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Foreign Collaboration & Joint Ventures

FOREIGN COLLABORATION

A kind of partnership between resident and non-resident country is known as foreign collaboration. It is basically an association or union between a foreign company and a domestic company. It is basically a contract signed between both the parties for mutual benefit. Foreign collaboration is an alliance (union or an association) incorporated to carry on the agreed tasks collectively with the participation of the resident and non-resident entities. A strategic alliance between two or more abroad based countries with the domestic country is also known as foreign collaboration. It cannot take place between two or more resident entities.

A prior permission from the government authorities of the domestic country is required before entering a foreign collaboration. Both the parties after seeking necessary approvals come to an agreement in which all the parties to a collaboration i.e., the resident company and the non-resident company join hands for an alliance. The non-resident entity will agree on providing technical know-how, financial assistance, machinery etc. The resident entity promises to provide good quality raw materials, cheap resources and making available land for setting up of workshops or manufacturing units. The central concept of foreign collaboration is joint participation between host and foreign countries for the establishment of an organic form of enterprise in the host country involving profit-seeking relationships.

Investment can be done in India by International Investors through various ways i.e. Merger / Amalgamation, Purchase of shares from the Indian Residents, Subscription to Memorandum of Association, Right/bonus issue.

Some examples of foreign collaboration are- ICICI Lombard GIC (general insurance company) limited is a financial foreign collaboration ICICI bank Ltd, India and Fairfax financial holdings Ltd, Canada. Foreign collaboration is an inflow of foreign capital and technology for the host country which is backed by commercial considerations of profit and private expectations. Tata Docomo is a technical foreign collaboration between NTT Docomo, Inc from Japan, and Tata Tele services from India.

The main intention or objective of foreign collaboration is to improve the financial growth of the collaborating entities, reduce the higher operating cost of a non-resident entity, Before starting collaboration both entities must seek prior permission from the governmental authority of the domestic country, Generate employment in the resident entity’s country, an optimum and effective use of resources available in the resident entity’s country, After establishing foreign collaboration entities start a business together in the domestic country, Occupy a major market share for the collaboration entities.

Foreign collaboration may take place in three forms i.e. Collaboration between the Indian and Foreign private companies; Collaboration between the Indian government companies and foreign private companies; Collaboration between the Indian Government and a foreign government.

JOINT VENTURE

Joint Venture is an admired system to enter into a country whose legal and business atmosphere is unfamiliar. A joint venture (JV) is a type of commercial partnership wherein two or more entities commit to sharing their assets, technology, expertise, skills, etc. to achieve some certain goal. There are many obstacles faced by business and corporate houses interested in joint ventures which may be legal and/or even relationship cantered as well, especially when even after more than two decades of liberalization. There are certain limitations which have been imposed by India on foreign investment in some sectors. Overseas entrepreneurs who form a joint venture reduce the risks associated with buying a company entirely. Each partner in a joint venture (JV) is liable for the earnings, expenses, damages, and expenditures linked with it. Moreover, the venture is a distinct business corporation from the partners’ existing economic concerns. Joint venture pros is that it may assist your company, in growing faster, enhancing efficiency, and intensifying profitability. A corporation can create a joint venture with an overseas entity to experience global commerce without carrying on all of the responsibilities of multinational commercial operations.

Types of Joint Venture

Limited co-operation it is a kind of joint venture in which parties agree for a limited corporation. No day to day running or management is done by both the parties. If one party agrees to sell goods or services under the recognized name of other party it will be known as joint venture.

Separate Business A separate joint venture is when a separate venture or business activity is set to commence.

Business Partnership This joint venture is a kind of business partnership. When two parties enter a partnership which involves limited liability i.e., limited liability partnership.