Foreign Collaboration

Foreign Collaboration is a kind of partnership between resident and non-resident country. It is an association or union between a foreign company and a domestic company. It is in the form of a contract signed both the parties for mutual benefit. It cannot take place between two or more resident entities. It is mandatory that one non-resident entity is associated for forming a foreign collaboration. It can also be defined as a strategic alliance between two or more abroad based countries with the domestic country.[i]

Before entering a foreign collaboration both entities must take prior permission from the government authorities of the domestic country.  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.[ii]

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. Tata Docomo is a technical foreign collaboration between NTT Docomo, Inc from Japan, and Tata Tele services from India.[iii]

Objectives of Foreign Collaboration

• Helps in reduction of multiple costs.
• Operational Synergy
• Helps in generating Employment Opportunities
• It provides Optimum utilization of resources
• Aims in occupying large market share on collaboration
• Helps in establishing business relationship[iv]

Types of collaboration-

Foreign Collaboration-

The Inflow of foreign Investment takes place in the domestic country. the finance can be lent by foreign company in many way- the foreign company can either buy shares in the host country and in return receives dividend on the number of shares held. The other way is by giving long term loans and getting Interest on the same. The third way is by providing Credit facility to the domestic company which can be utilized by them in providing raw materials and other resources.[v]

Technical Collaboration-

In case of technical collaboration, the inflow of technology takes place in the host country. this type of collaboration helps in bridging the technological gap between two parties. The foreign company provides technical expertise, know-how, professional services etc. these kinds of collaborations are popular amongst developing countries.

Marketing Collaboration-

In case of marketing Collaboration, the inflow of goods and services takes place in the host country. this type of collaboration is very beneficial to the developing countries as it helps in augment of exports. The foreign company trades in goods and services of the domestic company. they sell goods either in their home country or/and worldwide basis.

Management Consultancy Collaboration-

In this category, the inflow of management consultancy takes place in the domestic country. the foreign company provides management related expertise to the host company. It helps in solving management related problems of the host company. This kind of collaboration is popular amongst both the private and the public sector.

Joint Venture

A Joint Venture is a business alliance in which two or more parties join for accomplishment of their goals. The activity can be new or already existing tasks pursuing organizations can even enter a joint venture. The parties involved in Joint Venture are liable to all costs and loss and are responsible for all the profits and income earned. Like a company, joint venture has a separate legal entity, different from the parties to the venture. The main aim behind entering business venture is expansion, some seek diversification. Those business which are doing good in their country. they tend to enter overseas market for exploitation of opportunities and benefits.[vi]

Examples of some recent Joint Ventures are- Vodafone and Telefonica agreed to share their mobile network, BMW and Toyota co-operate on research into hydrogen fuel cells, google and Nasa developing Google earth etc.

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 is a joint venture.
• Separate business- when a separate venture or business activity is set to commence. It is called a separate joint venture.
• Business Partnership- when two parties enter a partnership which involves limited liability i.e., limited liability partnership. This joint venture is a kind of business partnership.[vii]

Why are Joint Venture formed?

• Sharing of risk- joint venture involves sharing of risk. The large industries which have a huge development costs, bear a high risk. Thus, in such cases, joint venture acts as a boon and helps in sharing the risks.[viii]
• Cost advantages- joining hands with right company through a joint venture can provide various benefits including economies to scale.
• Wide access to market- entering in a Joint venture provides a large access to the market. The small business, early-stage business who do not have any knowledge and experience in building customer relationships can utilize joint venture for marketing its goods and services and get access to different distribution channels.
• Safeguard from geographical limitations- as a new company entering foreign market is a very cumbersome task. The company alone cannot survive the competition prevailing in the overseas market. Joining hands with local company will be very beneficial for the new business, as the experience of the company and its strong position in the market will protect it from geographical constraints.
• Financing constraints- if a company is not in a good financial position. Joining with the right type of company will help remove financial constraints.
• Acquisition barriers prior to acquisition– when large costs are involved prior to acquisition of business. Joint venture is a beneficial kind of agreement. It provides for sharing risk and losses.

Elements of Joint Venture

• Contractual agreement– joint venture comes into existence after entering contract by all the parties wanted to establish a venture.
• Purpose and duration- joint venture is established for a particular purpose. It can be for a short period of time or long-term depending upon the type of business and objectives.
• Joint property interest– every participant in the joint venture contributes either asset or capital depending upon the requirement and according to clauses stated in the contract. The property contributed; it carries a joint interest of each participant in it.
• Objectives- joint venture is formed for a purpose or an objective. If the purpose for which venture is formed is fulfilled the joint venture comes to an end, unless otherwise agreed.
• Sharing profits, loss, and risks-joint venture involves sharing losses, risks and even profits according to the terms of the contract.[ix]

Frequently asked questions

What is the meaning of Joint venture with example?

Joint venture is an agreement between two or more parties, which come together to share profits, risks, and loss for accomplishment of business goals. For example-

Why joint venture is formed?

Joint venture is formed primarily for sharing risks, economies to scale, gaining wide market access etc.

What is foreign collaboration?

Foreign collaboration is a mutual agreement between two or more parties in which one party shall be a non-resident for accomplishment of group objectives. For forming a foreign collaboration one party should necessary be an overseas company. This is not mandatory in case of a joint venture.

Reference

[i] Scribd.com

[ii] Ibid

[iii] Ibid

[iv] The Institute of Company Secretaries of India, International Business-Laws and Practices, (2014)

[v] Scribd.com

[vi] Investopedia.com

[vii] Ibid

[viii] The Institute of Company Secretaries of India, International Business-Laws and Practices, (2014)

[ix] Ibid