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Question

Define Joint Venture and Explain its major benefits.


Solution

Joint Venture 

a. When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture.

b. Joint venture is the pooling of resources and expertise by two or more businesses, to achieve a particular goal. 

c. The risks and rewards of the business are also shared. The reasons behind the joint venture often include business expansion, development of new products or moving into new markets, particularly in another country.

d. Examples of Joint Ventures are AVI Oil India Pvt. Ltd., Green Gas Ltd etc.

e. A joint venture must be based on a memorandum of understanding (MOU) signed by both the parties, highlighting the basis of a joint venture agreement.

f. Negotiations and terms must take into account the cultural and legal background of the parties.

g. The joint venture agreement must also state that all necessary governmental approvals and licences will be obtained within a specified period.

Benefits are as follows:

a. Teaming up adds to existing resources and capacity enabling the joint venture company to grow and expand more quickly and efficiently.

b. When a business enters into a joint venture with a partner from another country, it opens up a vast growing market.

c. They have Access to Advance technology. 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. 

d. Joint ventures allow business to come up with something new and creative for the same market. Especially foreign partners can come up with innovative products because of new ideas and technology.

e. International corporations invest in India, they benefit immensely due to the lower cost of production. They are able to get quality products for their global requirements.

f. One of the parties benefits from the other’s goodwill which has already been established in the market.

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