Joint Ventures


joint venture (JV) is a business agreement

A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity.

By Alla Gul (MBA)Our Contributor

A joint venture (JV) is a legal organization that takes the form of a partnership in which individuals, groups of individuals, companies, or corporations jointly undertake a transaction for mutual profit (“Joint Venture”, n.d.).

The parties agree to create a new entity by contributing equity.

Then they share in the revenues, expenses, and control of the enterprise. This paper discusses why joint ventures may be formed and what benefits may be expected when domestic and foreign companies form a venture. Then resent joint venture example is briefly illustrated.

The partnership can happen between big companies in an industry to differentiate, for example. The joint venture can occur between two small businesses that partner in order to successfully fight their bigger competitors. In addition, companies with identical products and services can also join forces “to penetrate markets they wouldn’t or couldn’t consider without investing tremendous resources” (“Joint Venturing”, n.d., p. 2). Next, a large company can decide to form a joint venture with a smaller business “in order to quickly acquire critical intellectual property, technology, or resources otherwise hard to obtain, even with plenty of cash at their disposal” (“Joint Venturing”, n.d., p. 2). To add, “There are good business and accounting reasons to create a joint venture with a company that has complementary capabilities and resources, such as distribution channels, technology, or finance” (“Joint Ventures (VS)”,  n.d.). Below are some major reasons for forming a joint venture:

Internal reasons

1.         Build on company’s strengths

2.         Spreading costs and risks

3.         Improving access to financial resources

4.         Economies of scale and advantages of size

5.         Access to new technologies and customers

6.         Access to innovative managerial practices

Competitive goals

1.         Influencing structural evolution of the industry

2.         Pre-empting competition

3.         Defensive response to blurring industry boundaries

4.         Creation of stronger competitive units

5.         Speed to market

6.         Improved agility

Strategic goals

1.         Synergies

2.         Transfer of technology/skills

3.         Diversification

(“Joint Venture”, n.d.). 

Joint ventures between companies headquartered in different countries can be particularly beneficial. First, companies may use joint ventures to gain entrance into foreign markets. For example, foreign companies form joint ventures with domestic companies that already are present in markets the foreign companies would like to enter.  Moreover, due to local regulations, some markets can only be accessed via joint venturing with a local business (“Joint Venturing”, 101, n.d., p.2). For example, China and to some extent India, require foreign companies to form joint ventures with domestic firms in order to enter a market (“Joint Venture”, n.d). Next, the foreign companies “generally bring new technologies and business practices into the joint venture, while the domestic companies already have the relationships and requisite governmental documents within the country along with being entrenched in the domestic industry”( “Joint venture”, n.d.). For example, joint ventures are common in the oil and gas industry, and are often formed between a local and foreign company. “A joint venture is often seen as a very viable business alternative in this sector, as the companies can complement their skill sets while it offers the foreign company a geographic presence” (“Joint Venture”, n.d.).

Recently the Hindustan Aeronautics Limited (HAL) and CAE, Canada signed an agreement to establish a joint venture company that will open a helicopter simulator training center in Bangalore, India.

The company, Helicopter Academy To Train By Simulation Of Flying (HATSOFF), will be owned equally by HAL and CAE. The training center is expected to begin operations in late 2008 by providing both civil and military helicopter pilot and maintenance training services. (“HAL”, 2007)

Questions to Answer Before You Approach a New Joint Venture Partner

Questions to Answer Before You Approach a New Joint Venture Partner.
Click to read more…

CAE is a world leader in providing simulation and modeling technologies and integrated training solutions for the civil aviation industry and defense forces around the globe (“About CAE”, n.d.). The Hindustan Aeronautics Limited (HAL) is in the list of top 100 defense companies in the world (“HAL 34th”, n.d.). Among its products are helicopters, aircrafts, advances communication and navigation equipment, and aerospace equipment (“Our Products”, n.d.). By forming the joint venture, the CAE is trying to extend its business-jet training network, to expend its distribution channels, to increase sales of its stimulators, and to capture and extend into India’s growing market (“Remarks for”, 2007,  p.3).  For the Indian partner, this joint venture provides the opportunity to differentiate, to acquire new skills and technology and to extend its marketing reach. Finally, both companies are expected to benefit from a development of a new market and from growth in revenues and profits.

To conclude, a joint venture is a strategic alliance where two or more parties form a partnership to share markets, intellectual property, assets, knowledge, and,  profits. (“Joint Venturing”, n.d., p.1).  The partnership may be formed between domestic companies or between domestic and foreign partners. When carefully planned and successfully implemented, joint ventures bring multiple benefits to parties involved

 By Alla Gul (MBA)Our Contributor


References

About CAE. CAE Inc. Retrieved September 26, 2007 from

 http://www.cae.com/www2004/About_CAE/index.shtml

HAL, Canada’s CAE ink joint venture for helicopter simulator training center. (2007).

Yahoo Business News. Retrieved September 26, 2007 from  http://in.news.yahoo.com/070926/139/6l8gn.html

HAL 34th among top 100 defense firms. Hindustan Aeronautic Limited. Retrieved

 September 26, 2007 from http://www.hal-india.com/34th.asp

Joint ventures. Cornell University Law School.  Retrieved September 26, 2007 from

 http://www.law.cornell.edu/wex/index.php/Joint_venture

Joint venture. Wikipedia. Retrieved September 24, 2007 from

 http://en.wikipedia.org/wiki/Joint_venture

Joint ventures (JVs). E-coach: Sharing Capital, Technology, Human Resources, Risks

 and Rewards. Retrieved September 26, 2007 from

 http://www.1000ventures.com/business_guide/jv_main.html

Our products. Hindustan Aeronautic Limited. Retrieved September 26, 2007 from

 http://www.hal-india.com/products.asp

Remarks for first quarter fiscal year 2008 results. (2007). CAE. Retrieved September 26,

 2007 from

http://www.cae.com/www2004/Investor_Relations/PDF/2008/CAE_FY08Q1_Remarks-en.pdf

Scott Allen. Joint venturing 101. About.com- Entrepreneurs. Retrieved September 26,

 2007 from http://entrepreneurs.about.com/od/beyondstartup/a/jointventures.htm

MARKETING STRATEGY CONCEPTS


SUMMARY MARKETING STRATEGY CONCEPTS

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Currently I am working on Part 2 with concentration on “Online Marketing”

Some of the questions of  “Online Marking Strategies”  will cover:

Below some of the fundamental questions to understand the business before start thinking about business strategies:
Do you have list of your competitors?
Why are you better than your competitors?
Where will your company be in 3-5 years?
Does your company have mission or vision statement, or do you have statement of company value?
How are you marketing your business?
Who are your target audience, target geographic area and how to define it?
How often you visit your competitor’s website and what are the reasons to do it?
What is the best time to send Mass Mail and why?
How to promote on Social Media Websites?
Why social media networking does not work despite resources spent?
What is gorilla marketing and how to use it to increase profit?
And more…
come back for more updates
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The Marketing Mix

The Marketing Mix is a combination of five marketing components that are integrated into the marketing strategy. In the Marketing Strategy the company decides what the most appropriate mix is. These components are also referred to as the 5 Ps :

Product

Market (or Place)

Promotion

Pricing

Distribution (or Placement)

The Product

A Product is a package of benefits as perceived by the consumer. In developing a product strategy you have to address several issues:

  • Determine the product/service need
  • How do you serve the need profitably?
  • Do you have the capability to fill the need?
  • What will the effect be on other products?
  • Will it enhance the company’s image?
  • How will the competitors react?

The Market

A “market” is subdivided into market segments. Each market segment represents a group of potential consumers with similar needs and interests. The target market segments are identified in the Marketing Segmentation Analysis. There are many ways to segment a market and they are not mutually exclusive:

  • Demographic: age, gender, family size, marital status, etc.
  • Geographic: language, regions, government, etc.
  • Psychographic: hobbies, lifestyle, interests, etc.
  • Product Usage: frequency, purpose, etc.

“There is no such thing as one market. There are only market segments”

A “Fit” Analysis is carried out to evaluate the market segments against key objectives and issues such as: corporate goals, corporate strengths/weaknesses, growth objectives, market share objectives, competitive threats/opportunities, and the need to maintain focus.

Promotion

Promotion involves communicating the marketing message of your product to the potential buyers. The components of marketing communications strategies are:

  • Target
  • Intensity
  • Message
  • Medium (Push versus Pull)
  • Economics

The push strategy is more commonly used when you have to deliver a more complex message to the consumer.

Price

What is the appropriate price? Market research can help you estimate what customers are willing to pay.

To set your price you have to understand the relationship between fixed cost, variable cost, contribution, profit impact, and break-even volume. Break-even Analysis is a tool used to analyze these relationships.

You cannot charge any more than what the consumer perceives as the value of the product/service compared to the other available choices.

Pricing Strategies can be set to:

  • gain market share
  • prevent market share
  • meet competition
  • price leadership
  • prevent cannibalization
  • milk product

Distribution

Distribution involves getting the product from where it is produced to where the consumer purchases it. Types of distribution Strategies are:

  • Selective Strategy: the availability of the product is limited
  • Intensive Strategy: the product is available everywhere
  • Direct Distribution: the product goes directly from the producer to the consumer
  • Indirect Distribution: there are intermediaries between the producer and the consumer (e.g. wholesaler, retailer

If you are looking for:

  • sample marketing strategy
  • marketing communication strategy
  • sales and marketing strategy
  • marketing strategy consulting
  • product marketing strategy
  • marketing strategy planning
  • ecommerce marketing strategy
  • internet marketing strategy software
  • search engine internet marketing strategy
  • internet email marketing strategy
  • marketing strategy training
  • consumer marketing strategy
  • trade marketing strategy
  • efficient collaborative retail marketing

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Government Mandated Monopolies,


Government Mandated Monopolies

By Alla Gul (MBA) – Our Contributor

Why are drug companies such as Pfizer allowed to establish and maintain monopolies (patents) on drugs – form of barrier?

Conventional wisdom might suggest that generally monopoly is bad for consumers because of the absence of competition.
A) What type of barrier is this?
B) Do you agree that drug companies should have this government mandated monopoly?  Why?

In economics, a monopoly (from Greek monos / μονος (alone or single) + polein / πωλειν (to sell)) exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. (This is in contrast to a monopsony which relates to a single entity’s control over a market to purchase a good or service. And contrasted with oligopoly where a few entities have )[1][clarification needed] Monopolies are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.[2] The verb “monopolize” refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition.

A) Monopoly is the situation in which there is a single seller of a product for which there are no close substitutes (Mankiw, 2004, p.314). A monopoly remains the only seller in the market because other firms can not enter the market and compete with a seller. It might happen due to the following reasons (“Monopoly: A Brief Introduction”, n.d.). First, a single firm owns a key resource.

Second, the government gives a single firm the exclusive right to produce some goods or services. Finally, the costs of production make a single producer more efficient than a large number of producers. As a result, all of the above create barriers to entry causing monopolies to arise. “The fundamental cause of monopoly is barriers to entry” (Mankiw, 2004, p.314). Regardless that government mandated monopolies have had some negative effects on the economy, the government grants the monopoly because doing so is viewed to be in public interests.
When a pharmaceutical company discovers a new drug, it can apply to the government for a patent. If the government approves the patent, the company has an exclusive right to manufacture and sell the drug for 20 years. The drug can not be copied due to protection of a patent (“Monopoly: A Brief Introduction”, n.d.). Many drug companies have been allowed to establish and maintain monopolies (patents) on drugs. These government mandated monopolies have created obstacles for other pharmaceutical companies to enter the market and compete. For example, Pfizer has patents on many drugs including Quinapril, Atorvastatin, and Sildenafil. Until these patents expire, no other company is allowed to produce the same drugs. This gives a company strong monopoly power allowing them to set higher prices and lower level of production than under competition that is considered to be harmful to the economy. However, monopolists argue that granting patents is in the public interest because it would allow them to spend more money on research and development in order to develop new and improved products. “It has long been recognized that government-granted monopolies (i.e., patents, copyrights, trademarks and franchises) can benefit society as a whole by providing financial incentives to inventors, artists, composers, writers, entrepreneurs and others to innovate and produce creative works” (“Monopoly: A Brief  Introduction”, n.d.). In fact, the importance of establishing monopolies of limited duration for this purpose is even mentioned in the Article I, Section 8 of the U.S. Constitution which states that “The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries” (“Monopoly: A Brief Introduction”, n.d). Thus, “The government grants the monopoly because doing so is viewed to be in public interests” because “granting patents for discovered drugs encourages research and development” (Mankiw, 2004, p.316).

To summarize, the laws governing patent have benefits and costs. “The benefits of the patent and copyright laws are the increased incentive for creative activity. These benefits are offset, to some extent, by the costs of monopoly pricing” (Mankiw, 2004, p.316).

B) There are intensive discussions on whether drug companies should have this government mandated monopoly. Supporters of such monopolies argue that even if patent laws do impose costs in the form of higher prices and lower availability for consumers, under patent laws, more innovation will occur, which is beneficial  for society as a whole (“Patent Laws and the War on Good Drugs”, 2001). On the other hand, oppositionists state that the law encourages drug monopolies to create artificial scarcity of some drugs in order to have a higher price for their products (Boldrin & Levine  , Chapter 4). Next argument states that the law deprives the poor from affordable drugs and blocks rights of developing nations under TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights).

Despite the clear need for developing countries to exercise their rights to compulsory licensing and parallel imports to enable their people to have access to affordable medicines, a major and perhaps the most disturbing aspect of the crisis of patents and drugs is that obstacles have been and are being put in the way of developing countries seeking to make use of TRIPS provisions on compulsory licensing or parallel imports in order to buy or produce drugs at more affordable prices. (“Patents and monopoly prices”).

To continue, they argue that the high prices can not be justified by large expenses on Research and Development (R&D) since often most of the profits go to cover marketing expenses rather than R&D: “Pfizer says this pricing is necessary to fund new drug research, but 35 percent of its profits drain into marketing and only 15 percent support R&D, according to the Securities and Exchange Commission in 2002…”(“Gov’t should use power to make drugs affordable”). Oppositionists also state that due to the patent law, the pharmaceutical companies are getting less efficient.

In economics, a monopoly exists when a specific individual or an enterprise

In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service

… Another major problem with pharmaceuticals today: The pharmaceutical companies are getting less efficient. They are increasingly turning out drugs that are less important to public health because they’re not as profitable. For example, roughly 70% of new FDA approved drugs are copycats or “me too” drugs which are small variations on existing drugs, usually done to reduce R&D costs and extend the patent life of an existing drug. (“Prescription Drugs”).

Finally, oppositionists conclude that “Patent protection is the most effective tool for drug manufacturers to keep out competition from generic producers and thus maintain monopoly control over the production, marketing and pricing of medicines” (“Patents and monopoly prices: Third Word Network” ). They state that “The net loss to society – from this policy is real and enormous” (Boldrin & Levine  Against Intellectual Monopoly, Chapter 4)

I incline to support those opposing the law. However, I also understand that the protection of intellectual property rights is important, and its violation “not only harms those innovators, such as the drug companies, who would be directly affected, it also does great damage to innovative activity, and indeed all types of capital (“Patent Laws and the War on Good Drugs”, 2001). I do not think I am ready to take one side or the other at this point since this is a complex issue and I do not want to jump to a conclusion ahead of time. I would like to investigate it more thoroughly.

References

Boldrin & Levine YEAR: Against Intellectual Monopoly, Chapter 4: The Evil of Intellectual

Monopoly Retrieved on October 21, 2007  from http://www.micheleboldrin.com/research/aim/anew04.pdf

Gov’t should use power to make drugs affordable

http://www.yaledailynews.com/articles/view/10127?badlink=1
October 17, 2007)

Mankiw,G.(2004). Principles of Economics. Mason, OH: Thomson South-Western

Monopoly: A Brief Introduction, Retrieved on October 20, 2007  from

http://www.linfo.org/monopoly.html

Morgan Rose , 2001, Patent Laws and the War on Good Drugs. Retrieved on October 21,            2007  from http://www.econlib.org/library/Columns/Teachers/patent.html.)

Novartis lawsuit threatens access to medicines for millions,  January 20 2007 Retrieved

on October 19, 2007  from http://www.oxfam.org.uk/applications/blogs/pressoffice/2007/01/novartis_lawsuit_threatens_acc.html)

Oxfam Press Release – 12 December 2006: India, Thailand and Philippines must face

down conflicts to guarantee affordable medicines Retrieved on October 21, 2007 from http://www.oxfam.org/en/news/pressreleases2006/pr061212_affordable_medicines6

Patents and monopoly prices: Third Word Network. Retreived on October 19, 2007 from http://www.twnside.org.sg/title/twr131b.htm

Pfizer, Novartis flayed for blocking new drugs to poor nations. Retreived on October 21,  2007  from http://www.dancewithshadows.com/pharma2/pfizer-novartis.asp

Prescription Drugs, April 2006. Retreived on October 20 from http://www.kucinichforcongress.com/issues/prescriptiondrugs.php April 2006

” Novartis lawsuit threatens access to medicines for millions”http://www.oxfam.org.uk/applications/blogs/pressoffice/2007/01/novartis_lawsuit_threatens_acc.html Jan 26 2007

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