Question

Make a list of Indian Companies entering into Joint Ventures with foreign companies.Find out the apparent benefits derived out of such ventures.

Answer 1

They have grown in popularity in recent years—joint ventures between U.S. and foreign firms, for example, have increased at an average of 27 percent since 1985. Certainly, not all of them will be successful; estimates of the failure rate of joint ventures reaches as high as 70 percent. Nonetheless, companies persist in initiating Joint ventures may involve companies in one or more countries. International joint ventures in particular are becoming more popular, especially in capital-intensive industries such as oil and gas exploration, mineral extraction, and metals processing. The basic reason is simple: to save money. For example, just to start a mining operation in the United States in 1984, a company would have had to spend one to two billion dollars. Few companies then (or now) could finance such an expenditure on their own, so joint ventures became more attractive as a way to share risks and costs and create scale economies.

Another factor that contributed to the expansion in joint ventures in the past few decades was the cost involved for capital-intensive industries to continue their operations. Companies in these industries depend heavily on advances in technology to reduce costs. By pooling their money and personnel, companies enhanced their chances of developing advanced technological methods that would reduce exploration and production costs and increase profit margins. Joint ventures became a favored method of doing business for such industries.

Joint ventures between American and international companies are increasingly common. Estimates suggest that approximately one-quarter of American companies' direct investments, i.e., the establishment of operating facilities in a foreign country, were in joint ventures. Ideally, the partners contribute approximately equal amounts of resources and capital into each business. The word "approximately" is important in foreign joint ventures, since some countries, such as China, will not allow outside companies to own the majority of a domestic business (although they do encourage joint ventures). In some countries, joint ventures are the only way companies can engage in foreign business. For instance, Mexico requires that all foreign firms investing there have Mexican joint venture partners. In addition to government regulations, other reasons for multinational joint ventures include cutting the costs of doing business, sharing risks, and acquiring technological information and management expertise from other companies.

International joint ventures have also been fostered by international financial institutions such as the International Monetary Fund, the World Bank, and the World Trade Organization, who have instituted policies to eliminate trade barriers and deregulate foreign ownership restrictions and the international flow of capital. These policies have helped create a business climate in which international investment and partnerships are an increasingly attractive, and often necessary, means by which companies seek to expand profit margins and market share. In addition, regional trade areas such as the North American Free Trade Agreement (NAFTA), the European Union (EU), and the Association of South and East Asian Nations (ASEAN) have created particularly favorable conditions for joint ventures within specific, relatively localized regions.

Joint ventures are extraordinarily helpful to some companies in gaining access to foreign markets. Neither party may really be interested in the primary project, but they participate simply to gain access to the new market. Such projects generally represent a direct investment, which is sometimes limited by laws in the country in which the operation takes place. One of the aims of a partner in a joint venture is to have a majority.