Joint Ventures

Strategic Partnerships: An Entrepreneur's Guide to Joint Ventures and AlliancesJoint venture with a foreign partner to enter foreign markets has been the vogue in recent times. A 50:50 venture is quite common, in which each party takes a 50 percent ownership stake and operating control is shared by a team consisting of managers from both parent companies. Some companies, however, prefer joint ventures in which they have a majority shareholding since this allows tighter control by the principal partner. As mentioned earlier, joint venture is a very mode of entry into foreign markets. In our country we have seen a spate of joint ventures in various sectors, particularly in automobile and pharmaceutical sector. Honda Company’s joint venture with Hero Cycles, Suzuki’s JV with TVS, Suzuki with Maruti Udyog, Wipro with GE are the examples of a large number of JVs that have come up in recent years.

Joint ventures have a number of advantages, the first one being the benefit a company can derive from a local partner’s knowledge of a host country’s business ecosystem. Second, a company might gain by sharing high costs and risks associated with opening of a new market with a local partner. Finally, political considerations in some countries make joint ventures the only practical way of entering those markets.

Despite these advantages, joint ventures are difficult to establish and run because of two reasons. First, as in the case of licensing, a company risks losing control over its technology to its venture partner. To minimize this risk, the dominant company can seek a majority ownership stake in the joint venture to exercise greater control over its technology provided the foreign partner is willing to accept a minority ownership. The second disadvantage is that a joint venture does not give a company the tight control over its subsidiaries needed to realise experience- curve effects or location advantages or to engage in coordinated global attacks against its rivals.

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