A joint venture is the most important form of organizing the international activities of any state. Such enterprises are created in the form of joint ownership or licensing, which allows foreign participants to use trademarks or trade secrets patents, to carry out the production process in exchange for royalties or commissions.
The creation of a joint venture involves the conclusion of a contract with a foreign company for the production of its products in this state. At the same time, the national enterprise provides managerial experience and is engaged in marketing of finished products. By concluding management contracts, the company acts as a consultant for a foreign company. If there is joint ownership, then the national company agrees to the sale and production of goods manufactured together with a foreign enterprise, which allows to reduce new costs and share risks.
Any joint ventures operating in the field of marketing or production should clearly understand the consequences of creating an organization abroad with the participation of foreign partners. The creation of a joint venture is advisable in the presence of the following prerequisites:
- the industrial enterprise does not have sufficient capital or its production personnel are appropriately trained for independent operations abroad;
- the company is given the opportunity to collaborate with an enterprise that already holds strong market positions;
- the company does not have at its disposal the necessary amount of raw materials, raw materials or components to expand the production of competitive goods;
- the company does not have modern technologies and equipment, but it has at its disposal the necessary labor resources, raw materials and materials for the production of competitive modern products, which can find maximum sales in the country with the production in place.
In some states, the creation of companies that are wholly owned by foreign representative offices is prohibited, and joint ventures are required to enter the markets of these countries.
Benefits of Joint Ventures
Partnerships are most beneficial for small companies seeking to conquer several markets, however, for this they lack sufficient financial capabilities. In practice, such enterprises do not have personnel that meets international requirements; they do not have information about the capacity and situation of the external market. In exchange for the attributes of a successful foreign trade, companies offer technical knowledge.
Lacking financial assets, the company can work together with several foreign partners, releasing shares of the company for sale. In this case, it should be borne in mind that such joint ventures can be controlled only with more than 50 percent of the share capital.
Entering a foreign market is much easier in partnership with a local firm. And for some countries, only joint ventures provide the only opportunity to work on the market.
The work of a joint company can have a special effect if there is an intermediary who has an established system of relations with consumers and has an energetic business reputation in his market.
During the economic crisis, the creation of joint ventures can greatly help the country's industry and overcome difficulties, which is important for the state economy.