Methods of Foreign Trade, страница 5

Russian enterprises also have the right to set up joint ventures with foreign firms on the Russian territory. Joint ventures are established on the basis of joint capital with the share of foreign participation not exceeding 49 %, and with 51 % of capital belonging to residents. A venture can be for one specific project only, or a continuing business relationship. In terms of ownership, it may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations.

A joint venture is a commercial undertaking entered into by two or more parties, often by setting up a separate joint-venture company in which all partners have shares, to enable resources and skills to be shared. In practice joint ventures encompass a broad range of operations, from merger-like operations to cooperation for particular functions, such as research and development, production, or distribution.

As far as specific goals of joint ventures are concerned, it is necessary to point out both competitive and strategic goals.

Competitive goals are as follows:

·  influencing structural evolution of the industry;

·  pre-empting competition;

·  defensive response to blurring industry boundaries;

·  creation of stronger competitive units;

·  improved agility.

Strategic goals are as follows:

·  synergies;

·  transfer of technology/skills;

·  diversification.

The point which makes joint ventures so effective is combining different resources of different countries. Joint ventures are fully independent. They should be self-supporting and self-financing, which means that:

·  the Russian government has no right to give them any state orders and joint ventures don't receive any obligatory planned assignments from the authorities;

·  joint ventures determine their production programs, i.e. the volume and assortment of their production themselves;

·  they are entitled to do business with foreign buyers directly, whereby the marketing of products to users is carried out at the agreed prices with account of world market prices.

The only thing they should do for the purpose of creation of joint ventures is to get the registration and an export license. These enterprises also pay for the land and for the water consumed.

Foreign partners gain a lot participating in joint ventures on the Russian territory:

·  they gain a direct access to the Russian market (JV may be set up in any branch of the economy);

·  they may gain cheaper labor and resources, which reduces production costs and makes the finished products more competitive, and, as a result, they gain profit (foreign participants may repatriate their share of profit abroad);

·  JVs create additional production capacities, i.e. increase the volume of goods produced for their customers.

The Russian side is also interested in setting up joint ventures:

·  the Russian participant satisfy the requirements for the domestic market (spheres in which joint ventures emerge have broadened, JVs may be set up in any branch of the Russian economy, they appear to produce certain goods intended not only for the internal market but for exporting, too);

·  foreign technology and progressive foreign management experience are attracted because foreign partners are interested in introducing advanced technologies;