Joint Ventures as a means of foreign market entry have accelerated sharply since the 1970s. Joint ventures refer to joining with foreign companies to produce or market the products or services. Besides serving as a means of lessening political and economical risks by the amount of the partner’s contribution to the venture, JVs provide a less risky way to enter markets that pose legal and cultural barriers than would be the case in an acquisition of an existing company.
There are two types of JVs, namely:
- Contractual JVs and
- Equity based JVs.
A contractual JV consists of a contractual arrangement between two or more companies in which certain assets and liabilities are shared for a specific purpose and time. Contractual JVs are common in the construction, extractive and consultancy services.
An equity JV is a capital sharing arrangement between an MNC and a local company or another MNC or even a foreign government. Each partner holds share in the subsidiary and shares the profits in proportion to its ownership share.
The advantage of a JV for MNC is that it can spread its investment across locations, and thereby minimize its risks.
The liberalization of policy towards the foreign investment by Indian firms along with the new economic environment seems to have given joint venture a boost. At the beginning of 1995 although there were 177 JVs in operation, there were 347 under implementation. Not only the number of JVs is increasing but also the number of countries and industries in the map of Indian JVs is expanding. Companies like Ranbaxy, Dr. Reddy’s Lab, Lupin etc. have taken the JV route to mark their presence in the overseas market.
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