Pros and Cons of Joint Ventures in India

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Pros and Cons of Joint Ventures in India
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The term Joint venture derives its origin from
two different words i.e. joint which means
combined and venture which means undertaking a
risk. So, in a layman's language, it means
undertaking a risky task or business together.
Coming to the technical meaning of joint venture
that is used in the corporate world, JV means an
incorporated contractual business agreement
between two or more parties that has been formed
by contribution of equity by the parties. This is
a kind of contract arrangement. In a JV
agreement, the parties not only bear the risks
together but they share the profits also.
Generally, joint venture agreements are for a
finite period of time. Anyone (legal person as
well as natural person) can be a party to a JV
agreement for e.g. individuals, government,
private companies. There are various types of
joint venture agreements for e.g. joint venture
can be for a specific goal or joint venture for a
specific time period. Also, a joint venture
agreement can be entered into in any form for
e.g. in the form of a LLP or partnerships etc
with the requirement being there should be two or
more than two parties to the agreement. The joint
venture agreement which is entered into for a
specific purpose is generally referred to as
consortium. The best example of this of this can
be the consortium formed by upstream oil
companies at the time of bidding sessions of
NELP. There are various reasons for a company to
prefer a joint venture agreement before going for
undertaking big projects. JVs are generally
entered into for high profit and high risk
businesses.
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For e.g. going for exploration of an oil block
obtained after bidding involves a lots of capital
investment as well as latest technological know
high and there is always a high risk of not
getting oil in the block and income from the
block starts only after oil is discovered in the
block otherwise all the losses have to be borne
by the investor alone. Therefore before bidding
for the block, several oil companies form a
consortium and sign a memorandum of understanding
and then together go for final bidding. Another
reason for entering into a joint venture
agreement is FDI. In 1991, Indian economy was
liberalized and foreign investment was allowed
and now in most of the sectors foreign investment
up to 100 is allowed except some sectors where
it is not at all allowed (nuclear sector,
agriculture sector) or where prior permission
from govt. is required. In such a situation
although fiscal incentives succeeded to attract
foreign players to the domestic market but their
unawareness about the regulatory and policy
framework of India compelled them to enter into
JVs with Domestic players for a better
understanding of the domestic market as well as
structural and regulatory framework of the
country. This also benefitted them as they did
not have to struggle much for the customers as
the customers of the domestic players
automatically became their customers. fcra
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Below are some of the advantages and
disadvantages of the JV agreement
system Advantages 1)A joint venture agreement
provides great opportunities to develop and
improve in terms of capital and technological
know-how. With the help of it, companies not only
increase their capacity but also gain expertise
in various fields. 2) JV arrangement allows
companies to escape from geographical boundaries
to which they are confined from decades and does
not let them to stick into only one traditional
form of business but instead provides them with
ample opportunity to enter into new geographical
boundaries and new related businesses. trademark
registration 3) Joint ventures are flexible and
make business convenient because they are
generally for a particular purpose and limited
time thus fixing your liability and reducing your
burden. 4) JVs provide companies a creative way
to exit from non core business. 5) Companies or
partners in a JV have an option to eventually
segregate their business from rest of the
organization and one party can sell its share to
other party to the agreement. company
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1) Due diligence as well as sincere efforts are
required to enter into the right relationship.
Entering into partnership with other business may
be challenging if india trademark
registration 2) The objectives of the venture
are not properly understood by everyone and there
is some discrepancy regarding the management
structure and the clauses or Memorandum of
Understanding are not clear to everyone involved
as happened with Enron company who entered into
an agreement with Maharashtra govt. 3) The level
of expertise, quality of technology and
availability of capital of one partner is
relatively higher than other partner causing
imbalance in level of expertise, capital and
technological know how. logo registration 4) The
Parties to the agreement are not clear of the
objective. 5) There is lack of support for each
other among the partners curtailing leadership
opportunities. 6) Due to different cultures and
backgrounds, the parties are finding it difficult
to co-operate and work with each other. 7) In
such situations, the parties distract from the
goals of the agreement which not only results in
failure of the entity as a whole but also badly
affects the business as well as reputation of all
individual parties.