PRIVATE, PUBLIC AND GLOBAL ENTERPRISES (a) If the joint venture is covered under automatic route, then the approval of the Reserve Bank of India is required. (b) In other special cases not covered under the automatic route, a special approval of FIPB is required. A joint venture must be based on a memorandum of understanding signed by both the parties highlighting the basis of a joint venture agreement. The terms should be thoroughly discussed and negotiated to avoid any legal complications at a later stage.
Negotiations and terms must take into account the cultural and legal background of the parties. The joint venture agreement must also state that all necessary governmental approvals and licenses will be obtained within a specified period. . .
Benefits Business can achieve unexpected gains through joint ventures with a partner. Joint ventures can prove to be extremely beneficial for both parties involved. One party may have strong potential for growth and innovative ideas, but is still likely to benefit from entering into a joint venture because it enhances its capacity, resources and technical expertise. The major benefits of joint ventures are as follows: (i) Increased resources and capacity: Joining hands with another or teaming up adds to existing resources and capacity enabling the joint venture company to grow and expand more quickly and efficiently.
The new business pools in financial and human resources and is able to face market challenges and take advantage of new opportunities. (ii) Access to new markets and distribution networks: When a business enters into a joint venture with a partner from another country, it opens up a vast growing market. For example, when foreign companies form joint venture companies in India they gain access to the vast Indian market. Their products which have reached saturation point in their home markets can be easily sold in new markets.
They can also take advantage of the established distribution channels i.e., the retail outlets in different local markets. Otherwise establishing their own retail outlets may prove to be very expensive. (iii) Access to technology: Technology is a major factor for most businesses to enter into joint ventures. Advanced techniques of production leading to superior quality products saves a lot of time, energy and investment as they do not have to develop their own technology.
Technology also adds to efficiency and effectiveness, thus leading to reduction in costs. (iv) Innovation: The markets are increasingly becoming more demanding in terms of new and innovative products. Joint ventures allow business to come up with something new and creative for the same market. Specially foreign partners can come up with innovative products because of new ideas and technology.
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