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JOINT VENTURE

JOINT VENTURE. INTRODUCTION. What does the term “Joint Venture” stand for ?. “ Joint Venture ” is not a strict legal term, but a description of a certain business relation .

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JOINT VENTURE

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  1. JOINT VENTURE

  2. INTRODUCTION

  3. Whatdoes the term “Joint Venture” stand for? • “Joint Venture” is not a strict legal term, but a description of a certain business relation. • The term describes a business situation where 2 or more parties join their capacities in order to achieve a certain common objective with a benefit for every party and mostly over a long period of time. 3

  4. Joint ventures have become an important strategic option for many businesses. Due to increased globalisation, the proliferation of modern technology as the means of conducting business, and increased international travel, businesses are now operating in a world without borders, albeit that there are still cultural and language issues. This guide summarises the key considerations in establishing a joint venture or other strategic partnership.

  5. The term ‘joint venture’ is an umbrella term which describes the commercial arrangement between two or more economically independent entities. In practice, the legal form of a joint venture is likely to be determined by a number of factors including the nature and size of enterprise, the anticipated length of the venture, the identity and location of the venturers and the commercial and financial objectives of the participants.

  6. market competitors “friends” 8

  7. The partiesalwayshopetosavemoney and timebyunifyingtheircapacitiestoachieve a common target and profit both

  8. Negative aspectsof the Joint Venture

  9. 12

  10. 13

  11. NEGOTIATION PHASE

  12. The Parties, in the determinationof the contentof the Joint Venture, haveto pass through a negotiationphase, asfollows: as the Joint Venture is a complex business, thatinvolves high investmentcosts and generally a long periodoftime, therewillbe the needforsubstantialresources and othercapacities 16

  13. THE PARTIES SHALL DEAL WITH

  14. CHOOSING A PARTNER

  15. 19

  16. Verifyfeasibility

  17. Then the partieshavetoverify the economic, technical and commercial feasibilityof the JV. Thesefeasibilitystudies are based on assumptionsabout the market and principallyregard the financialburdensofconstituting the JV and positioningit on the market. 21

  18. Three basic legal structures can be used for joint venture, these being:

  19. PARTNERSHIP A partnership is the relation which subsists between persons carrying on a business in common with a view to a profit. There are also certain “hybrid” vehicles or arrangements, such as a limited liability partnership, with characteristics from more than one of the above categories.

  20. In any case people are getting used to distinguish 2 main different ways to set up a Joint Venture by establishing a company by contract Contractual Joint Venture Equity Joint Venture

  21. Bothforms (i.e. contractual and equityJ.V.) requiredifferentsolutionsforsimilarproblems, suchas: attributionofinvestmentcosts, attributionofcontrollingpowers, distributionofrisks and profits, dissolutionof the JV. Eachformis more suitablefor a certain business target

  22. CONTRACTUAL JOINT VENTURE

  23. EQUITY JOINT VENTURE

  24. PURPOSES OF THE AGREEMENT The objectivesdetermine the targetsof the JV; whatitwasconstitutedfor. They show what the future shouldbring. The purposeofthis Agreement istoprovidefor the establishment, ownership and operationby the Partiesof the New Company, whichshallbe the exclusivevehicleof the Partiesfor the manufacturing, marketing and sale of Commercial Products and Components in the Territory and the supplyingoftechnicalassistance and service in relation thereto

  25. DISSOLUTION OF THE JOINT VENTURE

  26. IN CASE IT SURVISES: one party leaves the JVC, ifitisprofitable and the other party wantsto continue work. Thisisoftenmadebygrantingput or calloptionsto the remaining or leaving part The JV can survive or it can bedissolved THE DISSOLUTION oftenresults in itsliquidation in casesofhardship or deadlock, asalsoruled out bylaw in manyjurisdictions.

  27. DEADLOCK This reference stands for a standstill resulting from the opposition of two unrelenting forces or factions.

  28. Deadlock can arise either in a 50/50 joint venture where the shareholders’ appointed directors take opposing views or where a director appointed by a minority shareholder exercises the right to veto. Similarly, deadlock can arise at shareholder level in relation to matters which require shareholder approval.

  29. It is helpful to have a policy to revert to when an insoluble deadlock arises. The aim of the policy should be to ensure that a sensible compromise is reached before the deadlock occurs. When there is an insoluble deadlock, the following options are usually available: Transfer of shares – a deadlock could serve as a trigger leading one party to transfer its shares to a third party subject to pre-emption rights. Voluntary liquidation – the assets of the venture will be sold and the venturers will share the proceeds according to their equity interest

  30. Furthermore, the JV agreement hastodetermine the price of the shares. In case ofnon-performanceofone party the price mighthave a penalizingcharacter. A situation of dispute can arise in determining the party whohastoleave the JV. Especially in casesofdeadlockitisnot easy to decide which party can stay. Such a dispute isoftensolved in anauction procedure (alsocalledRussian roulette) or by the decisionthat the minority party hastoleave.

  31. PUT OPTION After the occurrenceof the Completion and during the continuanceofthis Agreement, providedthat a TerminationEventoccursashereinafter set forth in article……..withoutprejudicetoanyfurther right toclaimfordamages, shallhave the right to sell its New Company's Sharesto NN and NN shallbeboundtopurchasesaidShares, the transfer price beingequalto the actualvalueof the Shares at thattimeownedby AA asassessed at thattime in accordancewith the price formula(s) hereinreferredto in Enclosure <...>.

  32. "Management in Global Perspective" Experience of Indian Companiesexcelling with Foreign Collaboration

  33. Fabulous experience as long as it lasted……..

  34. Background Hero Honda Motors Ltd. is the world's largest manufacturer of two – wheelers, based in India. The company was a joint venture between India's Hero Group and Honda Motor Company, Japan that began in 1984. In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India and the ‘World No.1’ two-wheeler company in terms of unit volume sales in a calendar year by a single company. Hero Honda has retained that coveted position till date. Today, every second motorcycle sold in the country is a Hero Honda bike. Every 30 seconds, someone in India buys Hero Honda's top-selling motorcycle – Splendor.

  35. Factors which made Honda, Japan enter a JV with Hero Group Honda selected the Hero Group for a variety of reasons, which included: • Its engineering capability • Relevance and salience of HERO brand • Distribution network • Commitment to Quality • Tight focus on financial and raw material process • Low employee turnover • Cordial Industrial Relations

  36. Core Strengths The success of Hero-Honda venture was underpinned on five core strengths: • Relationship Management with all stakeholders • Global Scale of operations • Maximizing Customer Value • Best-in-breed products and solutions • Efficient Asset Management

  37. In words of….. “Hero Honda motors is the most successful Honda joint venture worldwide” K. Suzuki, Senior Managing Director, Honda Motor, Japan “Without Hero Honda management it is very difficult to achieve these results with Honda technology alone. It is with mutual cooperation that this is happening.” Y Munekuni, Chairman Honda Motor

  38. Present Scenario……..

  39. The breakup of Hero Honda in December, 2010 after a collaboration spanning 25 years sent shockwaves across the entire Indian auto industry. Hero Honda had brought the concept of a two–wheeler in India’s collective consciousness.

  40. The Honda group in the past had invested a lot into technology and R & D. But now to adhere to latest Euro-V norms the up-gradation means greater investment in technology and innovation while fact is that at the end of the day Honda and Hero Group are competitors. And therefore Honda India is vary of sharing this technology with the Hero Group

  41. The other important reason being Honda, which provided the technology to the company, was never too happy with its 26 per cent share of the dividends and royalty; it felt its contribution was way bigger.

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