Home > Business Study > International Joint Venture – An Overview

International Joint Venture – An Overview

According to Wikipedia – the free encyclopaedia: “A joint venture (often abbreviated JV) 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 they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Sony Ericsson joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement.

The phrase generally refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations such as tax and tort liability.”[i]

According to Cornell University Law School: “A joint venture is a legal organization that takes the form of a short term partnership in which the persons jointly undertake a transaction for mutual profit. Generally each person contributes assets and share risks. Like a partnership, joint ventures can involve any type of business transaction and the “persons” involved can be individuals, groups of individuals, companies, or corporations.

Joint ventures are also widely used by companies to gain entrance into foreign markets. Foreign companies form joint ventures with domestic companies already present in markets the foreign companies would like to enter. The foreign companies generally bring new technologies and business practices into the joint venture, while the domestic companies already have the relationships and requisite governmental documents within the country along with being entrenched in the domestic industry.”[ii]
 

There are many collaboration strategies being adopted by the business organizations other than joint venture. There are:

a.      Strategic alliance –

“A relationship which “contributes significantly to the partner’s company strategies and involves pooling resources and capabilities” (Dussauge & Garrette, 1999)”[iii]

“A Strategic Alliance is a formal relationship formed between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk.” [iv]

b.      Licensing – “Technology licensing is a contractual arrangement in which the licenser’s patents, trademarks, service marks, copyrights, or know-how may be sold or otherwise made available to a licensee for compensation negotiated in advance between the parties. A technology licensing agreement usually enables a firm to enter a foreign market quickly, yet it poses fewer financial and legal risks than owning and operating a foreign manufacturing facility or participating in an overseas joint venture. It explains the ownership structure and joint ventures; there are a number of business and legal reasons why unassisted exporting may not be the best export strategy for a company. In such cases, the firm wishes to consider a joint venture with a firm in the host country. International joint ventures are used in a wide variety of manufacturing, mining, and service industries and are frequently undertaken in conjunction with technology licensing by the firm to the joint venture.” [v]

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[i] Wikipedia – the free encyclopedia, Joint venture [online], http://en.wikipedia.org/wiki/Joint_venture (April 20, 2008)

[ii] Cornell University Law School, Joint venture – an overview [online], http://topics.law.cornell.edu/wex/Joint_venture (April 21, 2008)

[iii] Dussage, J-F & Garrette, B., Co-operative Strategy: Competing Successfully through Strategic Alliances”, 1999, Wiley, 1st Edition

[iv] Wikipedia – the free encyclopedia, Strategic alliance [online], http://en.wikipedia.org/wiki/Strategic_alliance (April 22, 2008)

[v] BNET Business Network,  Business Dictionary, Technology Licensing And Joint Ventures [online], http://jobfunctions.bnet.com/abstract.aspx?docid=67930 (April 28, 2008)

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