Why Should One Go for a Joint Venture

Last Updated at: Nov 23, 2020
On 6th October 2020, Titan  announced the  termination of its joint venture agreement with Montblanc, the German luxury brand. The India joint venture of Montblanc was formed by establishing Montblanc India Retail Pvt Ltd in 2014, in which Titan holds 49% stake. As per the joint venture agreement, the joint venture partnership will not be extended beyond December 2020.


A joint venture is an alliance with people making commitment with each other, sharing the profits and expenses together. It also includes obligations and reciprocal rights. It is better to consult a legal professional before finalizing the commitment. Joint ventures are preferred in India as the law does not permit a foreign entity to do investment in particular industries or sectors.

“Alone we can do so little, together we can do so much.” – Hellen Keller

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A Joint Venture is an alliance quite akin to a marriage, with people making promises to each other, sharing expenses and fruits of their togetherness. In India, Joint Ventures are especially preferred as the law may not allow a foreign entity to invest in specific sectors or industries, and a joint venture with an Indian entity may be the only way to circumvent such provisions. By their very nature, they include reciprocal rights and obligations, and it is imperative to consult a legal professional before making final commitments. In this post, we describe the advantages of joining hands with another entity:

  1. Saving up on establishment costs

While thinking of entering a new market, it may be challenging to bear construction, infrastructural and other costs of setting up in a different area, industry or segment and may also link you to an available distribution network. Thus, partnering with an existing business is prudent as it not only saves time, energy and costs but may also act as an easy exit if the venture does not work out.

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2. Gauging culture and ethics in a new region

Consider a foreign food joint entering the Indian market. While fancy advertisements about beef and pork may be very successful in their home market, it is likely to be frowned upon in India, considering the religious base and cultural rubrics of our society. Associating with an Indian entity that’s aware of the market perceptions can lead to massive profits. No wonder McDonald’s Maharaja Mac or Dominos’ Peppy Paneer are almost always sold out.

3. Entering restricted businesses and forming strategic alliances

While a Joint Venture between an Indian and an Overseas entity will still be subject to the legislation like Competition Act, Minimum Wages Act and Foreign Exchange Management Act, to name a few, it is an intelligent way to enter areas restricted for foreign entities. Having a foreign entity as a strategic partner may also make negotiations easier for an Indian entity, especially in technology-related sectors.

4. The psychological and financial benefits of sharing risks, costs and profits

A disadvantage of a sole proprietorship is that the risks from contingencies are to be shouldered by just one person. In contrast, a Joint-venture style of business provides not just the financial cushion owing to a larger pooling of resources but also triggers the psychological perks of knowing that decisions are taken together. It is also likely that in pursuit of self-interest, both parties tend to put in their best, leading to better collective outcomes.

5. Sharing assets, intellectual property and human resources

In vying for a large tender or fulfilment of orders beyond the company’s magnitude, it is prudent to partner with another firm having the requisite asset base. This quick and effective partnership also seeks to offer advantages of a fresh perspective and may provide the key to strategic resources like patents, manufacturing technology or marketing tools. Partnering across the business chain, such as a manufacturer entering a joint-venture with a distribution company can reap the expertise of each other’s key areas and trained human resource.

Having said this, there may be several disadvantages of a Joint Venture. Often, the working styles and management processes clash between the entities and decision making may become difficult. There exist possibilities of data leak and intellectual property breaches. If there are non-compete clauses in the contract between the entities, a fall-out scenario may also put one of the entities out of business for long, considering the precedents of Indian courts in strictly enforcing non-compete clauses in business contracts.

There are lots of advantages by joining hands together such as establishing expenses are saved up, gauging ethics and culture in a new region, financial benefits of the cost, profits and risks and shares the assets, human resources and intellectual property. With this, there are also many disadvantages in joint venture such as management process and working style,

Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.