Every entrepreneur looks for opportunities to increase its market reach and generate higher revenues in a short amount of time. While some may consider options such as acquiring a competitive business or business mergers as permanent solutions. Although, businesses looking for temporary solutions for business growth, may also consider entering into a joint venture in Visakhapatnam, Andhra Pradesh.
A joint venture (JV) is a commercial arrangement entered between two or more business enterprises with an objective to combine their resources to gain a tactical and strategic edge in the market for a shorter period to pursue specific projects. In the Joint venture (JV), each party is accountable for the costs incurred and profits/losses earned due to the arrangement. However, the joint venture is a separate entity from the other business interests of its participants.
A joint venture has been a common phenomenon across the Indian business Industry for ages in India. They are used across business sectors whereby Indian parties agree to cooperate with other Indian parties/ies to form a domestic joint venture or where one party is an Indian and the other one is a foreign entity and a cross-border joint venture is formed. Joint ventures in Visakhapatnam, Andhra Pradesh have brought tremendous success and growth in pursuance of such collaborations.
Some of the popular joint ventures in the country include names like Hindustan Aeronautics Ltd. (HAL), which has entered into various joint ventures with foreign companies like Rosoboronexport, Aviazapchast and Mikoyan-Gurevich (MiG) of Russia, British Aerospace and Rolls Royce Holdings Ltd of UK, Merlin-Hawk and Edgewood Ventures of the USA, Elbit Systems, Israel and Snecma of France. Similarly, the airline Vistara is a joint venture between India’s corporate giant Tata Sons and Singapore Airlines (SIA).
Joint Ventures in Visakhapatnam, Andhra Pradesh- Meaning & Definition
Basically, a joint venture happens when two or more businesses agree to work with each other to combine their strengths and limit their shortcomings to fulfill any objective or complete any project, which is in the form of a mutual understanding between two or more participants established on commercial terms & conditions. Joint ventures are usually formed by two businesses with complementary strengths. For example, a technology company may enter into a partnership with a marketing company to bring an innovative business product into the market or a foreign company may enter a joint venture with a domestic company to enter a new market and sell their products in such domestic markets.
While each start-up continues to maintain a separate business structure and legal status, creating a new joint venture is a collectively owned entity that is at the arm’s reach of the parent companies. Any number of companies or individuals may collaborate to create a joint venture that could include all types of business structures including self-employed individuals, Limited Liability Partnerships (LLPs), and Limited companies.
Generally, Joint ventures are created with a limited time frame or a definite outcome, they could also be created for a continuing purpose that ideally benefits all the parties, helps business to expand and grow or provide an additional stream of revenue that had not been possible otherwise. They could combine larger and smaller companies to take on either one or several bigger, or smaller projects and deals.
But, joint ventures should not be confused with the merger as there are several fundamental differences between the two. Firstly, where there is the transfer of ownership effectuated between the partners in a merger, no ownership is transferred in a joint venture. Further, in case a merger deal happens, both the parties continue to carry out business operations as one single firm rather than two separate firms. On the other hand, a joint venture happens when two firms continue to carry out their business operations but form a separate entity.
Therefore, a joint venture could dramatically increase the scale of operations and reach of the business while reducing business risks at the same time. However, without proper knowledge, it could be riskier for start-ups and could cause harm to both the parties involved. Therefore, the article below provides all about joint ventures in Visakhapatnam, Andhra Pradesh, the process of entering a JV, and its pros and cons for a business.
Andhra Pradesh is located in the southeastern coastal region of India, and it is the tenth most populous state and seventh-largest state by area in India. It is bordered by Chhattisgarh, Karnataka, Odisha, Tamil Nadu, Telangana & The Bay of Bengal. The state was formed on 01 October 1953, and it is the first state whose formation was based on language. In June 2014, Andhra Pradesh went through reorganization for administrative purposes, and Telangana was carved out from Andhra Pradesh.
Capital– Amaravati
The economy of Andhra Pradesh
The economy of Andhra Pradesh is mainly based on the primary sector. The economy of Andhra Pradesh is primarily based on agriculture and livestock. Andhra Pradesh mainly consists of three agricultural economic zones – the first is the Chittoor district for mango pulp and vegetables, the second is the Krishna district for mangoes, and lastly, the Guntur district is for chillies.
Rice is the primary crop of the state. Andhra Pradesh is known as the ”Rice bowl of India’ as it is a significant exporter of Rice. Besides agriculture, livestock and poultry are the other two profit-yielding businesses in Andhra Pradesh. It is also called the ”Egg bowl of Asia’ as it is the largest producer of eggs in the country.
Infrastructure and Industries in Andhra Pradesh
Talking about the state’s infrastructure it is highly focused on developing a world-class infrastructure. The State Government is widening the state’s highways; besides, National Highway 16 also passes through the state. Currently, under the Andhra Pradesh State Fiber Net Limited (APSFL) initiative, the Government is trying to set up an optical fiber network to connect the thirteen districts of the state.
The primary industrial sector in Andhra Pradesh is Pharmaceutical, textiles, and automobiles. By improving its infrastructure and connectivity, Andhra Pradesh is also emerging in biotechnology and information technology.
Resources in Andhra Pradesh
Andhra Pradesh has varied geological formations that contain a rich variety of industrial minerals and building stones. The rich and diverse industrial minerals and building stones make Andhra Pradesh one of India’s storehouses of mineral resources.
How can mining affect the fate of Andhra Pradesh?
Mining is expected to be the overall infrastructure and industrial development growth engine. The Tummalapalle Uranium Mine in Andhra is reported to have 49,000 tonnes of ore, and the state is estimated to hold reserves totalling three times its current size. Andhra Pradesh has metal-grade bauxite deposits, gas reserves, etc., that are expected to provide rapid economic growth. So currently, mining is expected to affect the fate of Andhra Pradesh.
Top business ideas in Andhra Pradesh
The Government of Andhra Pradesh has implemented various reforms in the business sector and has been ranked the No. 01 state on ease of doing business for consecutively two years (2016-17). Here are some business startup ideas that one can try in Andhra Pradesh.
Horticulture
Andhra Pradesh is the top producer of papaya tomato, chilies, oil palm, lime, cocoa, and the second leading producer of turmeric sweet orange, mango, and cashew in India. The recent increase in demand for organic food makes Andhra Pradesh suitable for horticulture. You will get ample resources for starting a horticulture business in Andhra Pradesh.
Eco-Tourism
Andhra Pradesh has a wide forest cover that makes it perfect for eco-tourism. The state is close to nature and offers exotic natural views that attract many people. Beautiful views and greenery make Andhra Pradesh suitable for eco-tourism.
Sericulture
Being the second-largest producer of silk Andhra Pradesh is perfect for sericulture. The sericulture business has a wide scope in Andhra Pradesh. If you plan to start a sericulture business, you can develop it as a local business idea.
Fisheries
Andhra Pradesh is the top fish and shrimp producer in India, and the Fisheries employ more than 14.5 lakhs people. The Government provides power tariff concessions to around 53,500 aquaculture farmers. That’s why Andhra Pradesh stands first in the Aquaculture area and production. Besides this, the state government provides many subsidized resources for the maintenance and care of fish. Fisheries business in Andhra Pradesh is undoubtedly one of the beneficiary business ideas. If you plan to start a fisheries business in Andhra Pradesh, you will also receive a power supply at a subsidized power rate from the state government. Above all, you will be able to take advantage of all the schemes and policies of the Andhra Pradesh Government made for the promotion of fisheries and aquaculture.
Neem Oil Extraction
Another significant business idea in Andhra Pradesh is Neem oil extraction. Andhra Pradesh is naturally suitable for the fast growth of Neem trees. That’s why the neem oil extraction business or other businesses related to neem has a vast scope in Andhra Pradesh. Neem is of major importance in the skincare and beauty industry, so neem oil extraction and other businesses related to neem will surely yield huge profits.
Poultry Farming
Andhra Pradesh is mainly based on Primary sector activities, and it is among the states that promote the animal husbandry sector. The poultry farming business in Andhra Pradesh immensely depends on milk, meat, and egg, and Andhra Pradesh has a broad scope in poultry farming and other related businesses.
Textile business
Andhra Pradesh is the second-largest cotton and silk fabric producer in India. Textile business in Andhra Pradesh is very prospering and has a wide scope. The skilled artisans and experts required to produce cotton and silk garment and fabric are locally available in Andhra Pradesh. With the help of local artisans and readily available raw material, one can easily set up a small-scale textile business in Andhra Pradesh.
Forest resource supplier
Andhra Pradesh has a wide forest cover, making it a rich source of forest-related resources. The craze for forest resources is increasing day by day in the country. The forest resources, including beedi leaves, nuts, bamboo, neelavema, tamarind, rosewood, etc., are immensely demanded. So, the forest resource supplier business will not take you to loss.
Startup Ecosystem in Andhra Pradesh
Anudeep Chappa, the associate director of Tie Amravati, has stated that the talent pool has been moving out of Andhra Pradesh to other places like Bengaluru or Hyderabad. The movement is taking place immediately after graduation. Anudeep Chappa observed a similar trend in startups also and predicted that it could immensely affect the startup ecosystem of Andhra Pradesh. Earlier, Andhra Pradesh used to house the IT hub of the country, but after the formation of Telangana, the state had to suffer significant setbacks.
How is Andhra Pradesh Government boosting the startup growth of the state?
Andhra Pradesh has made slow but steady development in building a startup ecosystem. The Government has taken a lot of initiatives and built schemes to attract the talent pool and startups. The state government is taking active measures to promote the rise of the tech economy.
The Government of Andhra Pradesh has set up incubators and accelerators to support startup growth. Besides this, the Government is trying to help startups grow by aiding the innovation fund of INR 100 crores. Along with this, the state government of Andhra Pradesh provides performance-linked assistance of over 12 thousand Indian rupees per month for startups and more.
What is ”Make in AP?”
Make in AP is a state-government established platform for startups. With the help of the Make in AP (Andhra Pradesh) initiative, young professionals and entrepreneurs can interact with mentors and corporates to develop their businesses. Through the Make in AP initiative, the Government provides adequate support to startups by providing cash prizes, incubation, mentoring, etc.
Types of Joint Ventures in Visakhapatnam, Andhra Pradesh
i. Equity-based Joint Ventures in Visakhapatnam, Andhra Pradesh-Under an Equity-Based Joint Venture the parties to the JV create an independent legal entity following the mutual understanding between two or more parties. These parties or partners agree to provide investment or other resources by way of their contribution to the capital or assets of the corporate entity. This structure is an ideal choice for long-term, broad-based joint ventures, and includes joint venture companies and joint venture limited liability partnerships (LLPs).
ii. Contractual-based Joint Venture in Visakhapatnam, Andhra Pradesh–Contractual-based Joint Venture (JV) does not require the creation of a new and independent legal entity to work on a specific project or for a special purpose. This type of agreement is favored in situations involving a temporary task or for a limited activity or where a joint venture needs to be established for a limited term or a franchisee enters into a Joint Venture agreement for just this one project, while both the businesses shall continue to carry on their work.
iii. Incorporated & Unincorporated JVs in Visakhapatnam, Andhra Pradesh-Further, JVs in Visakhapatnam, Andhra Pradesh could also be incorporated or unincorporated. In case a joint venture is incorporated in nature, it is recognized as a separate entity in the eyes of law in the form of any limited company (private /public) under the Companies Act, 2013 or a limited liability partnership under the Limited Liability Partnership Act, 2008, which could be established by way of setting up a new entity or investing in an existing entity.
However, in case the joint venture is unincorporated, they are more contractual and used by parties to meet their mutual business interests and enter into collaboration with one another for a common goal but prefer to remain loosely associated with the other parties. Unincorporated joint ventures in Visakhapatnam, Andhra Pradesh could take the form of unregistered partnerships, strategic alliances, contractual joint ventures, and consortiums in general.
While the benefits of an incorporated joint venture over an unincorporated joint venture include separate legal status, limited liability for parties to the joint venture, perpetual succession, clear structure for accounting and governance, etc. the same benefits are not available in the case of unincorporated JV.
Key Considerations for entering into a Joint Venture in Visakhapatnam, Andhra Pradesh
The key factors to determine the structure of a joint venture in Visakhapatnam, Andhra Pradesh include a mixture of commercial considerations and regulatory requirements. The most common of them being-
i. The proposed business activities of the joint venture company in Visakhapatnam, Andhra Pradesh (i.e. Manufacturing, project execution, services, or trading).
ii. The period for the proposed period of collaboration;
iii. Limitation of Liability exposure to the parties concerned subject to the nature of the business of the joint venture entities and the degree of risk associated with them;
iv. the proposed structure of management and the involvement of the parties to the
v. joint venture in the management of the JV;
vi. Proposed requirement of capital and flexibility for accessing financing options;
vii. Proposed exit mechanisms from the joint venture and ease of exit for the joint venture parties;
viii. Tax implications; and
ix. Regulatory compliances to be followed;
How to enter a Joint Venture in Visakhapatnam, Andhra Pradesh?
i. The first step towards entering into a joint venture is through choosing the right partner that suits your business requirements which is a crucial tool of success for any JV.
ii. After one or more partners have been selected and agreed to enter into the venture, a memorandum of understanding (MoU) or a letter of intent is to be signed by the parties emphasizing the foundation of the future joint venture agreement.
iii. Then, an MoU must be entered by the concerned parties after consulting a CA firm in practice, who shall be versed in all applicable rules & regulations such as the Foreign Exchange Management Act 2000, the Companies Act, 2013, Income-Tax Act 1961, and all other rules, regulations, and procedures.
iv. A joint venture agreement must be acknowledged and signed by all the parties to the joint venture agreement that must include the following clauses-
- Applicable laws & regulations;
- Shareholding pattern;
- Composition of board of directors;
- Management Committee;
- Board Meeting, its venue & frequency
- General meeting, its venue & frequency
- The quorum for the validity of key decisions at board meetings;
- Transfer of shares;
- Dividend policy;
- Change of control & buy-out rights
- Restriction/prohibition on assignment;
- Non-compete restrictions;
- Confidentiality;
- Indemnity;
- Non-Disclosure of Information
- Jurisdiction for dispute resolutions;
- Termination criteria and notice.
- The exit of a Partner
- Dissolution of JV
v. Each party must carefully assess all the terms and conditions before signing the contract for which the cultural and legal background of the parties must be studied for negotiations.
vi. The JV union must obtain all the government and regulatory approvals and permissions within the specified period and then form a legal business entity under MCA guidelines which could be grouped into two classes – companies owned or controlled by foreign investors, and companies owned and controlled by Indian residents.
What are the pros & cons of entering into a Joint venture in Visakhapatnam, Andhra Pradesh?
Joint ventures in Visakhapatnam, Andhra Pradesh can be complicated arrangements, but they offer strong advantages to businesses, some of which include-
Pros of Entering Joint Venture in Visakhapatnam, Andhra Pradesh
i. Combined strengths & expertise in Visakhapatnam, Andhra Pradesh– An effectively established joint venture leverages both the parties to the joint venture by combining their collective strengths and diluting their weaknesses, helping them to get the best of both worlds.
ii. Temporary in nature in Visakhapatnam, Andhra Pradesh – Joint ventures are usually created for a limited period, which means that they enjoy the flexibility to work for the period temporarily and could simply tie up and exit the joint venture if things do not work out.
iii. Diversification and scale in Visakhapatnam, Andhra Pradesh– Joint ventures allow the partners to operate at larger scales than their possibilities, which means that they have access to better resources, technical knowledge, more effective distribution networks, and the ability to enter a new market without actually having to develop new products and services from scratch and expensing costs & time to the market.
iv. Pooled risk in Visakhapatnam, Andhra Pradesh– Each business involved in the joint venture shares an equal proportion of risk with each party working towards a mutual goal. Thus, creating a joint venture could dilute the risks of losses that otherwise have to be sustained by a party alone for business failures.
v. New sources of revenue in Visakhapatnam, Andhra Pradesh– Usually, smaller businesses often face difficulties due to limited resources and limited access to projects as compared to their competitors. Entering into a joint venture with a comparatively larger company could enhance its financial resources to help it grow dynamically over a short period. Also, the more extensive streams of revenue could provide the smaller firm with larger &diversified revenue streams.
vi. Intellectual property advantages in Visakhapatnam, Andhra Pradesh– It is difficult for businesses to create advanced innovative technologies in-house always. Thus, entering into a JV with tech-efficient firms could help a business to get access to the IPRs without having to incur additional time or costs in the development of such assets or purchase licenses for use. Thus, a smaller innovative business with advanced technologies but limited funds and a large firm with access to financing could benefit each other through a joint venture for the development of
vii. Synergy benefits in Visakhapatnam, Andhra Pradesh– Joint ventures could offer synergy benefits similar to those provided under mergers & acquisition deals, which may include either financial synergy causing a reduction in costs of capital or operational efficiency due to the two businesses working with each other. Similarly, parties to a joint venture could also enjoy economies of scale for their business.
viii. Improved credibility in Visakhapatnam, Andhra Pradesh– Typically, it may take a long period for a business to grow its business and earn market credibility and a consumer base organically. However, entering into a joint venture with a business brand that has already established its goodwill in the market could help them to attain boosted market presence and credibility more quickly.
ix. Creating Barriers to competition in Visakhapatnam, Andhra Pradesh– Finally, one of the key reasons for businesses to consider entering into a joint venture is through avoidance of competition and pricing pressure in the market. Creating collaboration with other start-ups could help them to set rigid barriers for competitors making it even more difficult to penetrate the marketplace.
Cons of Joint Ventures in Visakhapatnam, Andhra Pradesh
However, some JVs in Visakhapatnam, Andhra Pradesh may prove to be disadvantageous for the business causing a drain on resources and harming operations for both parent companies. Others may include-
i. Differences due to Culture clash in Visakhapatnam, Andhra Pradesh- While it is common for a domestic company to enter a JV with a foreign business, some of them may struggle to reach an agreement due to cultural differences, processes, and approaches when two companies work together. Accordingly, differences in management skills and abilities, conflicting HR processes, and workplace cultures may make it harder for a JV to give fruitful results.
ii. Poor Decision Making in Visakhapatnam, Andhra Pradesh- Trust is vital for any business relationship and any lack of trust could make decision-making more difficult if both parties need to sign off decisions ultimately leading to the failure of the business.
iii. Risk of dissemination of sensitive information in Visakhapatnam, Andhra Pradesh- Since, there are high chances of the partners having access to sensitive business information that may include intellectual property or trade secrets, etc. Thus, this information lies at risk of being disclosed to any third party which may lead the other party to suffer heavy losses.
iv. Restriction in Flexibility in Visakhapatnam, Andhra Pradesh- For every business to flourish in the area of its expertise, there is required of flexibility in its working structure. However, due to the higher risks of costs and expenses involved, the involved partner businesses lose the flexibility of work in their course of forming a new business entity.
v. Restricts other opportunities in Visakhapatnam, Andhra Pradesh- Generally, a Joint venture agreement restricts the outside similar business activities of the companies involved, while the project is in progress, it limits the parties to look for other business opportunities.
vi. No Limited Liability in Visakhapatnam, Andhra Pradesh- One of the biggest shortcomings of a joint venture is that an unincorporated structure has no means to offer protection of limited liability to the businesses involved.
vii. Uneven Involvement in Visakhapatnam, Andhra Pradesh- Usually, it is seen that the parties to a Joint-venture share the same level of involvement in the project concerned. For instance, where one company in the JV is responsible for the production of goods while the other is accountable for sales & promotional activities, the responsibilities of each company differ from each other, thus it may create discontent among parties sometimes.
Joint Venture Compliance Requirements in Visakhapatnam, Andhra Pradesh
Every joint venture in Visakhapatnam, Andhra Pradesh must disclose and submit a report of its ultimate beneficial ownership under various applicable laws and regulations, especially under the provisions of the Companies Act, 2013 (the Companies Act) and the Prevention of Money Laundering Act, 2002 (PMLA), as applicable. Companies (Significant Beneficial Owners) Rules, 2018, envisages concepts of ‘beneficial interest’, ‘significant beneficial owner’, and ‘significant influence’ in the context of companies which is dependent upon factors degree of shareholding, voting rights, dividend entitlement, and power to participate in the financial and operating policy decisions of the company.
Further, joint ventures in Visakhapatnam, Andhra Pradesh involving inflow & outflow of foreign exchange shall be subject to strict rules & regulations prescribed under the provisions of the Foreign Exchange Management Act, 1999 (FEMA) under the provisions of the Reserve Bank of India (RBI).
Exiting a joint venture in Visakhapatnam, Andhra Pradesh
While some joint ventures in Visakhapatnam, Andhra Pradesh are of continuing nature, most of them are for a defined period and come to an end once the objective of the agreement comes to an end. But, for a Joint venture to come to end smoothly, each one must have an effective exit strategy in place.
Exit Strategies are a key part of the JV agreement that includes the manner of sale of assets, buy-out strategies & rights by one partner from the other. It also includes the details of the notice period one party is required to give to the other if desired, resolution of disputes, and offering either party right of first refusal to buy the other partner out. Typically, there may be one or more reasons leading to the exit of a partner, including-
- On committing a serious breach of the agreement.
- Serious differences due to conflicts
- .Fulfilment of the purpose for which the JV was entered.
- Insolvency of the exiting partner
Thus, Joint Venture Agreements are an effective means to achieve business growth and enjoy business profits long term. The reasons behind forming a joint venture may be improving business operations, developing new products or services, entering new markets or access to greater capacity and resources, or better marketing & development channels. But, above all, provide companies with a platform to come together and pool their finances, ideas, and resources to develop a specific project one may have strong potential for growth and you may have innovative ideas and products while the other may have better finances or any other required resource.
However, the parties to Joint Venture in Visakhapatnam, Andhra Pradesh must consider creating and signing a well-drafted agreement that governs the parties involved in the agreement including provisions for termination for default and making good the losses sustained by one party due to the other.