Joint ventures between domestic and overseas firms are mainly entered with a view to share risks, avoid heavy governmental regulations, access to new market and capital and to get competitive edge, said, Saurabh Upadhyay, executive director, Tax & Regulatory Services, Price water house Coopers Pvt Ltd.

Addressing a seminar organised by the Indian Pharma Machinery Manufacturers' Association (IPMMA) on 'joint ventures with foreign companies', Upadhyay stated that joint ventures are mainly in the nature of technical, financial and technical-cum-financial collaboration. Selection of a partner is based mainly on technical competencies, previous relationship, reputation and brand strength, financial standing, tenure of joint venture and management quality and capacity.

Most of the joint ventures are between private firms, as there are several difficulties in entering collaborations between the public firms. Current FDI norms do not permit the overseas firms to invest in association of persons. By entering joint ventures, foreign firms are usually for outsourcing manufacture or production activity to Indian company, he observed.

Commenting on the hurdles for entering into joint ventures, he stated that the hurdles are mainly in the regulatory framework, FDI norms, income tax and IPR. The sharing of voting system and compositions of board are other major issues, while entering into a joint venture. In 50:50 kinds of joint ventures there will be a dead lock, if there is a need of voting. It is not healthy for the Indian firms to enter a joint venture in which the domestic firm holds less than 40 per cent stake.

While observing the success of joint ventures Upadhyay said the performance of a joint venture can only be measured by the simultaneous satisfaction of each partner, whatever may be the expectations. However, there are not many examples to prove a joint venture turned to be successful. The failure of a joint venture is mainly because partners don't manage to get on well with each other, disappointing market of the partners, regulatory uncertainties, marketplace developments and partners' inability to honour their contractual obligation, he added.