Joint Venture Is A Contract Base Agreement Commerce Essay

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Parties enter joint venture to attain individual benefits, and in this case, it is usually a share of the project objective. This may be to develop a product or intellectual property.

Because profits are shared among alliance entities, hence, revenues, expenses and asset ownership usually stream through the joint venture to the participants. Once the joint venture has met its goals, the involved parties fizzle.

One of the advantages of forming a joint venture is that it provides companies with the opportunity to gain new capacity and expertise. Entities have the chance to attain and utilize capacity where the company can use its potential output. New expertise can also be acquired through joint venture because collaborating with other companies would give each company the opportunity to learn and attain different skills and knowledge from the involved parties. Besides that, joint venture also allows companies to enter related businesses or new geographic markets or gain new technological knowledge. Collaboration with other companies allow companies to break into other markets, in the sense, companies get to work with companies in other countries. Hence, the geographic markets for the entities will be expanded. New technological knowledge can also be shared during this process as each company in other countries has different level of technology expertise. Thus, joint venture provides access to greater resources, including specialized staff and technology. For example, Sony- Ericson was a joint venture by the Japanese electronics company Sony Corporation and the Swedish telecommunications company Ericson to make mobile phones. The purpose for this venture was to collaborate both Sony's electronic expertise with Ericson's technological leadership skills in the communications field.

Because profits and losses are shared equally, involved entities share the risks of the business with a venture partner. This would minimize the impact faced by entities if the business results in losses. For example, Virgin Mobile India Limited is a cellular telephone service provider enterprise that is a joint venture between Richard Branson's Service Group and Tata Tele network. The company uses Tata's CDMA network to provide its services under the brand name Virgin Mobile, and it has also initiated GSM services in several states. Based on the contract, if Tata's company face loses in its business, Richard Branson's company will also be affected and will face the equal amount of losses. This will reduce the impact of the loses on both the companies.

Another advantage of joint venture is that it has flexibility. For example, a joint venture can have a expiry date and only involved part of what you do, hence restricting both your business exposure and commitment. Companies can continuously breakdown a business from the organization and sell it to the other company. About 80% of all joint ventures would terminate in a sale by one partner to the other. Hence, once goals have reached, the contract will expire. For example, Japanese electronics company Sony, has completed the buyout of Ericson's 50% share in the firm's joint mobile phone venture as Swedish's telecommunications company, Ericson was struggling to compete with other competitors such as Apple, Motorola and Samsung. According to Suleman.K (2012). Sony completes takeover of Sony Ericson joint venture, "The Japanese manufacturer paid €1.05bn to buyout it partner and aims to focus its attention on the mobile market. The takeover was announced on 27 October 2011."

The disadvantage of joint ventures is that it consumes time and effort to create the right relationship and partnering with another business may not be an easy task. Some companies may come up with terms that are difficult to fulfill and this will cause problem later on in the business. Other than that, trust and the bond between involved parties is another big issue that has to be deal with among entities. Problems would be prone to occur if the objectives of the venture are not 100% clear and communicated to everyone involved. When this happens, miscommunication can cause a huge blander to the business as this will affect the final product of the business. For example, Ericson's company manager may deliver a message from the top management of the company to Sony's company regarding completion process of the product but the manager or receiver of the message from Sony's company may interpret the content of the message differently. When this occurs, it will affect performance and the task completion process of the product in a negative aspect.

Besides that, another disadvantage is that the levels of expertise, investment or assets brought into the venture by different partners may not be balanced. Because different companies have different levels of skill and knowledge expertise, this will be a barrier when the skills and knowledge are transferred to other company as the staffs may not know have to deal with the new technology or have the knowledge to complete the task. Japanese companies have advanced technology as compared to several other countries. Hence, if Japanese machines were sent to Ericson's manufacturing company, their staffs may not have the skills and technology expertise needed to deal with the machines. This will be an obstacle in completing the products.

Another disadvantage of expanding in geographic markets is the difference in cultures and management styles that result in poor integration and co-operation. Different countries have different management system and may not be compatible with other entities management style. Some companies follow hierarchy level meanwhile other companies do not follow such system. Some companies may have prioritize on family and have flexible working hours meanwhile some companies may emphasize on work and the company and does not have flexible working hours. This can lead to delayed work as the management system is pretty laid back as the other companies. This may also cause frustration to the company that prefers to get work done right away. Sufficient leadership skills and support is not given by the partners in the early stages and success of a joint venture relies on full body research and analysis of the objectives. For example, Tata's company follows centralized management whereby subordinates follow higher levels instructions where as Richard Branson's company may not follow the same management system. Their company's management system may be decentralized.


Franchising is a business strategy that gives an individual or groups the right to market a company's product or services within a certain location. Franchising enables a number of people to share an effective approach of doing business that happens to be an established marketing and distribution system as well as recognizing brand identification. According to Gappa.B. What is franchising? "Franchising is a strategic alliance between groups of people who have certain relationships and responsibilities with a same goal to conquer markets. In this aspect, groups of people work towards getting and keeping more customers than their rivals." Some examples of popular franchises are KFC, McDonald's, Pizza Hut, and Domino's Pizza. There are various types of franchise businesses that are available in today's world, which includes cleaning and maintenance, fast food businesses, automotive and financial services.

One of the advantages of buying a franchise is that corporate image is already established. Brand awareness already exist hence consumers are generally more comfortable on purchasing goods from a well-known label or generally from a company that they trust. For example, McDonald is available in almost all countries so the brand identification already exists among citizens. Besides that, there are already many McDonald F&B outlets in Malaysia thus brand loyalty among citizens for the products already exists.

Besides that, another advantage of franchising is that training service is available. Franchisor would normally provide extensive training and support to the franchise owner. For example, Pizza Hut's owner in United States would provide training and support services to the franchise owner in each country regarding methods in running the operation of the F&B outlet. Hygiene and cleanliness of the franchised outlets and food serving of staffs are one of the training services that will be provided by the franchisor to the franchise owner in running the business.

Franchising also saves time. Franchised company has the business model on how to run the business so the company does not have to start from scratch. Instead, the franchised company can just focus on making profit and running a fruitful business. For example, McDonald may open a few outlets of its F&B business in Malaysia. The model already exists hence the franchise owner will only have to focus on running a successful business.

The disadvantage of franchising is that there are royalty payments. Franchisee will have to pay a certain percentage of the monthly profits to the franchisor. This reduces the profit potential for the franchisee. For example, KFC F&B outlet will have to pay a certain amount of its monthly revenue to the company's franchisor in United States.

Another disadvantage of franchising is the limited creativity/flexibility. This is because most franchise agreements have very strict terms and conditions that require the franchisee to abide to the regulations. This obstructs the franchisee from being able to alter or make any additions to the brand, thus restricting room for creativity on the part of the franchisee. For example, Subway may have certain rules and regulations on running its company's business. Franchisee will have no choice but to follow the terms and conditions.

Besides that, franchise fee and start-up costs can affect the franchisee in a negative aspect. Franchisee may have to pay very large initial costs, often more than the cost of setting up their own business as this is required by bigger franchise operation. This can be taxing for franchisee, especially the ones who are fresh and new in the business world. For example, big labels such as Chanel may have a very pricey initial output as it is a well-known brand and it is a luxurious product. Taxation on Chanel goods that is shipped from overseas into Malaysia would be costly and the rent of the shops outlets in shopping malls will also be a killer as the brand can only be sold in high-end malls. Malaysian franchisee will have an expensive start up cost of the business.


According to, licensing, "Licensing is the black and white agreement to use intellectual property rights, such as trademarks, technology or patents under explicit conditions."

One of the advantages of licensing is that the licenser could use licensing to support their global exertion antecedent financially. Most licensing participants would require a licensee to contribute manufacturing machineries and financing investments, as well equip them with any specific production equipments that will allow the licensee to create a full capacity product. For example, Kia Company bought licenses from Naza Company to sell their companies automobile in Malaysia under Naza's Company.

Another advantage of licensing is that there will be less business risk involved to extend globally for licensors as compared to the other entry means, such as franchising. Less business risk will be involved as the company will be collaborating with domestic markets in other countries. It will be an easy ticket for foreign companies to enter the market in other countries. Prior to that, the collaborative company will be keeping an eye on the products and will have to ensure that products are in good shape and profits are channeling in the company as both companies will be affected based on the conditions of the products and the business progress.

The third advantage is that licensees can benefit by partaking in a licensing agreement by considering it as a way of improving existing operation technologies. For example, manufacturers of plastics in Korea are working hard to meet the highest standards that is required and expected by the domestic businesses in the Philippines.

The disadvantage of licensing is that it rigidly obstructs a licensor's future upcoming operations of all activities. For example, a licensee may be issued exquisite rights to use specific equipment, but the company failed to meet the standard requirement that is expected by the licensor from its licensees. Because this arrangement is declared as exquisite, the licensor is not allowed to simply sell the finished good to the specified market and acknowledge the market demand themselves, or even contract with other licensees the same good or service.

Another disadvantage of licensing is that it may continuously decrease the international consistency of the licensors good in matter of product condition and of marketing achievement, in which could ruin the licensors good name in a foreign land. Most licensors may find it inventing a homogeneous international brand image, and preserving this image could be a tough task to accomplish.

Direct investment

According to, direct investment, "Direct investment is the purchase of a controlling interest in a foreign business by means other than the outright purchase of shares." The purpose of a direct investment is to attain sufficient control of a company to practice control over future decision-making. This can be achieved by attaining a majority interest or a specific minority interest.

The advantage of direct investment would be in finance terms. Direct investment helps business owners attain external financing with better conditions than typical bank loans. Small business owners are often needed by business loans to complete abundant amount of paper works in order to secure financing. Owners would not have to go through the process of paying monthly repayments and they can come up with contractual obligations where they are not requested to repay the investment within a given period of time.

Business Relationship

Securing direct investments will enable small business owners to build business relationships and private investment firms and venture capitalists would be able to give ongoing financing for future business extension and other growth opportunities. Direct investment would allow small business owners to create company's business credit. Investors would also profit from the financial return if the small business experiences growth and becomes profitable.


Direct investment business can be risky. Small business investments would face higher risk as the companies have fewer resources than other entities. The approach to use periodic investments in the company may be taken by investors to help diminish their risk. There is also a tendency for contractual agreements to restrict the use of reserves by the small entities. If the business becomes unsuccessful, small business owners may have to suffer the liability for the funds on their account. Personal financial risk would then be added along business risk. For example, if the company faces bankruptcy, the owner's personal assets may also be affected, as the bank will freeze the account of the owner.

Besides that, another disadvantage of direct investment is ownership. Small business may be required to give an ownership stake by venture capitalists or private investors in return for the small business owners receiving their funds. This particular ownership stake would assure that investors would be able to attain a desired financial return. Small business owners may be disagreeable to this idea, though it may be a requirement. Owner will not be granted the right to make unfettered decisions in accepting new business opportunities despite losing ownership.

Read more: Pros & Cons of Small Business Direct Investment |


Exporting is the selling of goods or services to other countries. Countries would manufacture goods and sell the products to foreign countries. Examples of exporting items would be cheese, milk, rubber and palm oil products.

The advantage of exporting is that exporting can enhance domestic competitiveness. Domestic markets would compete with other companies is producing goods to be exported overseas. For example, Malaysia is rich with palm oil. Companies producing palm oil would maximize production and increase quality of their products to be exported to other countries.

Exporting would also increase sales and profits as the business is expanded globally. This would also enable companies to attain global market share. For example, Malaysia can export rubber to other countries. Money flowing in to the company from other foreign companies would boost the company's revenue and sales of goods. Besides that, products such as palm oil has gained global market share as it is imported and exported globally.

Another advantage of exporting is that it enables the sell of excess production capacity. Companies may produce goods exceeding the quota and when this happens, companies will have to pay a certain amount for certain amount of excess goods. Therefore, instead of having to pay for the excess goods, companies can export the products to other countries and avoid having to pay for the excess goods. For example, there's a certain yearly quota for production of palm. When the quota is exceeded, companies will have to pay a certain amount for the excess palm. Companies can avoid this by exporting palm to other countries.

The disadvantage of exporting would be that companies may have to modify its products or packaging. This would be done on certain products that are exported to other countries. Modification of products or packaging may add on to the cost of production as different types of labeling and packaging would be required for the products in order to be exported to other countries.

Besides that, companies may also have to obtain special export licenses. These licenses may not be easily attained. Copious documents may have to be filled up and the process of completing and attaining the license would be long. Besides that, there is a tendency of the license not being approved. When this happens, the company will have to appeal and make modifications to be granted green light. This whole process would add on to the time consumption in attaining the license.