International Joint Ventures and Merger & Acquisitions

Benefits of Joint Venture With Foreign Parties in India

August 06, 2018

Joint Venture refers to a form of tactical partnership in which two or more business entities collaborate to create a new business entity for more productivity and economic benefits.

Joint Venture refers to a form of tactical partnership in which two or more business entities collaborate to create a new business entity for more productivity and economic benefits. It represents the optimism of two firms that have united to accomplish marketplace goals which seem uneconomical and challenging independently.

Joint Venture in india

As the proliferation of global markets is incessant, International Joint Ventures became fundamental for commercial objectives. In India, Joint Venture is becoming a traditional model of running a business as most of the foreign investments are made through Joint Venture arrangement only.

Under the Indian Law, a Joint Venture is governed primarily by the Indian Contract Act, Foreign Direct Investment (FDI) Policy, the Foreign Exchange Management Act, 1999 (FEMA)  with that several aspects of Corporate Laws are also applicable.

A foreign company can invest/enter Indian market through Joint Venture arrangement only in sectors which are not exclusively reserved for public sector and do not fall under the prohibited categories like real estate, agriculture, plantation and insurance.

Foreign party as a Joint Venture partner and Ots Benefits

Having a foreign party as a Joint Venture partner in India can be highly beneficial as it provides a fast way to indulge in complementary resources that are available with the other partner, share each other’s capabilities, access new market and diversify new business.

  • Flexibility and Adaptability- JV gives you option to be equity-based or contractual arrangement. It is very adaptable as it can be started with existing project by introducing a new partner or by starting an entirely new business. As JV is a temporary arrangement which implies you are not commitment for long- it opens a creative route for companies to enter into non-core businesses while maintaining an easy exit option without much at stake.
  • Accessibility- The JV with foreign party partner helps the foreign investor to access the strengths of other in terms of regional knowhow about the established market, infrastructure, product quality, technology, distribution channels, availability of cheap resources, labor cost, risk factors, etc. to strengthen the position in current market and ramify new businesses as well.
  • Improved technology- A foreign party partner acts as a catalyst for Indian business as it equips them with cutting edge latest technology which is already tried and tested in global market. It leads to generation of more developed and evolved products economically without compromise on quality standards to meet the growing needs of modern businesses.
  • Shared liabilities- As both the parties have volunteered to share the responsibilities- the burden/pressure of incurring loss, costs or services will be less for each individual partner. It encourages them to take risks to explore new options even when the possibility of higher returns is not up to par.
  • Increased capacity- Both, production and sales increase due to availability of both advanced technology and cheap labor. Resources are also available at economical prices and can be utilized efficiently to boost returns. All the equipment and capital you need for your project can be made available conveniently. JV is a great way of reducing research and manufacturing costs without compromise on product quality too.
  • Soaring high success rate- It bestows Indian business, the opportunity to access new global markets and distribution channels without any geographical hindrances and gain insights and use expertise of each other to yield exceptional results.

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