholesale cash-and-carry facility is targeted to open by the end of next year, followed by 10 to 15 wholesale cash-and-carry facilities in the next seven years. These facilities are positioned to hire as many as 5,000 employees. A typical facility will stand between 50,000 and 100,000 square feet and sell a wide range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items. Bharti Wal-Mart Private Limited will introduce modern retailing in India. With world-class processes and technologies, modern supply chain and back-end logistics expertise, the result will be better quality, and more choice at better prices. Additionally, local suppliers will be encouraged to develop and derive significant benefits for their businesses.

Tata Starbucks
Tata Global Beverages Limited and Starbucks Coffee Company announced a joint venture between the iconic international coffee brand and the 2nd largest branded tea company in the world. The 50/50 joint venture, named TATA Starbucks Limited, will own and operate Starbucks cafs which will be branded as Starbucks Coffee A Tata Alliance.The retail stores will
be developed in cities across the country, beginning with stores in Delhi and Mumbai in calendar 2012.

In a separate sourcing and roasting agreement between Starbucks Coffee Company and Tata Coffee Limited, Tata Coffee Limited will roast coffee to supply TATA Starbucks Limited, and to export to Starbucks Coffee Company. This agreement paves the way for consumers in India to enjoy the premiumStarbucks Experience, while further discovering the unique taste of highquality Indian arabica coffee worldwide. TATA Starbucks Limited brings together two companies with a rich heritage in and passion for coffee, tea and innovative beverages. Together, the JV will enable an expanded range of beverage offerings for Indian consumers. As an example, the companies have agreed to jointly leverage assets and innovation to offer a premium tea product branded Tata Tazo. It opens up exciting business opportunities and new formats for Tata Global Beverages. Starbucks brings unique retail expertise as well as a shared sense of business values. We are excited about the opportunities the alliance presents to innovate in the retail space and bring new beverage experiences to more consumers in India, leveraging the global in-home expertise of Tata Global Beverages and the global out-of-home expertise of Starbucks. Were very pleased to have found the best partner for Starbucks in Tata a company that shares so many of the same values for conducting business in a way that earns the trust and respect of our customers and partners (employees), said John Culver, president, Starbucks China and Asia Pacific. We look forward to bringing the Starbucks Experience to customers in India by offering high quality arabica coffee, handcrafted beverages, locally relevant food, and legendary service. The TATA Starbucks Limited joint venture will operate cafs under the Quick Service Restaurant category. This partnership will enable the introduction of the unique Starbucks Experience to Indian consumers. Through a separate coffee sourcing and roasting agreement, Starbucks and Tata Coffee Limited will work toward developing and improving the profile of Indian-grown arabica coffees around the world by elevating the stature of Indian coffee through joint marketing efforts, as well as improving the quality of coffee through sustainable practices and advanced agronomy solutions. Starbucks and Tata share common values of responsible business ethics and a commitment to community. Tata Coffee Limited has been working to improve the lives of coffee growing communities in the State of Karnataka. Through an initial financial commitment, Starbucks will work with Tata to support 'Swastha,' a school for children with special needs (in partnership with the Coorg Foundation) and aim to increase its capacity and outreach into the rural communities
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in the coffee growing region of Karnataka. Tata Coffee Limited and Starbucks also plan to work together on initiatives including the promotion of responsible agronomy practices and the provision of training for local farmers, technicians and agronomists to improve their coffeegrowing and milling skills, along with exploring community projects which could positively impact the communities in the coffee growing regions where Tata is active.

About Starbucks
Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting the highest-quality arabicacoffee in the world. Today, with more than 17,000 stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup.

About Tata Global Beverages and Tata Coffee

Tata Global Beverages is a part of the global Tata Group. Tata Global Beverages is a global beverage business and the worlds second largest tea company. The groups annual turnover is US $1.5 bn and it employs around 3000 people worldwide. The Company focuses on good for you beverages and has a stable of innovative regional and global beverage brands, including Tata Tea, Tetley, Himalayan natural mineral water and Eight O Clock Coffee, Tata Coffee is a subsidiary of Tata Global Beverages. It is Asias largest coffee plantation company and the 3rd largest exporter of instant coffee in the country. The Company produces more than 10,000 MT of shade grown Arabica and Robusta coffees at its 19 estates in South India and its two Instant Coffee manufacturing facilities have a combined installed capacity of 6000 metric tonnes. It exports green coffee to countries in Europe, Asia, Middle East and North America. Tata Coffees farms are triple certified: Utz, Rainforest Alliance and SA8000, reinforcing its commitment to the people and the environment.

Volvo Eicher Motors

The Swedish truck maker is investing $375 million for a joint venturewith EicherMotors, the third-largest commercial vehicle manufacturer in India.Volvo will contribute $275 million in cash and $75 million by transferring its Indian truck dealer and service network to Eicher. The Gothenburg, Sweden-based firm said it also plans to buy 8.1% of Eicher, giving it 50% of the venture through direct and indirect holdings. The joint venture will provide [a] platform for all future truck projects for Volvo in India, for necessary infusion of funds and technology. We believe this will drive Eichers future growth in the domestic market, and market share expansion, Merrill Lynch said in a research note. Eicher will transfer its entire truck and bus operations and their business and engineering services to the joint venture. Its motorcycle-making division will not be part of the venture, which will employ 2,300 and focus production at Eicher's current plant in Pithampur, in the central Indian state of Madhya Pradesh

Reasons for failure of a Joint Venture

Inadequate preplanning for the joint venture. The hoped-for technology never developed. Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture. 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

Examples of failed Joint Venture

Kinetic Honda Break Up Blues
It was in August 1998 that the first chinks in the Kinetic Honda Motors Ltd. (Kinetic Honda) armor were reported by Business India. Both Honda and the Firodias of Kinetic were quick to deny rumors of a split, though reports of the Firodias quietly raising resources to buy out Honda's stake kept surfacing. The Firodias were even reported to have securitised the assets of their twowheeler finance company - 20th Century Kinetic Finance (TCKF) - to raise this money. Trouble had been brewing since the company recorded a loss of Rs. 6 crore in the first quarter of 1998. Eventually Honda decided to put the matter to rest and called Arun Firo dia (Firodia) to Japan in December 1998. Honda made Firodia an offer - either he buy their 51% stake or Honda would buy out his 19% stake. Analysts remarked that it was difficult for Firodia to let go of the company that he had nurtured for the best part of his life. Eventually, Firodia negotiated a deal with Honda, to acquire its stake at Rs 45 per share, (when the market price was almost double), at a total cost of Rs 35 crore. He also signed an agreement with them for continuing to manufacture and sell the existing Kinetic Honda models. Honda also agreed to continue providing technical know-support in return for royalty and technical fees from Kinetic. Considering the fact that Honda was the world's biggest and most successful scooter manufacturer, the pullout came as a surprise to industry observers, as it was quite uncharacteristic of Honda Motor to give up a segment. More so, as just a couple of months earlier, Honda had been reported to be planning to make further investments in Kinetic . This was seen as a major setback for the company. It was also perhaps the only instance of a Honda failure anywhere in the world.
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Starting Problem!
In 2001, the Kinetic Group had two automobile companies - Kinetic Engineering Ltd and Kinetic Motor Company Ltd. After the December 1998 deal, Kinetic Honda Motor Ltd was renamed Kinetic Motor Company Ltd. Kinetic's story began in 1972 with the founder H.K.Firodia buying the 'Luna' moped's design from a foreign company. The moped, which aimed at capturing the bicycle market, went on to become such a huge success, that Luna became a generic name for mopeds. In 1985, under Arun Firodia's (H.K.Firodia's son) leadership, Kinetic tied up with Japanese auto major Honda Motor2 to form Kinetic Honda Motors Ltd. (KHML) with both the partners holding an equal stake of 28.56%. The company's primary business was manufacturing scooters. Sales of spare parts formed a minor part of the turnover. The 'KH-100,' the first ungeared scooter in India, proved to be a huge success in the initial stages. Throughout the 1980s, Kinetic remained India's largest moped manufacturer with a 44% market share and a 15% share3 of the overall two-wheeler market. A decade later, the company's moped market share halved to 22% and the overall market share figure reached an 5%. Also, in 1991, Kinetic, with a turnover of Rs 121 crore, was competing on an equal turf with the Rs 140 crore TVS Suzuki and the Rs 150 core Hero Honda4. But by 1999, while TVS and Hero Honda grew seven times over to Rs 1,018 crore and Rs 1,146 crore respectively, Kinetic just managed to double its turnover. A major reason for this was the fact that Kinetic seemed to have missed the pulse of the market, which was fast moving towards motorcycles. Kinetic had no motorcycles to offer mainly due to the Honda joint venture stipulations. (Kinetic could not make motorcycles because that meant competing with Hero Honda.) Kinetic's financial position also took a beating in the late 1990s. While sales grew slowly, compared to its competitors, its operating margin was the lowest in the industry because of the high import content of raw materials. Kinetic also had to shelve its plans to launch a small, 500cc, 2-cyclinder car after a substantial sum was spent on the project5.With Kinetic Honda's fortunes declining, Firodia agreed to let Honda increase its stake to 51% in 1993, perhaps hoping that if Honda were in control, it would bring in new products more quickly and thereby improve the company's prospects. But Firodia soon realized that this was not to be. At a time when its competitors were spending 1-1.5% of the turnover on R&D, Kinetic Honda did not move beyond 0.31%. On advertising, Honda spent just Rs 20 crore during 1993-98. As a result, Kinetic Honda's market share declined steadily during 1996-98. In 1997-98, Kinetic Honda's sales grew marginally to Rs 353 crore over the previous year, but profit after tax dipped to Rs 2.16 crore from Rs 2.30 crore. This, coupled with the Rs 6 crore loss for the first quarter of 1998 made the Firodias give serious thought to parting ways with Honda. Firodia said, "There was no growth, so we decided to review the contract." The new agreement involving the Honda stake sell-off and the technical collaboration arrangement was signed after this. Commenting on this, Firodia claimed, "It's a win-win scheme for everybody." Though Firodia claimed that Honda's equity sale decision was taken jointly by both partners, media reports had a different story to tell.
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Souring Ties
Reports claimed that right from the beginning there had been differences between Honda and the Firodias over the issue of management of Kinetic Honda. Firodia admitted that there were serious differences over issues like introduction of new models, advertising expenditure, marketing strategies, etc. As a result, the company suffered in terms of growth and profitability. Under the joint venture agreement, Kinetic Honda manufactured scooters and Kinetic Engineering made mopeds. Both of them could not manufacture each other's products or motorcycles. Because Honda was present in the motorcycle segment with Hero Honda, the Kinetic group remained in mopeds and scooters. This was not in favor of Kinetic because the moped market had declined considerably during the 1990s. Kinetic had ambitions of becoming a full range two-wheeler company as it was strong in operations and also had a large distribution network. When Kinetic developed indigenous technology for its four-stroke step-through vehicle K400, a competitor to Hero Honda's Street model, Honda saw it as an unfriendly move.The Firodias were unhappy about the fact that 'Kinetic,' as an umbrella brand was not being promoted. Consumers associated the name Kinetic with scooters and 'Luna' with mopeds, but did not see them as belonging to the same business house. To support the Kinetic brand as an umbrella brand with a number of products under it, the Firodias wanted to advertise heavily and bring out new products. According to Sulajja , "The tie-up with Honda was limiting our competitive capabilities." Kinetic Honda insiders claimed that Honda had always taken a 'half-hearted approach' towards managing the company. They also said that Honda was too preoccupied with other markets such as Indonesia and Thailand which were growing much faster and where, unlike in India, Honda was doing well. Also, Honda's margins were much higher in these markets even a 50cc Honda scooter cost more in other parts of the world than the lead model being sold in India. Yet, Honda scooters were considered expensive in India. Industry watchers pointed out that Honda, with all its resources, could have easily engineered a product for the Indian roads, but was simply not interested. Honda claimed that it had decided to position itself as a niche player at the upper end of the segment and that segment did not grow as much as the company had anticipated. Company sources said, "We miscalculated the purchasing power of the Indian middle class. We thought it would go up, but it didn't. Instead, the economy went into a tailspin and we couldn't grow." However, Honda admitted that having just a single model for several years had worked to the company's disadvantage. But the investment required to develop and introduce new models was very high, rendering the end product uncompetitive and hence an unattractive proposition. Honda claimed that the Firodias did not have the marketing acumen of the Munjals of Hero Honda. Disagreements over advertising expenditure and the interference of the Firodias in the appointment of dealers widened the rift between the partners. Kinetic wanted Honda to increase the advertising expenditure, but Honda did not agree. Being a large organization with various decision-making layers, Honda wasn't quick enough to react to the demands of the marketplace. The joint managing director, a Honda nominee, was changed

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every three years. Thus, by the time he understood the demands of the marketplace, it was time for him to be replaced. Unlike the Hero Honda venture, where the Munjals and Honda showed complete faith in each other and worked together as a team right from the beginning, the Firodias and Honda reportedly never shared a good rapport. In Hero Honda, the partners had equal stakes and this made decision-making easier. Moreover, because of lack of competition for a long time, things were easier for Hero Honda. But Kinetic Honda had to compete with a giant like Bajaj. Also, while the cost of making the Kinetic scooter was higher than the cost of manufacturing a motorcycle, the selling price of the latter was Rs 10,000 more. The profitability of Hero Honda, therefore, was much more and they could afford to spend more on advertising. Also, the Munjals could take their own decisions regarding adspend. Firodia said, "If we could have done the same, it would definitely have increased Kinetic's visibility and volumes would have grown faster." Honda's exit raised questions about Kinetic's survival. It was thought that the Rs 35 crore the Firodias paid for acquiring the entire stake would put a great strain on their finances and weaken the company. Analysts were quick to comment that Kinetic would have problems regarding the development and induction of new products. Honda's technical support limited to the existing range of products. And as the existing products - Kinetic Honda and Marvel were not doing very well at that time, the withdrawal was seen as an unwelcome development.

Hero Bmw
Hero India based two wheeler manufacturer and bmw german automobile manufacturer joined hands and come in joint venture in 1995 for Hero BMW F650 but the deal fail in 1996 because of poor consumer response.

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THE FUTURE OF JOINT VENTURES

It is almost certain that the number of joint ventures will continue to increase in the near future. More and more companies are adopting the joint venture approach as a part of their growth strategies, particularly in the international arena. Foreign companies can benefit mutually by combining their technological and monetary resources and taking advantage of respective market conditions. Thus, international joint ventures are becoming the norm rather than the exception and in more industries than ever before. Joint ventures may grow in importance so much in the next few years that many companies could lose their national identities. There could be a growth in the activities of multinational corporations to the point where joint ventures will be virtually unrecognizable. In fact, some companies, especially those in capital-intensive industries, have already lost sight of the fact that they engage constantly in joint ventures because they have become so commonplace. Finally, the wave of privatization, on a global scale, of state-owned industries and enterprises promised an added catapult for joint venture formations. The estimated worth of world-wide state-owned industry sales in 1995 reached $65 billion. This trend will make investment and inroads by companies into previously closed, and still relatively unfamiliar and structurally adverse, countries such as China and the former eastern bloc nations increasingly attractive.

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