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Joint entrepreneurial activity is one of the ways to penetrate the foreign market; This method involves joining forces with commercial firms of a partner state to increase financial and production capacity.
A key feature of a joint venture is that the parties to the agreement are not debtors or lenders to each other. The property necessary for joint activities is not separated, so both parties take risks and are liable for the common debt in shares.
Joint business activities: types
It is customary to classify joint entrepreneurial activities into 4 types:
- Licensing– the most common and simplest way of joint entrepreneurship. Wanting to enter the international market, the company enters into an agreement with the licensee, offering to take advantage of such advantages as a trademark, patent, or production process diagram. As a result, both parties receive benefits of various kinds: the licensor enters a new market with minimal risk, and the licensee gets rid of the need to start promoting the brand from scratch. Licensing has common features with franchising, however, the licensee, unlike the franchisee, does not have to pay royalties. Licensing also has its disadvantages: firstly, the licensor has virtually no control over the licensee, who can harm the licensor’s reputation with inept activities; secondly, if the licensee’s business turns out to be successful, the licensor may find that he has raised a serious competitor.
An example of entrepreneurship in the form of licensing is the activity of the Coca Cola company, which licenses the use of the concentrate necessary for the production of the drink (as well as the concentrate itself) to companies from all over the world.
- Contract manufacturing– the enterprise finds a local manufacturer qualified enough to produce the company’s goods without compromising quality. The disadvantage of this method is the impossibility of constant quality control, the advantages are minimal risk and the ability to organize production faster than when opening a new plant.
- Contract Management– a large organization provides know-how (most often in the field of management), a local company generates capital. Subject of export to in this case are management services. This method has one drawback: the local company requires personnel qualified enough to use the know-how as efficiently as possible.
- Joint Ownership Enterprise. Local and foreign companies can create a new enterprise that they will manage together. Also, a foreign investor can purchase a share of an already operating business. There are pros and cons to this practice. The following are considered advantages:
Joint ownership is one of the common conditions for admission to a foreign market.
Cross-ownership reduces the risk that the firm will run out of financial resources.
The downside is that the parties may disagree on marketing, management, and financial distribution. Much depends on the national characteristics of management: for example, American managers tend to invest most profits into development, and this may run counter to the interests of local managers who, for example, decide to spend a significant share of profits on paying dividends.
Joint entrepreneurial activity is one of the most important forms of regulation of intercompany market relations. It ensures that firms operating internationally adapt to changing conditions and market demands. Joint business activities usually take the form of joint ventures, research collaborations, and the exchange of licenses for new products and technologies. The main emphasis is on creating joint ventures.
The creation of joint ventures (JVs) is implemented at the level of direct interaction between cooperating partners, who are legal entities under the laws of the countries they represent. Cooperation between participants in joint ventures has its own characteristics:
· connection of property and formation on its basis of the initial capital of a joint venture;
· joint management of the processes of enterprise development, production and sale of products and services produced by it;
· joint bearing of enterprise risks;
· division of part of the profit of the joint venture between partners on the terms regulated by the regulations of the host country;
· long-term cooperation;
· complexity of interaction between partners in all key areas of activity;
· unification of the strongest individual elements.
JVs are created and operate in the territory of the host country on the terms and in the legal form determined by the legislation of that country. In international practice, there are various legal forms of joint entrepreneurship, which determine the features of the organization of the joint venture being created and the degree of responsibility of its participants for the obligations of the enterprise. The most common organizational and legal forms of a joint venture are a joint stock company, a full liability company, and a limited liability company. In addition, joint ventures may vary depending on the ratio of shares of local and foreign partners in the authorized capital of the enterprise.
Production sharing agreement: concept, subjects, production sharing, conclusion procedure.
This agreement is an agreement under which the Russian Federation grants to a business entity (hereinafter referred to as the investor), on a reimbursable basis and for a certain period, exclusive rights to search, explore, and extract mineral raw materials in the subsoil area specified in the agreement, and to carry out related work , and the investor undertakes to carry out the specified work at his own expense and at his own risk . The agreement defines all the necessary conditions related to the use of subsoil, including the conditions and procedure for dividing produced products between the parties to the agreement.
The produced products are subject to division between the state and the investor in accordance with an agreement, which must provide for the conditions and procedure for:
Determination of the total volume of products produced and its value.
Determination of the part of the produced products that is transferred to the ownership of the investor to reimburse his costs for performing work under the agreement (hereinafter referred to as compensation products). At the same time, the maximum level of compensatory production should not exceed 75 percent, and when mining on the continental shelf Russian Federation- 90 percent of the total volume of products produced
Transfer by the investor to the state of the part of the produced product or its value equivalent belonging to it in accordance with the terms of the agreement;
Receipt by the investor of manufactured products that belong to him in accordance with the terms of the agreement.
IN in some cases the division of manufactured products between the state and the investor in accordance with the agreement may be carried out in a manner different from that described above.
The agreement may provide for only one method of division of production. The agreement cannot provide for a transition from one method of production division to another, as well as the replacement of one method of production division with another.
Lecture topic 4. NEW FORMS OF ENTREPRENEURSHIP WITHOUT FORMATION OF A LEGAL ENTITY
WITH With the development of a market economy in Russia, forms of entrepreneurial activity are becoming increasingly diverse. They are either resurrected from past Russian experience and receive further development (simple partnership), or are perceived from foreign experience (franchising).
Joint entrepreneurial activity in the form of a simple partnership
TO concentration of efforts and coordination of actions of several enterprises or individual entrepreneurs to achieve common goals can in many cases be achieved by concluding a simple partnership agreement between them.
The legal institution of a simple partnership is established by the Civil Code of the Russian Federation. By simple partnership agreement (joint activity agreement) two or more persons (partners) undertake to pool their contributions and act together without forming a legal entity to make a profit or achieve another goal that does not contradict the law. The duration of a simple partnership is determined by agreement of the parties, but may not be included in the agreement (in this case a simple partnership is assumed to be of unlimited duration).
The main feature of a simple partnership agreement is that its participants do not act in relation to one another as debtors and creditors, as is the case in other agreements. The participants in this transaction do not legally separate the property used by them for joint activities, and therefore are liable for common debts with all their personal property in equity or jointly.
Comrade's contribution everything that he contributes to the common cause is recognized, including money, other property, professional and other knowledge, skills and abilities, as well as business reputation and business connections. The partners' contributions are assumed to be equal in value, unless otherwise follows from the simple partnership agreement or actual circumstances. The monetary value of a partner's contribution is made by agreement between the partners.
It should be noted that the common property of the partners does not serve as a guarantee of satisfaction of their creditors for common obligations. Therefore, it is allowed to contribute not only real property, but also professional and other knowledge, as well as skills, business connections and business reputation. The property contributed by the partners, which they possessed by right of ownership, as well as the products produced as a result of joint activities and the fruits and income received from such activities are recognized as their common shared property, unless otherwise established by law or a simple partnership agreement or does not follow from the essence of the obligation.
Legal separation of the common property of participants from their personal property is usually carried out using its accounting on a separate balance sheet. Keeping such records can be entrusted to one of the partners (legal entity).
At conducting general affairs Each partner has the right to act on behalf of all partners, unless the agreement stipulates that the conduct of business is carried out by individual participants or jointly by all participants in the agreement. When conducting business together, each transaction requires the consent of all partners. In this situation, they have the right either to each sign an agreement on the transaction, or to issue a one-time power of attorney to one or more participants for this purpose.
If a member of a partnership made a transaction in the conduct of common affairs in excess of his powers(for example, having received the consent of the majority, but not all comrades), other participants doesn't matter will be considered obligated under such transaction, since their counterparties (third parties) are not required to know about the restrictions on the transaction that apply to this partner. In the case where they knew (should have known) about such restrictions (in particular, they did not verify that the person who made the transaction had the authority to act on behalf of all the partners), only the partner who made it will be recognized as a party to the transaction. However, the latter circumstance must be proven by the interested comrades themselves, otherwise the transaction is assumed to be concluded with their consent and in their common interests.
A participant in a simple partnership who acted in excess of authority or on his own behalf, in a situation where the transaction he concluded was necessary in the general interests of the partnership, has the right to demand reimbursement of his expenses from the other partners. If, as a result of such a transaction, other partners suffered losses, they also have the right to demand compensation from the participant who made the transaction.
Each comrade, regardless of whether he is authorized to conduct the common affairs of his comrades, has the right to familiarize himself with all documentation on the conduct of affairs.
The procedure for covering expenses and losses associated with the joint activities of the partners is determined by their agreement. In the absence of such an agreement, each partner bears expenses and losses in proportion to the value of his contribution to the common cause. It is obvious that in most cases, losses and expenses will be repaid primarily from the common property or a certain part of it and only if there is a shortage from the personal property of the participants, taking into account the relative size of each contribution.
The profit received by the partners as a result of their joint activities is distributed in proportion to the value of the partners' contributions to the common cause, unless otherwise provided by the contract or other agreement of the partners. The agreement may introduce additional criteria for the distribution of profits (for example, an additional part of the profit for the successful conduct of common affairs).
A simple partnership agreement is terminated upon expiration of the term or upon achievement of the purpose for which it is concluded, as well as due to other circumstances (the declaration of one of the partners as bankrupt, the withdrawal of one of the participants from the partnership, the allocation of a partner’s share at the request of his creditor, in cases where the contract or subsequent agreement does not provide for the preservation of the contract in relations between the remaining partners).
Upon termination of the contract, it becomes necessary to resolve two issues: a) liability for general obligations existing to third parties; b) on the division of common property or the return of property transferred for common use.
As for liability for general obligations, from the moment of termination of a simple partnership agreement, its participants bear joint liability for unfulfilled general obligations in relation to third parties. In the event that a simple partnership agreement was not terminated as a result of a statement by any of the participants to refuse further participation in it or termination of the agreement at the request of one of the partners, the person whose participation in the agreement was terminated is liable to third parties for general obligations, arising during the period of its participation in the agreement, as if it remained a party to the simple partnership agreement.
The division of common property is carried out according to the rules established by the Civil Code of the Russian Federation for the division of shared property. In this case, a partner who has contributed an individually defined thing to the common property has the right, upon termination of a simple partnership agreement, to demand in court the return of this thing to him, provided that the interests of the other partners and creditors are respected. Property transferred for common use is returned to the participant who transferred it without compensation for wear and tear (unless there is an agreement between the participants on compensation).
A simple partnership agreement may provide that its existence is not disclosed to third parties (unspoken partnership). In relations with third parties, each of the participants in a private partnership is liable with all his property for transactions that he concluded on his own behalf in the common interests of his partners. In relations between partners, obligations arising in the course of their joint activities are considered general.
At present, the form of entrepreneurial activity under consideration has not yet found wide distribution in the Russian Federation. The formation of simple partnerships, apparently, is advisable primarily in the form of consortia created for a certain period in the interests of implementing large projects.
Financial and industrial groups (see chapter 4) by their legal status, as a rule, they also represent simple partnerships created on the basis of an agreement of participants. They form their common property through contributions from participants and bear joint liability for common obligations. Only financial and industrial groups consisting exclusively of main (parent) and subsidiary companies do not constitute a simple partnership. However, if these companies are linked by a special management agreement, then a type of simple partnership occurs.
The legislation of a number of countries suggests that the presence of a foreign company in their market is possible only by concluding a contract with local firms for the production of goods in these countries. Even industrialized countries sometimes put pressure on exporters to establish joint ventures abroad.
Joint venture activity is the combination of some aspects of the production and marketing of goods and services with foreign companies. For example, the Dutch company Philips works with the Japanese companies GVC and Sony, owns the German company Grundig, and cooperates with the French company SIG-Alcatel.
Joint ventures (JVs) are created on the basis of licensing, production contract, management contract and joint (fractional) ownership.
Licensing gives a foreign company the rights to the production process, trademark, patent, etc. in exchange for commission payments (royalties). A license agreement may also represent rights to intangible property for an indefinite period. Such property can be: formulas, processes, diagrams, etc. The use of licensing when creating a joint venture has economic, strategic and political motives.
Economic motives are that the licensor reduces the risk of creating production abroad, given the small sales volume, the danger of a competitor improving the product, and limited resources. Large firms with diversified production, revising their product range, focus their efforts on strengths their activities, which provide high profits. They abandon products and technologies that are not of interest at the time. This is the strategic motive behind the licensing agreement. But the company can change its strategy and terminate the contract, especially since their terms are short.
Political and legal motives underlie a licensing agreement when there are restrictions on foreigners acquiring property in the licensee country, whether or not protecting foreign property. By transferring the rights to the object of the licensing agreement, the company loses control over its assets. There is a need to provide for the following points in the license contract:
1) the conditions for its termination if the parties do not comply with the established requirements;
2) methods for checking the quality of goods and services;
3) obligations for expenses on creating a sales system;
4) geographical boundaries of the use of assets;
5) conditions for the use of innovative technologies based on knowledge transferred under a license agreement;
6) confidentiality of information under the license agreement.
In practice, there is a wide range of terms and amounts of payments under a license agreement. The terms of the licensing agreement are influenced by both factors specific to the agreement (exclusivity of the license, limitations on production volume, quality requirements, novelty of technology, etc.) and factors specific to the market (state licensing rules, level of competition among suppliers of similar technologies, political, business risks, etc.).
The price of the licensing contract is determined by both the licensor and the licensee in order to agree on the amount of payments. In this case, an upper and lower price limit is set. The upper price limit is calculated based on an assessment of the licensee's weighted average profit from using the technology and an assessment of the licensee's costs of purchasing the same technology from competitors or the costs of developing it independently.
The price floor usually takes into account the licensor's estimate of the costs of direct technology transfer or the zero-win price. Determining the cost of a license agreement is a very important point, since it is a contribution from one of the JV participants to the authorized capital and management resources.
In international business, a joint venture is a partnership in which the partners share ownership, control over production and the income received. Partners can be: two foreign companies trading in a third country, a foreign company and a government organization (enterprise), or a foreign company and a local one.
All larger number Firms are trying to enter international business quickly by forming strategic alliances with competitors, suppliers and customers. In a typical strategic alliance, two or three firms invest equal shares in a joint venture or sign agreements to share marketing, research, or production costs.
Fractional ownership used in different countries, but it is more developed in those industries where the need for capital expenditures and additional external resources is higher. The local government can also exert pressure on those foreign firms that have a strong influence on the economy of the recipient country.
The main reasons for creating a joint venture on a shared basis are as follows:
1) expand its activities in the geographical area;
2) prevent competitors from taking a dominant position in the market;
3) achieve a maximum increase in sales volume;
4) pressure from the government to share ownership with local shareholders;
5) reduce the severity of public and official criticism of the foreign company.
Many firms operating as a joint venture decide in advance who will own the controlling stake. If this issue is not resolved, then the company may lack clarity in choosing areas of activity.
Management contract – an agreement under which one company sells management services for managing an enterprise (equipment) to another company located abroad.
The need for a management contract arises in situations where:
1) foreign investments are expropriated by the recipient country, and the former owner is offered to continue managing the enterprise while local managers are trained;
2) new commercial projects provide that the contracted company sells both its equipment and services for its management;
3) management in order to improve the efficiency of the enterprise.
From the recipient country's perspective, the management contract eliminates the need for direct investment as a means of obtaining management assistance. For a service firm, contracts help avoid the risk of loss of capital when returns on investment are low and capital costs are prohibitive.
Production contract – an arrangement in which a firm enters into agreements with firms in a foreign market to produce products in that country. The company usually conducts marketing through foreign commercial subsidiaries. Such agreements are common in book publishing.
turnkey contracts- an arrangement under which one company designs, builds and trains personnel to operate equipment of a foreign company. In reality, all the purchasing company has to do is “turn the key” to start the equipment.
