BUSINESS STRUCTURE

Private sector organisations

 In the private sector, businesses are operated and owned by private individuals and companies.
 Private sector businesses are generally run “for profit” – to earn returns for the business owners (e.g.,
shareholders).
Public sector organisations
 In the public sector, businesses and other organisations are owned and run-on behalf of the public,
either by the Government itself, or by organisations who are funded by and report to Government.
 Public sector businesses are not generally run “for profit” but exist to provide goods and services to the
public using public funds.
 A relatively small number of companies are owned or controlled by the Government and so are part of
the public sector.
 A much larger number of organisations provide goods and services which are owned and operated by
public bodies. These are funded by central & local government but may still levy charges for some
services.
Nationalisation
Nationalisation, is the process of transforming privately owned assets into public assets by bringing them
under the public ownership of a national government or state.[1] Nationalization usually refers to private
assets or to assets owned by lower levels of government (such as municipalities) being transferred to the state.

Privatisation
The opposites of nationalization are privatization and demutualization. When previously nationalized assets
are privatized and subsequently returned to public ownership at a later stage, they are said to have undergone
renationalization. Industries often subject to nationalization include the commanding heights of the economy -
telecommunications, electric power, fossil fuels, railways, airlines, iron ore, media, postal services, banks, and
water.
Merit goods
Merit goods are those goods and services that the government feels that people will under-consume, and
which ought to be subsidised or provided free at the point of use so that consumption does not depend
primarily on the ability to pay for the good or service.
Good examples of merit goods include health services, contraception, education, work training programmes,
public libraries and museums, Citizen's Advice Bureaux and inoculations for children.
A List of Success Factors for sole trader
1. Leadership. Capable people who are able to focus on the big picture while directing the small picture.
They must neither be lost in the trenches; nor consumed with putting out fires; nor grinding their own
axes. Sole trader must be there for the business, and able to guide in powerful and sensitive ways.
2. Strategic and tactical plans. Businesses do not succeed flying by the seat of their pants. He/she needs
to write and execute plans to achieve success.
 3. Powerful decisions. Realistic decisions that choose real goals and solve real problems are made
clearly and lead to prompt action.
4. Effective communications. Making the right decision is no good at all if the owner and workers are
still doing the wrong thing!
5. Continuous quality improvement. Customer demands are always changing, and the competition is
improving. If we don't get better, we will be left behind.
6. Great marketing and customer service. Find your customers, bring them in, and delight them—or
lose them forever.
The reasons why sole traders are often successful are:
 Can offer specialist services to customers – e.g. appliance repair specialists.
 Can be sensitive to the needs of customers – since they are closer to the customer and will react more
quickly, because they are the decision makers too.
 Can cater for the needs of local people – a small business in a local area can build up a following in the
community due to trust – if people can see the owner they feel more comfortable than if the owner is
in some far off town, not able to hear the views of the local community.

Sole trader advantages

A sole trader has many advantages, making it a popular business structure for small business owners. Here are
all the advantages that come from setting up a business as a sole trader.

1. Be your own boss.

 The main benefit of being a sole trader is that you are your own boss, and you can dictate the
direction of the business. As a self-employed sole trader, you will be able to run your business
as you wish. This is perhaps one of the biggest reasons why people leave employment to start
their own business.
 A sole trader has more freedom with decision making compared to a partnership structure, for
example. A partnership business structure will most likely involve making joint decisions and
sharing the ownership and the direction of the business.
2. Keep all the profits
 Another benefit of being a sole trader is that you get to keep all the profits after tax on your
business. If you were to form a partnership then you would have to share these. Also, if you were
to form a limited company, you may need to share the profits of your business with any
investors/shareholders.
3. Easy to set up
 The process of setting up as a sole trader is much easier and more straightforward than setting up
a limited company. Becoming a sole trader is easy because all you have to do is inform local
government and register as self-employed and get a trading license.
4. Low start-up costs
 Registering with local government is free/with minimum fees, so setting up as a sole trader does
not incur any costs. Alternatively, if you were to set up a limited company you would be required
to pay to form a company with Companies House.
 5. Maximum privacy
 A limited company has to register with Companies House and provide information which is then
on public record. A limited company owner will have to provide business details, and details on
the directors and shareholders. This reduces the privacy of the business. As a sole trader, you
don’t have to register your business with Companies House, allowing you to keep your business
private.
6. Easy to change the business structure
 If you want to start small and later expand, operating as a sole trader allows you to do that. You
can easily change your business structure. For example, if your business starts to see an
increase in its income, you may find it more tax efficient to start running your business as a
limited company.

Challenges faced by sole trader.

1. Personal Liability
 Sole trader businesses are not recognised as a separate legal entity. When you operate your
business as a sole trader, therefore, its liabilities and debts are your liabilities and debts. If the
business fails with debts to be paid, not only will you lose your income, but you’d also have to
pay the money owed from your assets, whether or not they’re connected to the business. Because
that liability is unlimited you could also lose your home as well as potentially facing bankruptcy.
2. Perceived Lack of Prestige
 A sole trader may not appear to have the prestige of a limited company. Even though in many
cases it’s completely inaccurate, the public perception of sole traders is often of smaller, less
long-standing and less professional businesses than their limited company counterparts.
 e.g., Some sole proprietors may work out of a garage or the basement of their home when starting
out. If your business is one that depends on customers coming to you, you may not be taken as
seriously as someone who operates out of a storefront or office. This lack of professional
appearance may cause potential customers to do business elsewhere.
3. Limited access to finance
 As a sole trader, it can be very difficult to raise capital to expand the business.
 Banks, in particular, often prefer the greater accounting transparency that comes with a limited
company compared with the more private nature of a sole trader. Because of this and the
perceived greater risks often involved, banks may be unwilling to lend large sums to sole traders.
Whether they do advance loans, the terms offered may not be as generous as those provided to a
limited company.
4. No one to share ideas with
 Being a sole trader doesn’t stop you from having employees. However, ultimately all the
important decisions will fall on you and there’s no one to share accountability with. This lonely
existence, where one unwise decision that you alone make may prove disastrous, doesn’t suit
everyone. While you give up an element of control by going into business with others, you gain
the benefit of your collective ideas, experience and enthusiasm.
 Many people work better sharing responsibility with others in either a partnership or a limited
company, making use of your different skills. You might be a great designer, for example, but not
feel comfortable doing the accounts.
5. Lack of business continuity
  Problems can arise when a sole trader retires or dies. They, or their family, might want to be able
to sell the business that so much work has gone into building up, but that’s not easy when it’s
been operated as a sole trader.
 Something else that needs to be considered is what happens if the sole trader is sick or has an
accident and therefore can’t work. As well as making it difficult to seek new income
opportunities, a sole trader working alone will be faced with the question of how to fulfil existing
contracts.

6. Poor work-life balance

 For the majority of sole traders who do not employ anyone, the work all falls on one person. It
can therefore prove difficult to take holidays or even sick leave. Many sole traders work long
hours to build the business and avoid disappointing clients. The business can absorb an ever-
increasing amount of time and energy, leaving little for family or a social life.
 Having said all that, the key problem here is all the work falling on one person. While that particularly
affects sole traders, it will also impact a limited company which is owned and run by a single
individual. But while a limited company owner can invite someone else in as a director, the sole trader
cannot do so without first adopting a new business structure.

Partnership
The advantages of partnership over sole proprietorship are listed below:
1. Capital Contribution – In partnership, each partner bring capital in order to start the business. More
the partner, more the capital which will help them to grow more in the business. On the other hand in
sole proprietor as there is only one person to bring in the capital. Thus, the scope of raising capital is
high in partnership as compared to sole proprietorship business.
2. Risk Sharing – The losses or risk associated with business is shared among the partners; hence the
risk in partnership is less as in comparison to sole proprietorship.
3. Decision making- Decision making in a partnership firm could be faster and better in comparison to
sole proprietor as all responsibilities and business decisions fall on the shoulders of the sole proprietor.
4. Division of work –Each and every partner is specialized in different areas and they have different
skills. So, work is divided among the partners in accordance with their skills and knowledge in
partnership but in sole proprietor as it is owned and run by one person so not possible to divide the
work among many, individually have to perform all work.
5. Better work – As there is division of work among the partners according to their skills, there are
chances to work better and optimum utilization of resources is possible in partnership as compare to
sole proprietor.

Challenges Confronting Every Business Partnership

1. Different management styles.
  Different management styles don’t have to be a big problem. In the best case scenario, one lays down
the law and keeps the ship on course, while the other keeps employees happy.
 Unfortunately, sometimes this backfire: the taskmaster might be tired of having to manage her own
business partner; the other might feel overwhelmed by having to be a boss. Or, both partners might be
pure “idea people” unaccustomed to telling others what to do and unable to step up to the plate, or they
might both be highly disciplined control-freaks.
2. Personal habits.
 There’s a huge range of different vices and vulnerabilities that can jeopardize a business partnership,
especially if there are no other employees: substance abuse, alcohol, lapses in ethics, and mental health
issues.
 As everyone has their own coping mechanisms, there’s no clear way how handle these types of
obstacles except on a case-by-case basis.
3. Setting boundaries.
 If partners become best friends there’s a chance that every decision or disagreement could be taken
personally.
 Best friends who become business partners can face unexpected situations that compromise their
professional and personal relationship.
4. Commitment levels.
 Much like issues over equity and financial contribution, it’s necessary to be perfectly clear on what
each partner is looking for.
 One might just be in it for the experience, but not willing to put in the time and dedication required.
 This will become harder to navigate as the startup experiences ups and downs. A partner who is
excited in the first month might not be as excited by the seventh month.
5. Disparities in skills and roles.
 Entrepreneurs understandably seek partners who are at least as experienced as themselves to jumpstart
the business but that doesn’t always happen.
 After all, they’re asking someone to quit their day job, take a huge salary cut (if they’re lucky enough
to get a salary!) and live on their savings to follow a vision that hasn’t been actualized yet.
 Few established professionals are willing to take these risks. Then it becomes a matter of finding
anyone willing with the kind of qualifications you’re looking for.
 Building a relationship with a business partner requires just as much work as any marriage. By being
aware of the challenges you will face, you can be prepared.
Partnership Deed
Partnership deed is a partnership agreement between the partners of the firm which outlines the terms and
conditions of the partnership between the partners. The purpose of a partnership deed is to provide clear
understanding of the roles of each partner, which ensures smooth running of the operations of the firm.
Main Content of Partnership Deed

Some of the important clauses to be included in a partnership deed are as follows:

1. Name of the firm and Its Address

2. Name and Address of Partners
3. Nature of Firm’s Business: The nature of business proposed to be carried and its limitation should be
included in it.
4. Duration of Partnership: It the partnership is established for a fixed duration or for a fixed work, it
should be stated in it.
 5. Partners’ Capitals: The deed should contain the total amount of capital and contributions by each
partner.
6. Interest on Capital: If the partners decide to charge interest on their capitals, the rate should be
mentioned in the deed.
7. Drawing and Interest on Them: The deed should contain the limit of drawings by every partner and the
rate of interest to be charged.
8. Division of Profit: Profit and loss sharing ratio should be stated in the deed. If it is not mentioned
partners are authorized to share equally according to Partnership Act.
9. Partners’ Salary and Commission: If the partners decide to pay salary and commission to the partners,
the deed should contain the amount of salary or commission payable to any partner for the services
rendered to the business.
10. Rights and Duties of Partners: If any partner has some special rights and duties regarding to conducts
of business or if the liability of any partner is limited to the capital invested by him, these facts should
also be mentioned in it.
11. Admission and Retirement of Partners; After the establishment of partnership some new partners may
be admitted, and some may retire from the business. If any definite procedure is to be adopted at the
time of admission or retirement of partner, it should be stated in it.
12. Death of a Partner: The procedure of calculating the amount due to a deceased partner and the method
of its payment to his successors, should also be decided and stated in the deed.
13. Valuation of Goodwill; The method of valuation of goodwill at the time of admission, retirement or
death of a partner should also be clearly stated in it.
14. Revaluation of Assets and Liabilities; The method of revaluation of assets and liabilities on admission,
retirement or death of a partner should also be clearly stated in it.
15. Accounts and Audit: The procedure of keeping accounts and their audit should also be stated in it.
16. Dissolution of Partnership; The deed should contain the firm and the method of the final settlement of
accounts.
17. Arbitration Clause; In case of disputes the method of appointing arbitrators and their rights should be
clearly mentioned.

Absence of a Partnership Deed

In case partners do not adopt a partnership deed, the following rules will apply:

a. The partners will share profits and losses equally.

b. Partners will not get a salary.

c. Interest on capital will not be payable.

d. Drawings will not be chargeable with interest.

e. Partners will get 5% p.a. interest on loans to the firm if they mutually agree.

Importance of partnership deed

 A few important advantages of a well-drafted deed are listed:

 It controls and monitors the rights, responsibilities and liabilities of all the partners.
 Avoids dispute between the partners.
 Avoids confusion on profit and loss distribution ratio among the partners.
  Individual partner’s responsibilities are mentioned clearly.
 Partnership deed also defines a remuneration or salary of the partners and working partners. However,
interest is paid to each partner who has invested capital in the business.

Limited Companies

 A limited company is a business that is owned by its shareholders, run by directors and, most
importantly, where the liability of shareholders for the debts of the company is limited.
 Limited liability means that the investors can only lose the money they have invested and no more.
This encourages people to finance the company, and/or set up such a business, knowing that they can
only lose what they put in, if the company fails.
 For people or businesses who have a claim against the company, "limited liability" means that they can
only recover money from the existing assets of the business. They cannot claim the personal assets of
the shareholders to recover amounts owed by the company.
 To set up as a limited company, a company has to register with Companies House and is issued with a
Certificate of Incorporation. It also needs to have a Memorandum of Association which sets out what
the company has been formed to do, and Articles of Association which are internal rules over
including what the directors can do and voting rights of the shareholders.

Limited companies can either be private limited companies or public limited companies.

The difference between the two are:

 Shares in a public limited company (plc) can be traded on the Stock Exchange and can be bought by
members of the general public. Shares in a private limited company are not available to the general
public.

A private limited company might want to become a "plc" because:

 Shares in a private limited company cannot be offered for sale to the general public, so restricting
availability of finance, especially if the business wants to expand. Therefore, it is attractive to change
status.
 It is also easier to raise money through other sources of finance e.g. from banks

The disadvantages of a being a public limited company (plc) are:

 Costly and complicated to set up as a plc – need to employ specialist bankers and lawyers to help
organise the converting to the plc.
 Certain financial information must be made available for everyone, competitors and customers
included (would you want them to know how much profit you are making?)
 Shareholders in public companies expect a steady stream of income from dividends, which might
mean that the business has to concentrate on short term objectives of creating a profit, whereas it might
be better to work on longer term objectives, such as growth and investment.
 Threat of takeover, because another company can buy up a large number of shares because they are
traded publicly (can be sold to anyone). If they buy enough, they can then persuade other shareholders
to join with them to vote in a new management team.

Shareholders own the company. They buy shares because:

 Shares normally pay dividends, which is a share of the profits at the end of the year. Companies on the
Stock Exchange usually pay dividends twice each year.
  Over time the value of the share may increase and so can be sold for a profit – this is known as a
"capital gain". Of course, the price of shares can go down as well as up, so investing in shares can be
very risky.
 If they have enough shares, they can influence the management of the company. A good example is a
"venture capitalist" that will often buy up to 80% of the shares of a company and insist on choosing
some of the directors.

Flotation

A company may float on the stock market. This means selling all or part of the business to outside investors.
This generates additional funds for the business and can be a major form of fund raising. When shares in a
"plc" are first offered for sale to the general public as the company is given a "listing" on the Stock Exchange.

Divorce of ownership and control

 As a business becomes larger, the ownership and control of the business may become separated. This
is because the shareholders may have the money, but not the time or the management skills to run the
company. Therefore, the day-to-day running of the business is entrusted to the directors, who are
employed for their skills, by the shareholders.
 The shareholders are therefore "divorced" from the running the business for 364 days of the year. They
will have their say at the Annual General Meeting (AGM) of the company, where the directors present
the accounts and results. Very recently a couple of businesses have had very strong shareholder unrest
leading the company to tone down a number of their decisions.
 In practice directors tend to have at least a modest shareholding in the company. This provides the
director with an incentive to achieve good dividends and capital growth for the share (an increase in
the share price).

Limited and Unlimited Liability

The most important difference between incorporated and unincorporated businesses is who is liable for the
debts of the business if it fails?

The answer to this question lies in the essential difference between an incorporated and unincorporated
business which is this:

An incorporated business is a separate legal entity. It exists separate from its owners (shareholders).

An unincorporated business is inseparable from the business owners.

Benefits of Forming an LLC
The benefits of creating an LLC—as opposed to operating as a sole proprietorship or general partnership or
forming a corporation—typically outweigh any perceived disadvantages.
 Limited liability: 
 Members (which is what the owners of an LLC are called) are shielded from personal liability for
acts of the LLC and its other members.
  Creditors cannot pursue the personal assets (house, savings accounts, etc.) of the owners to pay
business debts.
 The personal assets of sole proprietors and general partners, on the other hand, can be pursued
against the business’ debts. 
 Flexible membership: 
 There is no limit on the number of members.
 Management: Members can manage the LLC or elect a management group to do so. Corporations,
on the other hand, are managed by a board of directors, not shareholders.
 Heightened credibility: 
 Starting an LLC may help a new business establish credibility more so than if the business is
operated as a sole proprietorship or partnership.
 Easy access to finance
 Professional management

Cooperative form of Business Ownership

 The co-operative form of organisation is based on the philosophy of self-help and mutual help. 
 A cooperative is a form of business organization in which the business is owned and controlled by
those who use its services. 
 Cooperatives are organized primarily for the purpose of providing service to their user-owners, rather
than to generate profit for investors.
 According to International Labour Organisation, “Co-operative organisation is an association of
persons, usually of limited means, who have voluntarily joined together to achieve a common
economic and through the formation of a democratically controlled business organisation, making
equitable contributions to capital required and accepting a fair share of risks and benefits of the
undertaking”.
 Cooperative businesses are organized for the purpose of improving the bargaining power of the
individual members and the product or service quality provided by the members. They also aim to
reduce costs incurred during the production process, to provide competition to larger companies with
deeper pockets, to expand opportunities in the market and take advantage of them, and to obtain
products and services that would otherwise be unavailable because for-profit companies see them as
unprofitable.
 As far as control is concerned, there is, again, a difference from a regular business. In a regular
business, each share is allotted a single vote. That means investors can purchase as many shares as
they need to gain a certain level of control in the business. In a cooperative, things are very different.
Each member gets only a single vote, creating equality of voting rights.
Types of Cooperatives
 Agricultural cooperatives help producers assure markets and supplies, achieve economies of scale,
and gain market power through jointly marketing, bargaining, processing, and purchasing supplies and
services.
 Business cooperatives are formed by businesses to purchase supplies or obtain services at a lower
cost.
 Credit Unions provide at-cost financial services to a wide cross-section of the population.
 Housing cooperatives offer ownership options for Californians from all income groups.
 Student cooperatives are set up and run by students to meet specific needs.
 Worker cooperatives create employment opportunities and provide the benefits of ownership to
members.

Franchises
 A franchise provides an opportunity to buy into an existing, successful business model that has a
proven track record, a successful training program, a solid supply chain, and expert technical support.
Some of the best-known franchises have impressive success rates, with low chances of failure.
  A franchise (or franchising) is a method of distributing products or services involving a franchisor,
who establishes the brand’s trademark or trade name and a business system, and a franchisee, who
pays a royalty and often an initial fee for the right to do business under the franchisor's name and
system. Technically, the contract binding the two parties is the “franchise,” but that term more
commonly refers to the actual business that the franchisee operates. The practice of creating and
distributing the brand and franchise system is most often referred to as franchising.

Benefits to the Franchisor

The main advantages to the franchisor of growing a business using franchising include:

 A classic growth strategy for a proven business format

 Enables much quicker geographical growth for a relatively low investment.
 Still have the option to open locations that are operated by the Franchisor.
 Capital investment by franchisees is an important source of growth finance.

Advantages of running a franchise

For a start-up entrepreneur, there are several advantages to investing in a franchise:
 It is still your own business – even if you are sharing the profits with the franchisor.
 The investment should be in a tried and tested format and brand.
 The franchisee gets advice, support and training. The franchisor will also supply key equipment, such
as IT systems, which are designed to support the operation of the business.
 It is easier to raise finance - the high street banks have significant experience of providing finance to
franchises.
 No industry expertise is required in most cases.
 The franchisee benefits from the buying power of the franchisor
 It is easier to build a customer base – the franchise brand name will already be established, and many
potential customers should already be aware of it.
 The franchisee is usually given an exclusive geographical area in which to operate the franchise –
which limits the competition (since operators of the same franchise are not in direct competition with
each other)
Overall, investing in a franchise is a lower risk method of starting a business and there is a lower chance of
business failure.
Disadvantages of running a franchise.
There are several disadvantages for the franchisee:
 Franchises are not cheap! The franchisee has to pay substantial initial fees and ongoing royalties and
commission. He/she may also have to buy goods directly from the franchisor at a mark-up.
 There are restrictions on marketing activities (e.g., not being allowed to undercut nearby franchises)
and on selling the business.
  There is always a risk that the franchisor will go out of business.
 The franchise needs to earn enough profit to satisfy both the franchisee and franchisor - there may not
be enough to go round!
Joint Ventures
 A joint venture occurs when two or more businesses join together to pursue a common project.
 A joint venture (JV) is a separate business entity created by two or more parties, involving shared
ownership, returns and risks.
 Joint ventures are different from takeovers and mergers in that the risks and returns of the business
formed as the joint venture are shared by the parties involved. Usually this is a 50:50 share, although
that doesn't have to be the case.
 The parties involved in a joint venture are usually looking to benefit from complementary strengths
and resources brought to the venture, as well as sharing the risks and rewards involved.
 Joint ventures are often used as a method of one business entering international markets. Indeed, in
some cases, this is a requirement of firms entering certain industries in some countries.
Basics on joint ventures
 With a joint venture, businesses remain separate in legal terms.
 Joint ventures are common, as firms want to benefit from collaborative work in reaching a mutually
agreed strategic target.
 Many joint ventures seek to share the fixed costs of major business research / infrastructure projects.
Advantages of joint venture
One of the most important joint venture advantages is that it can help your business grow faster, increase
productivity and generate greater profits. Benefits of joint ventures include:
 access to new markets and distribution networks
 increased capacity
 sharing of risks and costs (ie liability) with a partner
 access to new knowledge and expertise, including specialised staff.
 access to greater resources, for example technology and finance
Joint ventures often enable growth without having to borrow funds or look for outside investors. You may be
able to:
 use your joint venture partner's customer database to market your product.
 offer your partner's services and products to your existing customers.
 join forces in purchasing, research and development.
Another benefit of a joint venture is its flexibility. For example, a joint venture can have a limited lifespan and
only cover part of what you do, thus limiting the commitment for both parties and the business' exposure.
Joint Venture Disadvantages:
 It takes time and effort to build the right relationships and partnering with another business can be
challenging.  Problems are likely to arise if:
  The objectives of the business are not 100% clear and communicated to everyone involved.
 There is an imbalance in the level of expertise, investment or assets brought into the venture by
the different parties.
 Different culture and management styles result in poor integration and co-operation.
 The partners do not provide enough leadership and support in the initial stages.
 Creating a joint venture may result in more complex tax arrangements.
 Success in a joint venture depends on thorough research and analysis of the objectives.
 Creating a joint venture can be more costly than a consortium.
 A consortium is a group made up of two or more individuals, companies, or governments
that work together to achieving a common objective. Entities that participate in a consortium pool
resources but are otherwise only responsible for the obligations that are set out in
the consortium's agreement.
Types of Joint Ventures
1. Project Joint Venture
 This is the most common form of joint venture. It could be created for purposes like creating a toll
road or an office complex and so on. Key characteristic is that the purpose is defined and limited to the
completion of the single project as per the agreement of the venture. Once the project is completed, the
Joint Venture comes to an end.
2. Functional Joint Venture
 This is a format in which both the companies come together because each has expertise in one or the
other business functions and therefore, they wish to create a symbiotic (mutually beneficial)
environment for each other and benefit from the synergies so developed.
 For example, if a company has owned fleet of transport while another has extra storage space, both can
help each other out in inventory management and save each other’s costs of having individual fleets or
storage spaces and use them in their idle time.
3. Vertical Joint Venture
 The Joint venture is between two business entities in the same supply chain. This is done when one of
the entities produces a particular kind of good for which it needs a raw material of specialized nature.
 For this purpose, it can invest with the supplier to develop and maintain the capacity of such
production and avoid the uncertainty arising due to unavailability of this input material. This is the
case when the production company wishes to maintain a certain level of secrecy or the demand for this
input is low however the demand for the final product is very high.
4. Horizontal Joint Venture
 Similarly, this form of Joint venture is between two business entities producing the same goods or
services. The benefit of this is that one of the companies can enter into a new market such as a
geographical region. The local partner has the know-how of the local country such as established
distribution network while the foreign partner can have the economies of scale. Further at times
regulations demand involvement of a local company and therefore Joint venture is one of the possible
modes to enter such markets.