International Joint Venture
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Transcript of International Joint Venture
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Presentation By: Yogesh
International Joint Venture
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Joint Venture- Introduction
A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.
In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
However, the venture is its own entity, separate and apart from the participants' other business interests.
A JV can be Domestic or International.
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Joint Venture
Parent Company-
A
Parent Company-B
Child Company
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Advantages
Financial Resources can be shared
Fund can be generate together for bigger investment
Reduction of Business Risk
A JV allows Investor Diversification
A JV reduces Local Friction
Economies Of Scale
A JV can be used to reduce Fixed cost per Product
Control Over Functional Activities
A JV allows for direct Management of Business Activities
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Advantages
Sharing Technology and Management skills
The Competitive strengths of two parties can be combined
Higher profitability
Market Penetration
A local JV partner knows the market
Rapid sales growth
Host Country Incentives
Economics incentives add value to JV
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Disadvantages
Investment risk. although initial investment in JV need not necessarily be high.
JV Profits are shared
Conflict could be there in cash distribution
Shared Technologies can be used beyond the JV
The management Process may be fraught with difficulties and conflicts (which happen more often in JV)
Local Management of an JV can be an unknown
The possibility that JV may have over estimated as a form of international business activity.
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Joint Venture Risks
Risks for an International JV may be classified as
Partner Risks
Venture Risks
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Partner Risks
*Compatibility
*Functional skills and resources
*Managerial resource
*Facilities and administrative support
*Governmental relations
*Financial resources
*Reputation in the market
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Venture Risks
*Political risks
*Venture maturity risks
*Currency risks
*Local business risks; labor cost, manufacturing cost. Strengths of labor unions etc.
*Legal risks; judicial system effectiveness, law enforcement etc.
*Enforceability of contractual safeguards and joint venture documents
*Selection of entity as risk without proper research.
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Conclusion
*IJV is a efficient and cost effective ways to enter foreign markets.
*It allow companies to share risks and exploit synergies with partner companies.
* A IJVs can provide access to unique business opportunities and new geographic markets that may not otherwise be available, especially to smaller and medium sized businesses.
*Companies should be aware of the limitations and risks inherent in the IJV, and they should take advantage of some of the painful lessons learned over the years.
*A careful planning, a thoughtful structure and a willingness to remain flexible during the life of the venture are critical to increasing the chances of success.
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Yogesh