Merits of Joint Venture
1. Less Expensive: It is.financially less expensive as local producer also makes some contribution in equity capital. Half of the capital is contributed by local producer. It reduces the burden for foreign investor.
2. Beneficial for projects requiring Large Scale Investment: It is beneficial for projects requiring large capital investments like construction of metro. In such projects it is generally difficult for a single investor to invest.
3. Knowledge about host country: Local producers provide knowledge about host country. It helps the foreign investor to establish its foot in host country.
4. Less risky: Risk gets reduced by involving local manufacturer. First, he makes 50% equity and thereby shares losses and other risks. Secondly, he has an understanding of taste and preferences of customers in host country, laws and culture of host country.
Disadvantages of Joint Venture
1. Sharing of Technology: In joint venture, foreign firm shares technology with the local producer. It is risky. He may start a business of his own once he gets acquainted with the technology.
2. Conflicts: There may be conflicts in managerial decisions as there is dual ownership arrangement.
