JOINT VENTURES IN INDIA

INDIAN FOREIGN TRADE

Subhas- slide no- 3, 4 ,5 and 6.Jeevraj - slide no – 7 and 8.Vikram – 9, 10 ,11 and 12.Neeraj – 13, 14 and 15.Gopal – 16 and 17.Mohit – 18 an 19.Rajan – 20, 21 and 22Shruti- 23 an 24.Naved – 26 – 31.

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INTRODUCTION

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A joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and then they share in the revenues, expenses, and control of the enterprise

REASON FOR JV’s

JV provides a lower risk option of entering into a new country. .example- motorola enterred

india in JV with blue star company, a brand with repute and vast distribution network.

It also provides an opportunity for both the partners to leverage their core strengths and increase the profits. It also provides a learning opportunity for both the partners. April 8, 2023 PGP/FW/07-09 4

Others Reasons…• Technology.• Lower Risk of Geographical Location.• Government Regulations.• Access to Capital.

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Types Of JV’s1. Jointly controlled operations.

2. Jointly controlled assets.

3. Jointly controlled entities.

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Pre-Liberalization Scenario• Indian industry was unaware and unconscious

about the danger of International Business.• Most businesses did not have economies of

scale by global standards.• Control on collaborations restricted the choice

of technology and manufacturing methods.

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Post-Liberalization Scenario• International players become major threats

because of their limitless resources.• Indian players has an option either to increase

production or entering into JV with Global players.

• Foreign players saw India as a land of opportunity to take advantage of low cost of production.

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Need for setting up a Joint Venture

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INTERNAL REASONS COMPETITIVE GOALS

STRATEGIC GOALS

INTERNAL REASONS

1) Building on company's strength.

2) Spreading costs and risks.

3) Improving access to financial resources.

4) Economies of scale and advantages of size.

5) Access to new technologies and customers.

6) Access to innovative managerial practices.

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COMPETITIVE GOALS1) Influencing structural evolution of the industry. 2) Pre-empting competition. 3) Defensive response to blurring industry boundaries. 4) Creation of stronger competitive units. 5) Speed to market. 6) Improved agility.

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STRATEGIC GOALS

1) Synergies.

2) Transfer of technology/skills.

3) Diversification.

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SECTORS PERCENTAGES

Mining (commercial) 51%

Banking (Pvt), Airport (Existing) 74%

Insurance 26%

Telecommunication 49%

Alcohol distillation and brewing, Floriculture, Horticulture , Animal Husbandry, Petroleum and Natural gas, Construction and Development, SEZ’s and Free Trade Warehousing Zones, Trading etc..

100%

Regulations governing JV in india

Regulations governing JV in india

• Press note 18• Denied the use of the automatic investment route and

required a foreign investor who had an existing joint venture, trademark or technology transfer agreement in the “same or allied” field in India to seek FIPB approval for further investments in India.

• The foreign investor also had to prove that the new investment would not harm the existing joint venture or its stakeholders and obtain a No Objection Certificate from the Indian partner. Foreign investors often felt that such restrictions held them hostage to their Indian partners..

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Regulations governing JV in india

• Press note-1• Whereas Press Note 18 required government approval for

investment in “same or allied” field, Press Note 1 requires government approval only if the foreign investor invests in the “same” field

• While Press Note 18 completely denied the use of automatic route, Press Note 1 permits the automatic route where investments are made by venture capital funds registeredSEBI as Foreign Venture Capital Investors or where either of the parties have less than 3% investment in the existing joint venture or where the existing joint venture is defunct.

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Regulations governing JV in india

• Press note 1 cont..

• Earlier the onus to justify and prove to the satisfaction of the government that the new proposal would not jeopardize the interests of the existing Indian joint venture partner or technology/trademark partner was only on the foreign investors or technology suppliers. Now,The onus to provide requisite justification to the govt. that the new proposal would or would not in any way jeopardise the interests of the existing partner or other stakeholders would lie equaly on both.

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Regulations governing JV in india

• Press note 1 contd..

• Press Note 1 provides that all joint ventures entered into after January 12, 2005 may contain a “conflict of interest” clause in the joint venture agreement. Such a clause is critical because, if drafted well, it essentially provides the foreign investor with a type of no objection from the Indian partner regarding foreign investments in the “same” field.

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Regulations governing JV in india

• There are cases where indian partners of failed jv’s alleged to have made efforts to block foreign partners from ventures refferring to PN1, without any sound reasons.

• In 2001 Walt Disney’s local paertner, the KK group objected to Disney’s attempt to establish a wholly owned subsidiary in india.

• TVS group , for about three years, kept denying the much needed no objection certificate to suzuki to start a new investment venture in india after the TVS- Suzuki joint venture was called off in 2001.

• Wadia group is objecting to Danone’s invstments in Bio- nutrition firm Avesthagen.

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Problems of JV’s1. Valuation Problems.2. Transparency.3. Conflict Resolution.4. Division of management responsibility and

degree of management independence5. Changes in ownership shares.

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6. Dividend Policy.

7. Marketing and Staffing Issue.

8. Cultural Problems.

9. Multinationality problems.

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Before entering a Joint Venture..

• Both partners should appreciate the need for the joint venture.

•The partners should clearly agree on the way the joint venture will be managed.

•Take measures to be sure that the partner has a compatible work culture.

•Be sure about the organisational behaviour of the partner to ensure synergies.

• It is important that both partners work towards a system based on trust and transparency.

• To make for the long term success of the joint venture, it is also important that both partners are equally able to service its growing need for capital as the business expands.

• Need to have a clear long term goal and set the terms and conditions of the JV.

• Clarly define the role and responsibility of each partner.

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Before entering a Joint Venture..

Indian Joint Ventures Abroad• India, is one of the largest sources of private investments in the

Third World.• The maximum Indian equity that a IJV could have was fixed at 49

per cent.• IJVs were sought to be promoted as instruments of promoting

Indian private interests abroad in term of (i) acquiring larger assets in the host countries; (ii) export markets; and(iii) rich and high profit bearing investments. this process India instituted export subsidies, export credit, finance,

through bilateral agreements for IJV. • first case of an IJV abroad was the textile mill established by the

Birla’s in Ethiopia commenced operation in 1964.

The applications for joint ventures are approved by the:• Inter-ministerial Committee under the Ministry of Commerce.• IJVs is covered by the Foreign Exchange Regulation Act, 1973

(FERA).• To facilitate and encourage IJVs, the Government of India has

established economic divisions in the Ministries of Commerce, External Affairs, Industry, and Indian Embassies outside, Indian Investment Centre (IIC) • The Federation of Indian Chamber of Commerce and Industry

(FICCI) is also active in promoting the idea of joint ventures with other developing countries.

Sanmar Chemicals Corporation Chemplast Sanmar Ltd TCI Sanmar Chemicals LLC, Egypt

Sanmar Speciality Chemicals Ltd Performance Chemicals Intec Polymers ProCitius Research Bangalore Genei

Cabot Sanmar LtdSanmar Shipping Ltd

Sanmar Engineering Corporation Flowserve Sanmar Ltd BS&B Safety Systems (India) Ltd Sanmar Engineering Services Ltd Fisher Sanmar Ltd Xomox Sanmar Ltd Tyco Sanmar Ltd

Sanmar Metals Corporation Sanmar Foundries Ltd Matrix Metals LLC, USA Sanmar Ferrotech Ltd Eisenwerk Erla GmbH, Germany

Sanmar Holdings Ltd

TAXATION IN JOINT VENTURE

• PROVISIONS RELATING TO TAXATION OF JOINT VENTURE

• COMPUTATION OF TAXATION INCOME OF AOP/BOI

• TAX PROVISIONS RELATED TO SHARES OF A MEMBER.

Successful joint venture require:• Each participant has something of value to bring to the

venture. • The participants should engage in careful preplanning. • The agreement or contract should provide for flexibility in the

future. • There should be provision in the agreement for termination

including buyout by one of the participants. • Key executives must be assigned to implement the joint

ventures. • A distinct unit be created in the organizational structure

which has the authority for negotiating and making decisions

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Example :-

• Virgin Group and Tata Tele Services• Maruti Suzuki• Tyson Foods and Godrej Agrovet• Marks & Spencer and Reliance Retail of India

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Concerns of doing a JV• Change of strategy of either of the partners creats

rift in certain JV’s• The JV between Hotline group(india) and Haier(china) missed

at that point.• Haier planned to increase its share to 49% to introduce wide

ranges of products including washing machines, multi-split A?S’s etc.

• Haier wanted to focus in imports.• Hotline disagreed to theses, the JV broke off before the

operations started• Haier re-entered indian market with a 100% susidiary in 2003.

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Concerns of doing a JV

• In some cases accecss to technology or capital provides sufficient confidence in the partners to go alone, making the JV redundant

• For example- JV between TVS group (INDIA) and Suzuki(japan) formed in 1983 was called off in 2001.

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Concerns of doing a JV

• AT times either of the partners are accused of breaching the terms of the JV< creating tensions in it.

• For example- Wadia accused Danone of using the popular Britannia brand Tiger products outside india, not permitted as per the existing agreement between the two.

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Concerns of doing a JV

There are cases of JV falling apart due to lack of synergy.

• For example- the 40:60 JV between Godrej and GE formed in 1993 , was called off in 2001because-

• The JV failed to meet the projected turnover of Rs 35 billion and managed only 1.83 billion in 1998-99.

• There was poor cultural integration between the two partners. GE alleged lack of professionalism in the Indian partner.

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Reasons for failure of a joint venture• Inadequate preplanning for the joint venture. • The hoped-for technology never developed. • Agreements could not be reached on alternative

approaches to solving the basic objectives of the joint venture.

• People with expertise in one company refused to share knowledge with their counterparts in the joint venture.

• Parent companies are unable to share control or compromise on difficult issues

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Example :-• Lufthansa and Modi Group• Daewoo and Proctor & Gamble• Kinetic Honda• Tata IBM• LML Piaggio

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FUTURE of JV• The number of joint ventures will continue to

increase in the near future• More and more companies are adopting the

JV approach as a part of their growth strategies.

• Foreign companies can benefit mutually by combining their technological and monetary resources and taking advantage of respective market conditions.

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Examples: Sony, Ericsson Link Up For Joint Venture

Japanese electronics giant Sony Corp. and Swedish telecom equipment maker Ericsson sealed a pact to merge their worldwide mobile phone businesses in an effort to unseat reigning mobile monarch Nokia and take on Motorola.

The two companies plan to establish the joint venture, Sony Ericsson Mobile Communications, on Oct. 1, 2001.

The joint venture's global management will be based in London, and the two companies anticipate that it will take over all design, marketing and sales operations from its parents. Ericsson and Sony

Sony has said the joint venture will be capitalized at $500 million, and Ericsson has asserted it will be profitable from the start. Combined, the two companies sold about 50 million cellular phone units last year with pro forma profits of $7.2 billion.

Akai, Videocon venture takes off

MUMBAI, APR 13: Akai India Ltd, the newly-formed joint venture between

the Dhoots of the Videocon group and Akai Electric Co.

It will start functioning with an authorized capital of Rs 50 crore before increasing it to Rs 100 crore in three years.

Akai was distributed by Baron Electronics until December last and has a 12.5 per cent market share in India.

Akai will hold a 30 per cent stake and the Dhoots 70 per cent in the new company.

The company will continue to have attractive price offerings, and cater to both the low-end and premium market segments.

Over 20 television models will be introduced in the coming months, said. TVs will be manufactured at its Salt Lake plant in Calcutta, he added.

MARUTI SUZUKI

Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned.

Maruti Udyog Limited (MUL) was established in February 1981, though the actual production commenced in 1983 with the Maruti 800, based on the Suzuki Alto kei car which at the time was the only modern car available in India.

Maruti Suzuki India Limited, a subsidiary of Suzuki Motor Corporation of Japan, has been the leader of the Indian car market for over two decades.

The company is a subsidiary of Suzuki Motor Corporation, Japan, which owns 54.2 per cent of Maruti. The rest is owned by the public and financial institutions. It is listed on the Bombay Stock Exchange and National Stock Exchange in India.

MARUTI SUZUKI

During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported. In all, over six million Maruti cars are on Indian roads since the first car was rolled out on December 14, 1983.

Maruti Suzuki offers 13 models, Maruti 800, Omni, Alto, Versa, Ritz, Gypsy, A Star, Wagon R, Zen Estilo, Swift, Swift Dzire, SX4, and Grand Vitara. Swift, Swift dzire.

Suzuki Motor Corporation, the parent company, is a global leader in mini and compact cars for three decades. Suzuki’s technical superiority lies in its ability to pack power and performance into a compact, lightweight engine that is clean and fuel efficient.

RUSSIA: GAZ-FIAT JOINT VENTURE FAILS

Russia's second-largest car maker, GAZ, has said that its planned joint venture with Fiat to produce Italian cars in Russia has failed.

Russian news agencies quoted the head of GAZ, Dmitrii Strezhnev, as saying conditions had changed in Russia since the project was first announced in 1997 and that the plan was no longer economically feasible.

Fiat and GAZ were to control 40 percent stakes and the European Bank for Reconstruction and Development (EBRD) another 20 percent in the venture.

The project's fate was made more uncertain by the 1998 Russian ...

GENERAL MOTORS AND TOYOTA JOINT VENTURE FAILS

New United Motor Manufacturing, Inc. is an automobile manufacturing plant in Fremont, California.

The factory was originally a General Motors plant opened in 1962 and shut down in 1982. GM and Toyota reopened the factory as a joint venture in 1984 to manufacture vehicles to be sold under both brands.GM pulled out of the venture in June 2009. Toyota indicated it plans to pull out by March 2010.

When it reopened for production in 1984, it was the first automotive joint venture plant in the United States.

GM saw this joint venture as an opportunity to learn about the ideas of lean manufacturing from the Japanese company, while Toyota gained its first manufacturing base in North America and a chance to implement its production system in an American labor environment.

GENERAL MOTORS AND TOYOTA JOINT VENTURE FAILS

As of July of 2009, the NUMMI plant produces the Toyota Corolla compact car, Toyota Tacoma pickup truck, and the Pontiac Vibe hatchback, although the latter will be discontinued in August 2009 as GM phases out the Pontiac brand.

In the past, it produced the Chevrolet Nova (1984-1988); the Geo Prizm (1989-1997), the Chevrolet Prizm (1998-2002) and the Hilux (1991-1995, predecessor of the Tacoma), as well as the Toyota Voltz.

On June 29, 2009 General Motors announced that they would discontinue the joint venture with Toyota

• . For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting both your commitment and the business' exposure.

• and eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one partner to the other.

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• to build the right relationship and partnering with another business can be challenging.

• if: The objectives of the venture are not 100 per cent clear and communicated to everyone involved.

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SUBHAS GORAI VIKRAM KAUSHIKNEERAJ KR. SAH GOPAL PODDERJEEVRAJ SINGH RAJAN BANSALMOHIT SOMANI NAVED ANWAR SHRUTI ARORA