International Joint Ventures

I. Defining international join venture: one of the most popular form of strategic relationships is a "joint venture" refered to as JV. jv utilizes a separate business entity to allow two or more parties to collaborate in conducting specified business activities.Although an overwhelming majority of international JV involve only two parent firms, one from a foreign country and the other from the local country, some ventures consist of multiple participants. For example many early JV in china were tree-way partnerships including a local partner, a multinational partner, and a partner from Hong-Kong. In other cases, a joint venture may include partners with more complex nationality or cultural background. Above all, international joint ventures represent an intellectual interorganizational linkage between two separate parents companies that joint forces with different strategic interest and objectives. Cross cultural differences, diverging strategic expectations, structures, and operational processes between the partners firms have been frequently cited as sources of interpreter conflict which in turn lead to the venture’s instability and performance problems. In addition to inter and intra organizational relationship that joint venture has to manage, the external institutional environment in which the venture operates is also complex and hard to deal with. Legal regulation, form of incorporation, the structure of ownership arrangement, taxation regimes, and the governance mechanism of JV can be significantly different between the countries where the parent firms are found. In

A typical International Joint Venture is between:

Two international parties, (individuals or companies), incorporate a company. Business of one party is transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash.

The above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business.

Promoter shareholder of an existing company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.

Some practical aspects of formation of international joint venture companies and the prerequisites which the parties should take into account are enumerated herein after.

In some countries joint ventures are a separate legal entity, whereas in others they cold any of the available corporate entities. ==

Pros and Cons

• Pros:
  • Risks and awards are shared between the two parties.
  • More transparency of operations.
  • Financial interets will ensure that both parties pay more attention and commitment to the venture.
• Cons:
  • slower decision making.
  • Clash of corporate cultures of both parties involved in the venture can lead to disastrous consequences.