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An International Joint Venture Agreement is a legal agreement between two or more individuals and/or companies to incorporate a certain share of their business where they act together as one company for an economic undertaking. This is done by many companies all over the world to increase sales and working relations.
Parties which maybe individuals or companies, subscribe to the share of the joint venture in agreed proportions, in cash, and start a new business. Shareholders of the new company are now contributing equities sharing the revenues, risks, capital, human resources, technology, expenses and the control of their enterprise.
The venture, depending on the agreement, can be of specific purpose only under a certain period of time, usually lasts for five to seven years, or can be a continuing corporate relationship between companies in the long run. Typically, a venture is done to build company’s strength, gain access to new technologies, enter new markets, increase efficiency and improve managerial practices. The practice of joint venture compliments both companies in skills and resources. In most cases of developing countries such as India and China, the venture happens as a partnership between a domestic firm and foreign company.
Combining abilities, capital and resources, international joint venture provides great opportunity to domestic companies in developing countries to gain expertise and capacity. It further develops the domestic company’s adversity quotient in dealing with financial risks, human capital risks, and other potential pitfalls which may arise during the process.
The collaboration may vary from country to country. In some places, joint ventures may exist as two different legal entities, and in others, may exist as one fused company. Thus, thorough research, market analysis, and a sound understanding of the cultural and economic background between parties must be taken into consideration before hopping into the bandwagon to avoid misunderstanding and failure at a later stage.
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Source by Rivers Corbett
