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Market Entry Strategy: Joint Ventures, Partnerships, And M&As In India

Market Entry Strategy: Joint Ventures, Partnerships, And M&As In India

Currently, many businesses seek to expand their businesses into the international market. When a decision is made to enter an international market, the variety of options in which it can make a market entry unfolds. Several factors affect the choice of the strategy, such as the cost, risk, and degree of control which can be exercised. A market entry strategy is formulated based on the business needs and market conditions. No market entry strategy can be used for all international markets or businesses. In this blog, we have discussed three major market entry strategies in India, i.e., Joint Venture, Partnerships, and M&As.

Joint Ventures

A joint venture combines two independent companies to form a third independent company. Two companies come together to work in a particular geographic or product market. The third independent company is formed for this particular purpose, which means it is a temporary arrangement between the two companies. In a joint venture, both companies share the risks and costs. The joint venture’s chances of success are higher as both companies’ goodwill and credibility are involved. It is a great way to split costs. In Joint Ventures as a Market Entry Strategy, the foreign entity forms a strategic alliance with the Indian partner. So one is a foreign company, and another is an Indian company. They come together to carry on business for a specified purpose. It has a separate legal entity and a limited liability. The foreign investor benefits from the Indian partner’s presence and experience in India. However, setting up a JV can be time-consuming and involves cost.

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Joint Ventures are a preferred form of market entry strategy as the Indian company will be able to give insights into the market conditions to the foreign company. It is advantageous as it reduces risk while penetrating the new market and pooling resources for large projects. Joint Ventures (JV) can be formed in ways either as an incorporated JV, which has a distinct and separate legal entity and is governed by the laws of the Indian Government or as an Unincorporated JV formed by a contract only. Joint ventures are an effective form of foreign direct investment in India. Since the new FDI Policy was introduced, 100% FDI has been allowed in several sectors, providing access to foreign investors in Indian Market by forming a JV in India. JVs can have various tax advantages and raise capital through new share issues.

Partnerships

A partnership is an agreement between two or more persons to carry on a business and mutually share the profits and losses. Partnerships are governed under the Indian Partnership Act of 19321. The members of a partnership are individually known as partners, and together they are known as a firm. There can be a minimum of 2 directors. The maximum limit of directors in a banking business is ten, and in any other business is 20. The profit and loss must be shared in an agreed ratio.

A partnership is a preferred form of market entry strategy in India. A foreign investor can partner with an Indian business and carry on the business under a specific trade name. It is a preferred form of market entry as it is simple to form with fewer administrative burdens. The control and privacy of the partnership business are with the partners. However, there is no separate entity and unlimited liability of the partners.

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Mergers and Acquisitions (M&A)

Mergers and Acquisitions are two different terms but are often used in conjunction. A merger happens when two separate entities combine to create a new organization, whereas an acquisition means the takeover of one entity by another. Merger and Acquisition with an Indian firm is a fast-track entry into the Indian market. However, international mergers and acquisitions are also a difficult and time-consuming process. It is quite a challenge for the top management to integrate an acquired company into a new entity. It is also an excellent way for foreign companies to acquire their Indian competitors and eliminate competition. Acquisition of a small share in an Indian company reduces risk and investment and lowers overall control. However, it also leads to the acquisition of unwanted assets and incurs unwanted costs to maintain them. It also allows businesses to acquire new and expanded capabilities. M&A is preferred when there is consent, an existing client base, or an asset that would be difficult or expensive to transfer.

Significant differences between Joint Ventures, Partnerships, and M&As

Basis of distinctionJoint VenturesPartnershipsM&As
ManagementBoth companies remain separate and intact.The partners share the managerial duties and profits.One company survives while the other fades away.
LiabilityLimited LiabilityUnlimited LiabilityLimited Liability
FormationTwo separate entities undertake to do business together by forming a third entity.Two or more parties undertake to do business together.Merger: two separate entities combine into one Acquisitions: one business entity takes over another entity

Conclusion

In this blog, we have seen how Joint Ventures, Partnerships, and M&As are different forms of market entry strategy in India. A business has to select a market entry strategy suitable to it. Choosing the most suitable market entry strategy depends upon various factors, such as the nature of the business, the products and services provided, the aims and objectives of the entity, and its financial capability.

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FAQs

What is a market entry strategy?

Market Entry Strategy is how a business expands its operations to a new market.

What is the best market entry strategy?

There is no best market entry strategy. No one entry strategy can be applied in all cases. The best market entry strategy depends upon the nature of the business and its financial capabilities.

Is Joint Venture a market entry strategy?

Yes, Joint Venture is a market entry strategy where two separate entities come together to form a third separate legal entity.

What are the four types of joint ventures?

The types of joint ventures are as follows: i. Project-based Joint Venture ii. Functional-bases Joint Venture iii. Vertical Joint Venture iv. Horizontal Joint Venture

Is partnership a market entry strategy?

A partnership is a market entry strategy where two or more parties agree to do business together and mutually share profits.

What are the five global entry strategies?

The five global entry strategies are as follows: i. Wholly-owned subsidiary ii. Joint Venture iii. Partnership iv. Mergers and Acquisitions v. Licensing and Franchising

What are the three main strategies to enter the global market?

The three main strategies to enter the global market are: i. Joint ventures ii. Partnerships iii. Mergers and Acquisitions

Read Our Article: Developing a Market Entry Strategy for India: The Competitive Landscape and Identifying Target Market

References

  1. https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

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