Module 2 Joint Ventures

7/31/2019 Module 2 Joint Ventures

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Joint ventures


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Joint Ventures

Joint Ventures are partnerships in which two

or more firms carry out a specific project or

corporate in a selected area of business.

Ownership of the firms remains unchanged


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Examples

Sony-Ericsson is a joint venture by the Japanese consumerelectronics company Sony Corporation and the Swedishtelecommunications company Ericsson to make mobile phones.The stated reason for this venture is to combine Sony'sconsumer electronics expertise with Ericsson's technological

leadership in the communications sector. Both companies havestopped making their own mobile phones.

Virgin Mobile India Limited is a cellular telephone serviceprovider company which is a joint venture between Tata Teleservice and Richard Branson's Service Group. Currently, thecompany uses Tata's CDMA network to offer its services underthe brand name Virgin Mobile, and it has also started GSMservices in some states.


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Examples

Tata Motors & Fiat: The JV will manufacture cars from Tata & Fiatstables. Tata Motors will also buy diesel engines for it cars from Fiat,while Fiat will distribute Tata cars in Europe.

Mahindra & Renault: This JV is the market entry strategy for Renault.The JV will manufacture Renaults Logan cars in India. Renault will gainmarket knowledge - while Mahindras will learn how to make good cars,

and leverage its dealership network to additional profits. Tata-AIG: This JV was created to take advantage of the new

government regulations on private insurance companies. Privateinsurance companies need foreign collaboration for technical knowhow. While the current regulations prevent foreign insurance companiessetting up a green field venture in India. Similarly other JV in this fieldare: ICICI Lombard, ICICI Prudential, Bajaj- Allianze etc.

Bharthi-Walmart: JV was primarily created by Wal-Marts desire toenter India and the government regulations regarding large foreignretail firms operating in India. This 50:50 venture with Bharti will giveWal-Mart an entry into India


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When do JVs Form?

1. When an activity is uneconomical for anorganization to be done alone

2. When the risk of business has to be shared

and therefore is reduced for the participatingfirms

3. When the distinctive competence of two ormore organizations can be poled together

4. When setting up of an organization requiressurmounting hurdles such as govtrestrictions etc.


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Characteristics of JV

Every JV has a scheduled life cycle, which will end

sooner or later

Every JV has to be dissolved when it has outlived its

life cycle Changes in the environment force JVs to be

redesigned regularly

JVs between Indian companies and transnational's

also follow life cycle

Transnational seek to absorb their partners

competencies


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Reasons for the formation of JV

In some countries, foreign firms are allowed tooperate only if they enter into a JV with a localpartner

Size of the project may be so large and onecompany cannot accomplish it. Then one companyenters into a JV with another firm to accomplish theproject

Some projects require technology that no one firm

possesses A foreign firm with technological competence joins

with a domestic firm marketing competence


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Advantages of JV

Firms undertake JV to spread development costs

JV allow firms with expertise in different fields to combine theirknowledge and resources

Are useful as a form of trail marriage to see if firms can worktogether before undertaking a merger

Are more useful in entering international market Provide quick access to channels of distribution thus reducing

marketing cost

Partner in domestic country assist in interpreting local customsand culture and translating technical language

A means of achieving the legally required joint ownership Minimize commercial/business risks to both the partners

Facility of technology transfer to the host partner

Chance to combine the strengths of two partners and utilize theopportunities provided by the environment


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Disadvantages of JV

Foreign exchange regulations imposed by both the

governments

Absence of proper coordination between /among

partners Difference of culture and customs of both the

partners

Division of profits with other firms

Loss of control to the other firm

Possible conflict and blaming each other at the time

of failure

Documents

Module 2 Joint Ventures