Joint venture

A joint venture (JV here after) is a legal entity formed between two or more parties to undertake an economic activity together and sharing the risk in formation. The parties agree to create, for a finite time, a new entity and new assets by contributing equity. They then share in the revenues, expenses, and assets and the control of the enterprise. The venture can be for one specific project only - when the JV is referred, more correctly as a consortium (as the building of the Chunnel) - or a continuing business relationship. The JV is an an alternative to the parent-subsidiary businness partnership, now disfavoured, on account of (a) ignoring national objectives (b) slow-growth c) parental control of funds and (d)not allowing competition. The term JV refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, a limited liability enterprise, a partnership or other legal structure, depending on a number of considerations such as tax and tort liability. JVs are normally formed outside one's own territory and it is between countries with different legal systems, particularly so in the 'developing countries'. They are so formed to minimize business and political risks. Today, the JV applies to more occasions than freewill; for example, one normally cannot legally carry out business without finding a national partner to form a JV as in many Arab countries[1] where it is mentioned that there are over 500 JVs in Saudi Arabia with Indians. Also, the JV may be an easier first-step to [[franchising|, as McDonald's found out in China in the early difficult stage of development. Other reasons for forming a JV are:

reducing 'entry' risks by using the local partner's assets inadequate knowledge of local institutional or legal environment access to local borrowing powers perception that the goodwill of the local partner is carried forward in strategic sectors, the county's laws may not permit foreign nationals to operate alone access to local resources through participation of national partner access by one partner to foreign technology or expertise, often a key consideration of local parties (or through governement incentives for the mechanism) again, through government incentives, job and skill growth through foreign investment, and incoming foreign exchange and investment.

There may be strategic interests of one partner's alone:

Build on company's strengths Economies of (international) scale and advantages of size

'globalize' without size economies of scale Influencing structural evolution of the industry Pre-empting competition Defensive response to blurring industry boundaries Speed to market Market diversification Pathways into R&D Outsourcing

A joint ownership venture may be brought about in the following major ways:

Foreign investor buying an interest in a local company Local firm acquiring an interest in an existing foreign firm Both the foreign and local entrepreneurs jointly forming a new enterpries Together with public capital and/or bank debt

Further consideration relates to starting an new legal entity ground up. Such an enterprise is sometimes called 'an incorporated JV' is 'packaged' with technology contracts, technical services and assisted-supply arrangements.

Acquisition
An acquisition, also known as a takeover or a buyout or "merger", is the buying of one company (the target) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover. Another type of acquisition is reverse merger, a deal that enables a private company to get publicly listed in a short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful.[citation needed] The acquisition process is very complex, with many dimensions influencing its outcome.. Types Of Acquisition:

i. ii. iii.

Friendly takeovers Hostile takeovers Reverse takeovers

Mergers
Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. [2] When one company takes over another and clearly establishes itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place. For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to in the time. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders. It is quite normal though for M&A deal communications to take place in a so called 'confidentiality bubble' whereby information flows are restricted due to confidentiality agreements (Harwood, 2005).

License
The verb license or grant license means to give permission. The noun license (licence in Australian, British, Canadian, New Zealand, Indian and Irish spelling) refers to that permission as well as to the document memorializing that permission. License may be granted by a party ("licensor") to another party ("licensee") as an element of an agreement between those parties. A shorthand definition of a license is "an authorization (by the licensor) to use the licensed material (by the licensee)."

Wholly Owned Subsidiary

A subsidiary, in business matters, is an entity that is controlled by a separate higher entity[citation needed] . The controlled entity is called a company, corporation, or limited liability company; and in some cases can be a government or state-owned enterprise, and the controlling entity is called its parent (or the parent company). The reason for this distinction is that a lone company cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. Contrary to popular belief,[by whom?] a parent company does not have to be the larger or "more powerful" entity;[citation needed] it is possible for the parent company to be smaller than a subsidiary,[citation needed] or the parent may be larger than some or all of its subsidiaries (if it has more than one).[citation needed] The parent and the subsidiary do not necessarily have to operate in the same locations, or operate the same businesses, but it is also possible that they could conceivably be competitors in the marketplace. (Hewlett Packard is the parent company of Compaq, but both compete against each other in the sale of desktop computers.) Also, because a parent company and a subsidiary are separate entities, it is entirely possible for one of them to be involved in legal proceedings, bankruptcy, tax delinquency, indictment and/or under investigation, while the other is not. The most common way that control of a subsidiary, is achieved is through the ownership of shares in the subsidiary by the parent. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary, and so exercise control. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. There are, however, other ways that control can come about, and the exact rules both as to what control is needed, and how it is achieved, can be complex (see below). A subsidiary may itself have subsidiaries, and these, in turn, may have subsidiaries of their own. A parent and all its subsidiaries together are called a "group", although this term can also apply to cooperating companies and their subsidiaries with varying degrees of shared ownership. Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation. For this reason, they differ from divisions, which are businesses fully integrated within the main company, and not legally or otherwise distinct from it.[citation needed] Subsidiaries are a common feature of business life, and most if not all major businesses organize their operations in this way.[citation needed] Examples include holding companies such as Berkshire Hathaway as in this listing of its subsidiaries, Time Warner, or Citigroup; as well as more focused companies such as IBM, or Xerox Corporation. These, and others, organize their businesses into national or functional subsidiaries, sometimes with multiple levels of subsidiaries. An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity, locomotives and rolling stock. In contrast, a non-operating subsidiary would exist on paper only (i.e. stocks, bonds, articles of incorporation) and would use the identity and rolling stock of the parent company.

Turn Key Project

A turn-key or a turn-key project is a type of project that is constructed by a developer and sold or turned over to a buyer in a ready-to-use condition. In a turnkey business transaction [1] different entities are responsible for setting up a plant or a part of it. A complex project involving infrastructure facility, a chemical plant, or a refinery demands expertise which is not available with a single firm. The owner organizes the overall project with a turnkey firm and 'receives' the project on its completion and can then start to operate it. The 'agents' of the owner are: the principal engineering firm, the licensor (if any),service subcontractors (e.g. electrical contractor) and the suppliers. There may be several contracts drawn up by the principal engineering firm but they only identify the latter as the recipient of the services. The principal contract is the one that binds the owner and principal engineering firm. A turnkey project could involve the following elements depending on its complexity:

Project administration licensing-in of process design and engineering services subcontracting management control procurment and expediting of equipment; materials control inspection of equipment prior to delivery shipment, transportation control of schedule and quality pre-commisioning and completion performance-guarantee testing inventorying spare-parts training of owner's/plant[[sub-system}}operating and maintence personnel

The turnkey-contractor furnishes a wide variety of warranties and guarantees and accepts several liabilities. These include :

(a) warranties for the timeliness of deliveries of equipment, of erection and of completion times of civil and mechanical works; (b) warranties for workmanship in construction annd erection of the works,according to specifications, and warranties guarantees that proper standards will be used (c) liability for property or equipment under the control of the engineering company who contracts out the agreement to the turnkey-company (d) proper safety standards being implemented

(e}civil and mechanical engineering warranties; in the latter case the turnkeycontractor undertakes to asssure that mechanical performance will be maintained for a definite period (f) training warranties of operating personnel in charge of specific operations, and (g) the very important process warrranties and guarantees.

Strategic alliance
A Strategic Alliance is a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization [1], shared expenses and shared risk.

Stages of Alliance Formation

A typical strategic alliance formation process involves these steps:

Strategy Development: Strategy development involves studying the alliances feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy. Partner Assessment: Partner assessment involves analyzing a potential partners strengths and weaknesses, creating strategies for accommodating all partners management styles, preparing appropriate partner selection criteria, understanding a partners motives for joining the alliance and addressing resource capability gaps that may exist for a partner. Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high calibre negotiating teams, defining each partners contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood. Alliance Operation: Alliance operations involves addressing senior managements commitment, finding the calibre of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance. Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or reallocates resources elsewhere.

The advantages of strategic alliance includes:

1. Allowing each partner to concentrate on activities that best match their capabilities. 2. Learning from partners & developing competences that may be more widely exploited elsewhere 3. Adequency a suitability of the resources & competencies of an organization for it to survive.

There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances.

Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. Nonequity strategic alliance is an alliance in which two or more firms develop a contractualrelationship to share some of their unique resources and capabilities to create a competitive advantage. Global Strategic Alliances working partnerships between companies (often more than 2) across national boundaries and increasingly across industries. Sometimes formed between company and a foreign government, or among companies and governments

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