International-Business-Dr-R-Chandran-E-book
International-Business-Dr-R-Chandran-E-book International-Business-Dr-R-Chandran-E-book
6. MANAGEMENT CONTRACTS 22 International Business- Dr. R. Chandran Companies with a low level of technology and managerial expertise may seek the assistance of foreign countries. A management contract is an agreement between two companies whereby one company provides managerial and technical assistance for which proper monetary compensation is given, either as a flat lump sum fee or a percentage on the sales or a share in the profits. Delta airlines, Air France and KLM offer such services in developing countries. Exxon is a major operator in Gulf region in the field of oil exploration. 7. JOINT VENTURE VENTURE ORIGINATES FROM ADVENTURE, which means NEW, either market or technology or environment. A joint venture is a binding contract between two venture partners to set up a project either in home country or host country or a third country. In this case both parties are committed to joint risk taking and joint profit sharing. For example, The Taj group of hotels has a joint venture in Russia for setting up Five Star Hotels. Mahindra & Mahindra has recently entered in to a joint venture with Renault to manufacture cars. Partner one from Country A New Venture Joint commitment Partner two from Country B A large number of joint ventures have been miserable failures in the past. In the initial stage every venture promises excellent opportunities to both the venture partners. However, when the operation actually starts, certain functional level grievances and issues become inevitable. Therefore, it is Only for Private Circulation
23 International Business- Dr. R. Chandran absolutely necessary for both the venture partners to understand all the aspects of management, investment and regulations of the countries where they operate. The business units should have clear guidelines and operation manuals wherein the role of every one should be clearly defined. Hence, a joint venture is nothing but a “marriage binding” between two partners from different backgrounds with an understanding, commitment and mutually rewarding experience to work together. 8. COLLABORATION While a joint venture deals with the project in totality, in financial terms and the proportionate partnership commitments, Collaboration deals with only a part of the functions. For example Bajaj Auto has technological collaboration with Kawasaki of Japan, who offers the technology for two wheelers. Others well known technological collaborations are Ind-Suzuki, Kinetic-Honda and Hero-Honda. All the developing countries encourage technology collaborations. The investors in the US, Japan, Germany and UK enjoyed the fruits by offering technical expertise to the developing nations. The world famous Kellogg Business School has collaborated with the Indian school of business (ISB) in Hyderabad, by offering teaching methodology. Likewise, there may be financial collaborations, HR collaborations, systems collaborations and strategic collaborations. The common term used for collaboration is TIE-UP. 9. FOREIGN DIRECT INVESTMENT The flow of funds from one destination to another is called investment. Companies, which are constantly involved in international business, invest their money in manufacturing and marketing bases through ownership and control. Kellogg, Pepsi, Coca Cola and the Hyatt group of hotels are willing to invest even if the profits are expected after a long gestation period. Currently every developing country is formulating strategies by offering ample amount of incentives to attract investments. Only for Private Circulation
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6. MANAGEMENT CONTRACTS<br />
22<br />
<strong>International</strong> <strong>Business</strong>- <strong>Dr</strong>. R. <strong>Chandran</strong><br />
Companies with a low level of technology and managerial expertise may<br />
seek the assistance of foreign countries. A management contract is an<br />
agreement between two companies whereby one company provides<br />
managerial and technical assistance for which proper monetary<br />
compensation is given, either as a flat lump sum fee or a percentage on the<br />
sales or a share in the profits.<br />
Delta airlines, Air France and KLM offer such<br />
services in developing countries. Exxon is a major operator in Gulf region in<br />
the field of oil exploration.<br />
7. JOINT VENTURE<br />
VENTURE ORIGINATES FROM ADVENTURE, which means NEW,<br />
either market or technology or environment.<br />
A joint venture is a binding contract between two venture partners to set up a<br />
project either in home country or host country or a third country. In this case<br />
both parties are committed to joint risk taking and joint profit sharing. For<br />
example, The Taj group of hotels has a joint venture in Russia for setting up<br />
Five Star Hotels. Mahindra & Mahindra has recently entered in to a joint<br />
venture with Renault to manufacture cars.<br />
Partner one from<br />
Country A<br />
New<br />
Venture<br />
Joint commitment<br />
Partner two from<br />
Country B<br />
A large number of joint ventures have been miserable failures in the past. In<br />
the initial stage every venture promises excellent opportunities to both the<br />
venture partners. However, when the operation actually starts, certain<br />
functional level grievances and issues become inevitable. Therefore, it is<br />
Only for Private Circulation
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