India took the initiative to start joint ventures in the late fifties. India’s first joint venture a textile mill was set up in Ethiopia. This paved the way and opened new vistas for closer economic and trade ties between India and other developing countries.
Joint Ventures benefit the investing firm, the investing country and the host country.
The investing firm can hope to establish a firm footing in the foreign country concerned. Some Indian forms decided to invest abroad due to severe curbs imposed upon the expansion of large houses under the Industries Development and Regulation Act and the MRTP Act. But most of them are lured by the attractive incentives offered by many developing countries in the form of tax holiday, export incentives, guarantees against expropriation, freedom to remit profits and repatriate capital and in many cases protective tariffs. The Indian entrepreneur gets first-hand market information widens his contacts and thus gets an opportunity to increase his exports. Joint ventures may also give rise to the possibility of export to third country markets. For example, Indian joint ventures could be established in Mauritius to take advantages in Mauritius. An example of the type given below:
A company under the name of MINTCO with its registered office in Cairo came into being in July 1980. Shemto, Egyptian government owned company for food processing and packaging and Tea Trading Corporation of India (TTCI) are the promoters.
The two promoters, Shemto and TTCI are to have of 51 per cent and 49 percent respectively in the equity of US dollar two million of MINTCO. Shemto’s contribution to the equity is in the form of land and building. TTCI has since remitted 25 percent of its contribution in cash. In terms of the arrangement mutually agreed upon. TTCI will discharge its obligation for the remaining 75 per cent by supplying tea to MINTCO.
Initially the packaging unit will have a capacity for 5,000 tones which will be raised ultimately to 20,000 tones. The agreement provides that tea packets to be marketed by MINTCO will have a minimum Indian tea content of 75 percent. TTCI is to act as the buying of the joint venture company. The benefits that will accrue to India are: Indian tea brands will have a stronghold in the West Asian and North African countries which, as recent studies have revealed, have the potential of emerging as major tea importers . Secondly, Indian tea will have an assured outlet not only in Egypt but also in the other countries of the region.
Joint ventures lead to increased exports of capital goods, spare parts and complements from India. Exports of technical know how and consultancy services also increase. In fact, joint ventures help in projecting India’s image abroad as a supplier of capital goods and technology. They can help in the utilization of idle capacity in the capital goods sector and thus in reducing cots in general. They might also lead to greater employment in the industries concerned. The country gains by greater inflow of foreign exchange in the form of dividends, royalties and technical know how fees. Finally, they help fulfill the Government of India’s aim of achieving collective self-reliance and mutual cooperation among the developing countries.
It may not be out of place to mention the Export Import Bank of India provides overseas investment finance to enable Indian parties to finance equity contribution in a joint venture. In addition, the Export Credit Guarantees Corporation provides insurance cover for overseas investment made by them.
Developing countries generally welcome India’s joint ventures because intermediate labor intensive technology developed by India is more suited to their requirements and they adopt it directly without any or with slight modifications. Moreover, most developing countries because of their limited home market, may not be able to afford large scale capital intensive technology provided by developed countries host countries perceive little threat from Indian joint ventures to their political or economic independence.