top of page
  • Writer's pictureArvind Dang

Negotiations of Joint Ventures

Updated: 6 days ago

This article includes the following aspects of a JV.

· Need for a JV

· Negotiation Aspects-46 nos+5 Claims related

· Need for separate financial monitoring of JV in financial books

· Activities(including unethical) that can affect the business adversely

Need for a JV Collaboration

Companies opt to go for a JV for considerations such as below.

· Gaining a competitive edge by the speedy introduction of newer/innovative products, mainly when the product development time cycles (in-house) are very large and technology not available in the country.

· Obtaining faster access to export markets and becoming a Global player

· Strategic sharing of synergies amongst the JV partners and leveraging each other’s strengths.

· To have a quantum jump in the quality of products and services.

· To reduce costs through newly acquired technology, shared infrastructure, economies of scale, and joint procurement.

· Risk sharing amongst JV partners in case of market uncertainties, economic conditions, and regulatory changes imposing new demands on the company.

· Resource sharing, including financial burden and sharing market infrastructure, assets, and capabilities.

Negotiation Aspects

This article highlights key aspects that must be negotiated (after due diligence) in the context of a Product manufacturing and selling company with the potential - shortlisted JV partner.

AA. Technical= 8 aspects

BB Financial & commercials=13 aspects

CC Management & Control=6 aspects

DD IT & system support =5 aspects

EE Legal =14 aspects

Total=46 (AA to EE)

+ Claims related =5 aspects

Readers can refer to my Youtube Vlog on this as below.

More details are available in my book available at Amazon India as per link while for Global buying , Amazon link will be available soon

AA-Technical Aspects -8 Aspects to be negotiated

Negotiation Aspect # 1 .Technology for -Designs, Drawings & specifications for End Products -(specific models) related

#1. Technology transfer w. r. t. below nine (9) aspects must be negotiated amicably, as applicable.

1.1 End products

1.2 Bill of materials for each assembly/sub-assembly

1.3 Assembly operations sequence

1.4 Assembling equipment & tools, jigs, fixtures

1.5 Inspection & testing equipment & gauges

1.6 Quality assurance plans,

1.7 Quality Standards

1.8 inspection checklists for end products

1.9 Software package/solution for layouts/assembling

Negotiation Aspect # 2

# 2. Technology for -Designs, Drawings & specifications for: Manufacturing & Engineering Processes (for specific models)

Technology transfer w. r. t. below nine (9) aspects must be negotiated amicably, as applicable.

2.1 Inhouse manufactured assemblies, and items

2.2 Bill of materials for each assembly/sub-assembly

including consumables

2.3 Aggregates & Parts manufacturing process sheets

Including bought out parts

2.4 Manufacturing equipment, & tools, jigs, fixtures

2.5 Inspection & testing equipment & gauges for

aggregates and BOM/Parts

2.6 Quality assurance plans,

2.7 Quality Standards and

2.8 Inspection Checklists or aggregates and parts

2.9 Software package/solution for manufacturing

Negotiation Aspect # 3

#3. Technology for -Designs, Drawings & specifications for: After-sale service support (specific models)

Technology transfer w. r. t. below seven (7) aspects must be negotiated amicably, as applicable.

3.1 After-sale service parts as per supply conditions

3.2 After-sale service manuals with videos, and images for dismantling and reassembly

3.3 Spares manuals

3.4 Service tools

3.5 Software package/solution

3.6 Standard hours or minutes for rendering service

3.7 Software package/solution for rendering after-sale service

Negotiation Aspect # 4

# 4 Language in Design, drawings and specifications

These must be in English or any local language to be negotiated amicably.

Negotiation Aspect # 5

# 5. Scope of JV-Access to Market: The following aspects must be negotiated amicably.

· Overseas market /country restrictions imposed

· Use of sales & distribution network of JV partner

Negotiation Aspect # 6

# 6. Scope of JV -Access to Supply chain: The following aspects must be negotiated aggresively

· Contact details of Overseas suppliers, Contractors, and service providers.

· Covenants on brand names which must be used as insisted by potential JV partner

· Covenants on sourcing of BOM parts etc, from specific vendors and independence of rate negotiations

Negotiation Aspect # 7

# 7, Scope- of Supply of SKD, CKD, BOM parts and spares by JV to Indian partner must be negotiated amicably.

· Lists-Next 5-year-year wise overall Plans for supplying Quantities of sets and values, duration.

· Covenants /Period up to which SKD/CKD must be procured from JV

Negotiation Aspect # 8

# 8.Scope of JV -Supply of Equipment For manufacturing and quality control, Jigs, fixtures, gauges, etc by JV to be negotiated amicably.

· Lists , Year wise overall Plans for Quantities/values & duration

BB Financial & commercials -13Aspects to be negotiated

Negotiation Aspect # 1

#1 Negotiate aggressively, Lump sum knowhow Fee as per scope on Design, drawings & specifications for the following aspects :

i)End Products

ii) Manufacturing & Engineering

iii) After-sale service parts

iv) Complete package

Negotiation Aspect # 2

#2 Negotiate aggressively - Pricing for Supply of -Inhouse produced or assembled by JV partner, -% markup above costs or Methodology/logic/Algorithm for the following aspects:

i) SKD/CKD/BOM Parts, Spares

ii) Equipment, Jigs/fixtures, Gauges

iii) Software solutions

Negotiation Aspect # 3

#3 Negotiate aggressively-.Pricing -for supply by JV of -Bought out material-

% markup above costs incurred by overseas JV partner for the following aspects

SKD/CKD/BOM Parts, Spares

· Equipment, Jigs/fixtures, Gauge

· After-sale spares

· Sales promotion materials

Negotiation Aspect # 4

#4 Negotiate aggressively. Free Training days overseas or and in India for the following aspects:

· Scope/Types

· No of persons

· Hierarchical Level-wise

· Duration/man-days

Negotiation Aspect # 5

#5 Negotiate amicably, Taxes & Imports duty rates & responsibility for the following aspects

· Imports duty, including IGST

· Withholding taxes

· Any taxes overseas

· Free supplies as samples

· Free supplies against warranty

Negotiation Aspect # 6 Royalty rates

#6 Negotiate aggressively royalty computation basis for the following aspects:

· % Of Net sales (Net of localised items)

· Duration

· When due or Frequency of payment

Negotiation Aspect # 7 Expatriate emoluments

#7 Negotiate the Expatriate emoluments vis a vis aggressively:

· Function positions or levels

· Cost to company

· Engagement start dates

· Duration,

· Reimbursement rates for out-of-pocket expenses

· Other terms of engagement

Negotiation Aspect # 8 Payment remittance methods( for each type of remittance):

#8 Negotiate amicably Payment remittance methods for the following:

· LC

· Document through the bank

· Online

· Any other mode

Negotiation Aspect # 9 Payment terms for different remittances

#9 Negotiate aggressively Payment terms /credit periods for the following :

· Lumpsum fee

· Royalty

· Imports of SKD/CKD/BOM Parts, Spares

· Imports of Equipment, Jigs/fixtures, Gauges

· Imports of After-sale spares

· Imports of Sales promotion materials

Negotiation Aspect # 10 Currency applicable

#10 Negotiate amicably for remittance vis a vis

· USD or

· Euro or

· British Pound or

· Rouble and so on

Negotiation Aspect # 11 Training expenses

# 11Negotiate aggressively following training aspects :

· Free- duration, location, in India

· Free - duration, location, overseas

· Chargeable rates, duration, location in India

· Chargeable rates, duration, location, overseas

Negotiation Aspect # 12- Man day rate beyond-free training days:

#12 Negotiate aggressively the following:

· Level-wise fee rates at the project site, Travel and stay charges

· Level-wise fee rates from overseas not involving travel

Negotiation Aspect # 13 Funding/Investment Participation Plans by JV based on inputs from Promoters/Board

#13 Negotiate amicably, the amounts to be invested in

· Equity

· Capital /Plant & Machinery etc

· Working capital

CC Management & Control -6 Aspects to be negotiated

Negotiation Aspect # 1 Equity participation

#1 Based on directions of the board/promoters negotiate a win-win resolution of the following.

· % of total equity or

· Capital to be inducted into the country by potential JV

Negotiation Aspect # 2 Organisation structure of JV post-signing

#2 Likewise, based on the directions of the board/promoters, negotiate a win-win resolution of the following.

· No of the Board members

· Key positions to be manned by whom: MD, CEO, CFO, COO, Chief of sales/marketing, Chief of Purchase, HR Chief

· and so on

Negotiation Aspect # 3 Pricing formula for export to JV from Indian partner

# 3 Negotiate aggresively -% markup above costs or Methodology/logic/Algorithm for below categories.

· End Products manufactured in India

· Aggregates, sub-assemblies of bill of materials/parts manufactured by Indian partner & exported to JV

· After-sale service spares manufactured in India /sourced from India

· Tools, jigs, and fixtures manufactured in India /sourced from India

Negotiation Aspect # 4 Exports -to JV from Indian partner-Covenants/restrictions

#4 Negotiate aggressively covenants/restrictions

· End products or

· Aggregates or BOM Parts for sale in various countries

Negotiation Aspect # 5 Timelines /Schedule of activities for JV going live:

# 5 Negotiate amicably Pert chart/Timelines starting from MOU/JV signing till 1st product roll out and sale.

Negotiation Aspect # 6 Warranty terms for products

#6 Negotiate aggressively warranty terms vis a vis the following aspects :

· Duration/Period

· Excluded items,

· Rate per unit

· Payment credit or FOC (free of cost) replacement,

· Replacement time-free or against fresh purchase order in case of credit

DD -IT & system support system: 5 aspects

# Negotiation Aspects

Negotiate amicable following aspects:

Hardware & software solutions to be acquired vis-a-vis

1) Network design and security cloud

2)Technical aspects

3) Financial & commercial aspects

4)Management & control aspects

5)Legal aspects

EE Legal =14 Aspects to be negotiated amicably

#14- Negotiation Aspect

# 1a) Statutory approvals & regulations in India (E.g The Companies Act 2013, 0r LLP Act 2008), FEMA,1999, RBI Regulations, Foreign trade policy, The Foreign Corrupt Practices Act’1977, SEZ related(if applicable), Labour laws

# 1b) Statutory approvals & regulations overseas

The aspects that need to be negotiated are :

· JV Formation & JV Operations- Liabilities of the shareholders, Approval from the board, shareholders, or both, appointing directors, auditors etc

· Types of permitted capital, Debt-equity etc

· Profits/dividend repatriation- Limits, documentation, taxation

· Copyrights, trademarks, IPRS

· Acquisition& transfer of assets, Repatriation of funds

· Minimum capital requirements from JV foreign investors, Time frame for Paid-up Capital for foreign investor

· Pricing of shares- Guidelines for equity, compulsory convertible preferential shares, other instruments

· Reporting requirements

· Imports & Exports related

Negotiation Aspect # 2 Agreements to be signed:

#2. Negotiate finer aspects :

· JV agreement

· IP transfer agreement

· Share purchase agreement

· Employment agreement

Negotiation Aspect # 3 Warranties

#3 Negotiate finer aspects in consultation with legal team/consultants

Negotiation Aspect # 4 Notice period clause

Negotiation Aspect # 5 Jurisdiction clause

Negotiation Aspect # 6 Laws of the Country clause

Negotiation Aspect # 7 Exit clause

Negotiation Aspect # 8 Conflict resolution mechanism

Negotiation Aspect # 9 Covenants

Negotiation Aspect # 10 Remedies for breach clauses

Negotiation Aspect # 11 Confidentiality clauses

Negotiation Aspect # 12. Dissolution clauses.

Negotiation Aspect # 13 Clause Incorporating Changes to Agreements

Negotiation Aspect # 14 Duration of JV: Years from the date of MOU or Agreement signing

Other aspects -Claim Settlement w.r.t. defective or short supplied or debit notes =5 aspects

1)Bought out parts

2) SKD, CKD, BOM parts

3)equipment, jigs/fixtures,gauges

4) After-sale spares

5) Sales promotion materials

Need for Separate accounting entries for a JV in ERP environments

· In large organizations, with many verticals, JV may be signed and operational in specific Business units for specific end products/models.

· To monitor the operations and financial performance of JV ,it is essential that unique F&A systems are put in place.

· ERP Software like SAP- has specific provisions for such financial transactions related to JV operations vis a vis:

i) Executing Transactions in JV books

ii) Developing configuration tables

iii) Developing master data tables

iv) Authorisation objects for accessing JV data

ERP Related monitoring & controls must be built in Software solution

JV Aspects

Few descriptions applicable for JV financial control


​· Creating, editing, editing, Viewing JV

· Posting Account documents of JV e.g. Journal entries, Revenue distribution, costs allocation

· Displaying JV Accounting documents

· Reports related to JV

Configuration tables

​· JV Company codes

· JV Account categories

· JV Account types

​Master data tables

​· Profit center for JV

Company code assignment for JV

​Authorisation objects for controlled access

​· Joint operations -account assignment

· Joint operation Budgets

· Joint operation actuals

Important unique fields

· Equity group for JV

· GL accounts used for JV

Activities(including unethical) that can affect the business adversely

I) The alignment of mutual goals, interests, and expectations of potential JV partners is not done comprehensively before starting negotiations as an “MOU,” causing delays in finalising terms and conditions.

ii) Evaluation of technology, its absorption methodology, and scope of JV is not done comprehensively ( through visits to the manufacturing sites of potential JV partners or & resource network places & discussions)by technical specialists as also a review of alternate emerging new technologies.

iii) Financial & commercial evaluation is also inadequate due to insufficient due diligence leading to weaker negotiation.

iv) Inadequate market intelligence about the experience of other existing JV partners regarding JV support

v) An inadequate internet search about JV partner about its financial health, products, market, market share, profitability, management profiles, etc

vi) Prior Board members’ /MD’s inputs are neither taken/nor incorporated by the negotiating team.

vii) Lack of mutual trust amongst JV partners

viii) Legal/Statutory complexities are not discussed threadbare during negotiations leading to delays and disputes.

4 views0 comments
bottom of page