Definition: Joint Venture is a business venture in which two or more parties agree to join together for doing a specific

business deal. Technically this JV can be defined as a contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All the parties agree to share profit and losses of the enterprise. In increasing numbers, businesses have been reaching beyond national boundaries in an effort to locate new opportunities for growth, new markets, and new venture capital. Each foreign market offers unique opportunities and risks, and many firms naturally look to JVs with one or more partners for assistance in entering new markets. JVs have become a major feature of the international business landscape due to increased global competitiveness and technological innovation. Characteristics: It is a temporary partnership coming into existence for doing a specific business deal. It comes to an end when the particular deal is over. Since there is an assumption that the venture will not continue indefinitely, a firm name is normally not used. The main purpose of joint venture is to earn profit and distribute it among co-ventures in agreed proportions. The work of a joint venture may be done by all the co-ventures or by any one or more co-ventures on behalf of all, as may be agreed upon among them. JVs are common and successful in several industries. For example, in the land development and construction industries, JVs are often used to obtain sufficient financing to acquire large land tracts or to undertake major building projects. JVs are also common in the manufacturing, mining, and service industries. A JV may be formed to conduct research and development work on a new product or technical application, to manufacture or produce various products, to market and distribute products and services in a specified geographic area, or to perform a combination of these functions. The function of the JV will be linked to the overall objectives of the parties and will dictate to a large extent the substantive terms of the JV arrangement. Objective: The formation of a JV can be a complex process. After a compatible JVP is selected, the specific goals of the enterprise must be defined, the structure of the JV must be negotiated, numerous legal issues must be recognized and resolved, and potential areas of conflict between the JVPs must be identified and reconciled. There are many advantages that lead to the formation of a JV. They include: Risk Sharing Risk sharing is a common reason to form a JV, particularly, in highly capital intensive industries and in industries where the high costs of product development equal a high likelihood of failure of any particular product. Economies of Scale If an industry has high fixed costs, a JV with a larger company can provide the economies of scale necessary to compete globally and can be an effective way by which two companies can pool resources and achieve critical mass.

Market Access For companies that lack a basic understanding of customers and the relationship/infrastructure to distribute their products to customers, forming a JV with the right partner can provide instant access to established, efficient and effective distribution channels and receptive customer bases. This is important to a company because creating new distribution channels and identifying new customer bases can be extremely difficult, time consuming and expensive activities. Geographical Constraints When there is an attractive business opportunity in a foreign market, partnering with a local company is attractive to a foreign company because penetrating a foreign market can be difficult both because of a lack of experience in such market and local barriers to foreign-owned or foreign-controlled companies. Funding Constraints When a company is confronted with high up-front development costs, finding the right JVP can provide necessary financing and credibility with third parties. Acquisition Barriers; Prelude to Acquisition When a company wants to acquire another but cannot due to cost, size, or geographical restrictions or legal barriers, teaming up with a JVP is an attractive option. The JV is substantially less costly and thus less risky than complete acquisitions, and is sometimes used as a first step to a complete acquisition with the JVP. Such an arrangement allows the purchaser the flexibility to cut its losses if the investment proves less fruitful than anticipated or to acquire the remainder of the company under certain circumstances. Structuring the Joint Venture: Structuring any JV may pose a challenge. This is especially true where parties are from different jurisdictions and various cultural backgrounds are involved. After parties have decided on fundamental issues such as the commercial nature, scope and mutual objectives of the joint venture, the JVPs must determine the geographic location of the venture and what form or legal structure the joint venture will take. Managing the Joint Venture: Some JVs are dominant parent enterprises projects are managed by one parent like wholly owned subsidiaries. The dominant parent selects all the functional managers for the enterprise. The board of directors, although made up of executives from each parent, plays a largely ceremonial role as the dominant parent executives make all the ventures operating and strategic decisions. Having managers from only one parent can lead to frustrations for the managers as well as parent company executives.

Termination of Joint Ventures: Any number of events may lead to the termination of a JV. Many termination events are anticipated and provided for in the joint venture agreement. For example, a breach of the joint venture agreement may trigger termination, as will other events, such as failure to meet research and development deadlines. A JV may terminate upon achieving its objectives. Alternatively, a JV may terminate upon failing to meet its objectives. The agreement could provide that one JVP buy the other out or sell its shares, or vice versa.

Excessive costs, failure to achieve projected income, or unforeseen capital requirements may make the continuation of a JV unattractive. In addition, a change in the JVs objectives or those of a shareholder may also lead to the early termination of the JV. Changes in objectives may result from a JVPs internal strategic redirection, competitive advances, or market changes beyond the control of the JV or its shareholders. Disagreement by JVPs on fundamental management issues may also lead to termination. An obvious disadvantage of sharing capital obligations is the need to share profits generated from the actual operation of the JV. Issues can arise in this area not so much because of the cash contributed, but because of the fact that the parties will also be contributing intangible assets to the business, such as intellectual property rights and technical expertise. Technology and management sharing can potentially create significant problems among the parties. In particular, one partys mastery of the others technology can lead to improvements on that technology beyond the intended services of the JV, a factor that tends to discourage companies from disclosing their technologies for fear of losing the competitive edge to their JVP. Many commentators argue that JVs offer a structure for reducing the free riding of the local JV partner because both partners contribute to the costs associated with the exploitation of the technology in proportion to their expected benefits. The theory is that a JV partner will have an incentive to focus on protecting the results of the JV activities rather than trying to replicate independently the results for its own account. Few Successful Joint Venture Examples: International: 1. PARTIES TO JOINT VENTURES: Hit Company (Rep. of Slovenia) and Harrahs Entertainment (U.S.) [ 2007] PERCENTAGE OF PARTICIPATION: 50:50 DOLLAR VALUE: $ 700 million SUBJECT: Slovenian gaming company Hit and U.S. casino operator Harrahs Entertainment formed a JV to build a major new gaming and entertainment center in Slovenia, scheduled for completion in 2009 provided that the Slovenian government loosens gaming legislation. The project rests on the Slovenia government's willingness to tweak legislation: currently, foreigners can hold no more than 20% in a gaming venture, and the gaming tax is set at a high 30%. Harrahs was in talks with the government on changes to the gaming law that would allow foreigners to hold a 50% stake. Harrahs would also like the government to lower the gaming tax. 2. PARTIES TO JOINT VENTURES: Posco (South Korea), SeAH Corp. (South Korea) and U.S. Steel (U.S.) (2007) PERCENTAGE OF PARTICIPATION: 35:30:35

DOLLAR VALUE: $93 million SUBJECT: U.S. Steel partnered with Posco, South Koreas leading steel producer, and SeAH, a tubular steel maker, in the venture to be called United Spiral Pipe LLC, to build a new U.S. facility that will produce spira- welded pipe for the natural gas industry. Joint Venture in India: In India, Liberalization has created new avenues for foreign investment, technology collaboration and joint ventures. Among these three, joint venture is the easy way to enter into the business by the domestic industries and the foreign counterparts. Joint venture benefits the investing firm, investing cooperation among the developing countries. The basic objectives of the joint venture are: To increase export of capital goods, spare parts and components from India. To increase the export of technical know-how and consultancy services. To project Indias image abroad as a supplier of capital goods and updated technology to the global market. To utilize the idle capacity in the capital goods sector in particular and industrial sector in general. Foreign countries prefer to enter into joint venture with the Indian industries, because the labour-intensive nature of the Indian industries is suited to fulfill their requirements. While Indian companies enter into joint venture with developed countries, Indian companies are getting opportunities to avail of the technology of the developed countries. This will reduce the operational cost and increase productivity. Indian industries are also expected to invest in the foreign countries and enter foreign market through joint venture. Indian Recent JV: 1. PARTIES TO JOINT VENTURE: Norway's Yara, India's Deepak Fertilizers and Petrochemicals Limited (DFPCL) [Feb 2008] PERCENT PARTICIPATION: 49:51 SUBJECT : Norway's Yara, one of the world's biggest fertilizer producers, has formed a joint venture with India's Deepak Fertilizers and Petrochemicals Limited (DFPCL). Yara International will hold 49 percent and Deepak 51 percent of the venture, which will focus on producing and marketing of technical ammonium nitrate (TAN) and specialty fertilizers, Yara International ASA said in a statement. TAN is used to produce explosives for the mining industry, including coal production. The venture will include a 300,000 tones a year TAN plant under construction at Paradip in Orissa on the east coast of India. "There will be money invested in the joint venture, and we will also invest in the TAN plant under construction. Indian TAN consumption is now around 400,000 tones a year and growing at about 5-6 percent per year, driven by strong coal demand for power generation. Deepak is the only major domestic producer of TAN, with a current installed capacity of 140,000 tones, and the rest of Indian demand is covered mainly by imports.

2. PARTIES TO JOINT VENTURE: British insurer Bupa, Indias Max [July 2008] PERCENT PARTICIPATION: 26:74 VALUE: 12 million. SUBJECT: This is a great opportunity to get in on the ground floor of a nascent market. Bupa operates in 200 countries, including insurance and care home businesses in Spain, Denmark, Thailand, the US, Australia and Hong Kong. Max India has interests in healthcare, clinical research, insurance, and the manufacture of specialty materials for the packaging industry. Some 70 per cent of the healthcare spend is private and 90 per cent of that spend is not insured, its paid for out of pocket. The latent demand there is huge. And the formation of this JV will give advantage to both the players to operate in a industry which has got a huge market in India