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Foreign Joint Venture In India

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Foreign Joint Venture In India A joint venture is a new enterprise owned by two or more participants. It represents a combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and a limited duration. It is essentially a medium to long-term contract which is specific and flexible. Though, the joint venture represents a newly created business enterprise, its participants continue to exist as separate firms. A joint venture can be organized as a partnership firm, a corporation or any other form of business organisation which the participating firms choose to select. It generally has the following characteristics:-
  • Contribution by partners of money, property, effort, knowledge, skill or other assets to the common undertaking.
  • Joint property interest in the subject matter of the venture.
  • Right of mutual control or management of the enterprise.
  • Right to share in the property
Thus, joint ventures are of limited scope and duration. They involve only a small fraction of each participant's total activities. Each partner must have something unique and important to offer the venture and simultaneously provide a source of gain to the other participants. However, the participants' competitive relationship need not be affected by the joint venture arrangement.
Benefits of a Joint Venture
Joint ventures perform a useful role in assisting companies in the process of restructuring. It can enable a firm to achieve market penetration into new areas overtime, enter and develop new product markets, expand into new geographic areas and participate in new technology driven value activities. They can also be used by smaller firms protectively as an element of long-range strategic planning. Thus, a small firm in a highly concentrated industry can negotiate joint ventures with several of the industry's dominant firms to form a self-protective network of counterbalancing forces. Joint ventures are formed with several motives:-
  • The main motive is to share the risks. It reduces the risks in a number of ways as the activities can be expanded with smaller investment outlays than if financed independently.
  • The expressed purpose of most of the joint ventures is knowledge acquisition. The complexity of the knowledge to be transferred is a key factor in determining the contractual relationship between the partners. One or more participants may seek to learn more about a relatively new product market activity. This might concern all aspects of the activity or a limited segment like R&D, production, marketing or product servicing.
  • 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. 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. In addition, 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.
  • Tax advantages are a significant factor in many joint ventures.
  • It also helps in expanding the firm's operations into foreign countries. The local partners contribute in the form of specialised knowledge about local conditions, which are essential to the success of the venture.
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