8/9/2019 ass. FA3

1/10

NAME : NUR HIKMAH BINTI EDI

MATRIK NUM : DIAWEF09070006

I/C NUM : 910207145446

LECTURER S NAME : MR. ABDUL SYUKOR

8/9/2019 ass. FA3

2/10

NATURE OF JOINT VENTURE

A joint venture (JV , sometimes 'J-V') is a legal entity formed between two or more parties to undertake an economic activity together. It is a term morerestricted to the US and the 'new' countries on the world map such as India andChina.

The JV parties agree to create, for a finite time, a new entity and new assets bycontributing equity. They then share in the revenues, expenses, and assets and"control" of the enterprise.

The term is not used in the U.K. where 'company law' originates. In Europeanlaw, the term 'joint-venture' is an elusive legal concept, better defined under therules of company law. In France, the term 'joint venture' is variously translatedas 'association d'entreprises', 'entreprise conjointe', 'co -entreprise' and 'entreprise

commune'. But generally, societe anonyme covers' foreign collaborations. InGermany,'joint venture' is better represented as a 'combination of companies'(Konzern)

The venture can be for one specific project only - when the JV is referred morecorrectly as a consortium (as the building of the Chunnel) - or a continuing

business relationship. The consortium JV (also known as a cooperativeagreement) is formed where one party seeks technological expertise or technicalservice arrangements, franchise and brand use agreements, managementcontracts, rental agreements, for one -time contracts. The JV is dissolved

when that goal is reached.

8/9/2019 ass. FA3

3/10

FACTOR WHICH IT TO JOINT VENTURE ARE

y R educing 'entry' risks by using the local partner's assetsy Inadequate knowledge of local institutional or legal environmenty Access to local borrowing powersy P erception that the goodwill of the local partner is carried forwardy In strategic sectors, the county's laws may not permit foreign nationals to

operate aloney Access to local resources through participation of national partner y Influence of local partners on government officials or 'compulsory'

requisite (see china coverage below)y Access by one partner to f oreign technology or expertise, often a key

consideration of local parties (or through government incentives for themechanism)

y Again, through government incentives, job and skill growth throughforeign investment, and

y Incoming f oreign exchange and investment.

8/9/2019 ass. FA3

4/10

JOINT VENTURE IN REALITY

y Airtel (India) + Zain (K uwait) (2010)y A ir Hong K ong (Cathay P acific + DHL Express)y Airport Authority of India + Fraport AG Frankfurt Airport Services

Worldwide + Delhi International Airport + GM R Group|GM R Infrastructure+ GM R Group |GM R Energy Ltd + GVL Investments P vt. Ltd + MalaysiaAirports (M auritiu s) P rivate Limited + India Development Fund

y A ir France- KLM (Air France + KLM)y A uto A lliance International (Ford + Mazda)y B rewer s Retail Inc. (Inbev, Molson Coors + Sapporo Breweries)y C anara HS BC Oriental B ank o f C ommerce L if e In surance C ompany

L imited. (Canara Bank + HSBC + Oriental Bank of Commerce)y CW Televi sion Network (CBS Corporation + Warner Bros.)y B ank Dn B NORD (DnB NO R + NO R D/LB)y Dow C orning (Dow Chemical Company + Corning Incorporated)y FAW |Volkswagen Automotive Company (China)y Fujit su Siemen s C omputer s (Fujitsu + Siemens AG)y G lobalFoundrie s (AMD + Advanced Technology Investment Co. (ATIC))y Huawei Symantec (Huawei + Symantec)y Hulu (NBC Universal + Fox Entertainment Group + ABC, Inc.)y INTO University P artnerships specialises in creating JVs with British

universitiesy Hochtief + Bahrain International Airporty P hilip s C omponent s (LG + P hilips)y M SN BC (Microsoft + NBC Universal)y NBC Univer sal (NBC [part of General Electric] + Vivendi Universal

Entertainment [part of Vivendi])y Nokia Siemen s Network s (Nokia + Siemens AG)y NU MM I (General Motors + Toyota)y P en ske Truck L ea sing (GE + P enske)y P etro A lam (R oyal Dutch Shell + Vegas Oil and Gas + GDF Suez)y P rime Time Entertainment Network from the P rime Time C on sortium

(Warner Bros. + the Chris-Craft group of independent stations.)y R eliance P etrochemicals + Atlas Energy (Canada)) (2010)y Rigar Donut s (R igarsia + Dunkin' Donuts, (2010)y Shell- M ex and B P (R oyal Dutch Shell + British P etroleum, 1932)y Sony B M G M u sic Entertainment (Sony Music Entertainment [part of

Sony] + Bertelsmann Music Group [part of Bertelsmann])y Sony Eric ss on (Sony + Ericsson)y Strategic A lliance (Northwest Airlines + KLM)

8/9/2019 ass. FA3

5/10

y The B al f our B eatty Skan ska, con struction contractor s (Balfour Beatty +Skanska)

y The B a seball Network (ABC, NBC, + Major League Baseball)y Tata Do C oM o (Tata Teleservices + NTT DoCoMo)y TN K -B P (BP + TNK (Tyumen Oil Co.)y TriStar P icture s (Columbia P ictures, HBO, + CBS)y United L aunch A lliance (ULA) (Boeing + Lockheed Martin)y Uninor (Telenor + Unitech Group)y Verizon W irele ss (Verizon Communications + Vodafone)y Virgin M obile India (Virgin Group + Tata Teleservices)y The XF L (NBC + World Wrestling Entertainment)y W al- M art |China International Trust and Investment Corp

8/9/2019 ass. FA3

6/10

ADVANTAGE AND DISADVANTAGE OF A

JOINT VENTURE

The Advantage of Joint Venturey P rovide companies with the opportunity to gain new capacity and expertisey Allow companies to enter related businesses or new geographic markets or

gain new technological knowledgey access to greater resources, including specialised staff and technologyy sharing of risks with a venture partner y Joint ventures can be flexible. 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.

y In the era of divestiture and consolidation, JVs o ffer a creative way for companies to exit from non-core businesses.

y Companies can gradually separate a business from the rest of theorganisation, and eventually, sell it to the other parent company. R oughly80% of all joint ventures end in a sale by one p artner to the other.

The Disadvantages of Joint Ventures

y It takes time and effort to build the right relationship and partnering withanother business can be challenging. P roblems are likely to arise if:

y The objectives of the venture are not 100 per cent clear and communicated toeveryone involved.

y There is an imbalance in levels of expertise, investment or assets brought intothe venture by the different partners.

y Different cultures and management styles result in poor integration and co -operation.

y The partners don't provide enough leadership and support in the early stages.y Success in a joint venture depends on thorough research and analysis of the

objectives.

8/9/2019 ass. FA3

7/10

JOINT VENTURE STRATEGIES

y Businesses should not engage in joint ventures without adequate planningand strategy. They cannot afford to, since the ultimate goal of joint ventures

is the same as it is for any type of business operation: to make a profit for theowners and shareholders. A successful company in any type of business isoften recruited heavily for participation in joint ventures. Thus, they can pick and choose in which partnerships they would like to engage, if any. Theyfollow certain ground rules, which have been develo ped over they years as

joint ventures have grown in popularity.y For example, experience dictates that both parties in a joint venture should

know exactly what they wish to derive from their partnership. There must be

an agreement before the partnership be comes a reality. There must also be afirm commitment on the part of each member. One of the leading causes for the failure of joint ventures is that some participants do not reveal their trueintentions in the partnerships. For example, some private compa nies inadvanced countries have formed partnerships with militant governments tosupply technological expertise and develop products such as chemicals or nuclear reactors to be used for allegedly peaceful purposes. They learnedlater that the products were used for military purposes. Such results can be

detrimental to the companies involved and adversely affect their bottom linesand reputations, to speak nothing of the direct victims of the militarydevelopment.

y Businesses should form joint ventures with experienced partners. If the partners do not have approximately equal experience, one can take advantageof the other, which can lead to failure. Joint ventures generally do not surviveunder this imbalanced dynamic. Nor do they survive if companies jump i ntothem without testing the partnership first.

y P artners in joint ventures would often be better off participating in small projects as a way to test one another instead of launching into one largeenterprise without an adequate feeling-out process. This is especially truewhen companies with different structures, corporate cultures, and strategic

plans work together. Such differences are difficult to overcome andfrequently lead to failure. That is why a "courtship" is beneficial to jointventure participants.

8/9/2019 ass. FA3

8/10

BENEFITS OF JOINT VENTURES

y Among the most significant benefits derived from joint ventures is that partners save money and reduce their risks through capital and resource

sharing. Joint ventures give smaller companies the chance to work withlarger ones to develop, manufacture, and market new products. They alsogive companies of all sizes the opportunity to increase sales, gain access towider markets, and enhance technological capabilities through research anddevelopment (R& D) underwritten by more than one party. In fact, fundingfor R& D today is often provided by government agencies in a myriad of countries operating under all types of economies, r anging from capitalist tosocialist and hybrid. This is particularly true in the United States.

y Until recently, U.S. companies were reluctant to engage in research anddevelopment partnerships, and government agencies tried not to becomeinvolved in business development. However, with the emergence of countriesthat feature technologically advanced industries (such as electronics or computer microchips) supported extensively by government funding,American companies have become more willing to participate in jointventures. Likewise, the U.S. government, along with state governments, has

become more generous with its financial support.y

Government's increased involvement in the private business environment hascreated more opportunities for companies to engage in domestic andinternational joint ventures, although they are still legally limited in whatthey can do and where they can operate. Nonetheless, more and morecompanies are involving themselves in joint ventures, and the trend is toincrease their participation, since the advantages outweigh the disadvantages.

8/9/2019 ass. FA3

9/10

THE FUTURE OF JOINT VENTURES

y It is almost certain that the number of joint ventures will continue to increasein the near future. More and more companies are adopting the joint venture

approach as a part of their growth strategies, particularly in the internationalarena. Foreign companies can benefit mutually by combining their technological and monetary resources and taking advantage of respectivemarket conditions. Thus, international joint ventures are becoming the normrather than the exceptionand in more industries than ever before.

y Joint ventures may grow in importance so much in the next few years thatmany companies could lose their national identities. There could be a growthin the activities of multinational corporations to the point where joint

ventures will be virtually unrecognizable. In fact, some companies, especiallythose in capital-intensive industries, have already lost sight of the fact thatthey engage constantly in joint ventures because they have become socommonplace.

y Finally, the wave of privatization, on a global scale, of state -owned industriesand enterprises promised an added catapult for joint venture formations. Theestimated worth of world-wide state-owned industry sales in 1995 reached$65 billion. This trend will make investment and inroads by companies into

previously closed, and still relatively unfamiliar and structurally adverse,countries such as China and the former eastern bloc nations increasinglyattractive.

8/9/2019 ass. FA3

10/10

JOINT VENTURE AGREEMENT y The parties involvedy The objectives of the joint venturey Financial contributions you will each make whether you will transfer any

assets or employees to the joint venturey Intellectual property developed by the participants in the joint venturey Day to day management of finances, responsibilities and processes to be

followed.y Dispute resolution, how any disagreements between the parties will be

resolvedy How if necessary the joint venture can be terminated.y The use of confidentiality or non-disclosure agreements is also recommended

to protect the parties when disclosing sensitive commercial secrets or confidential information.