he Main Idea One plus one makes three: this equation is the special alchemy of a merger or an acquisition . The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Distinction between Mergers and Acquisitions Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. In practice, however, actual mergers of equals don't happen
Transcript
he Main Idea One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A.
This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
Distinction between Mergers and Acquisitions Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.
Synergy Synergy is the magic force that allows for enhanced cost efficiencies of the new business.
Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:
Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package.
Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers.
Acquiring new technology - To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge.
Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.
That said, achieving synergy is easier said than done - it is not automatically realized once two companies merge. Sure, there ought to be economies of scale when two businesses are combined, but sometimes a merger does just the opposite. In many cases, one and one add up to less than two.
Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the deal makers. Where there is no value to be created, the CEO and investment bankers - who have much to gain from a successful M&A deal - will try to create an image of enhanced value. The market, however, eventually sees through this and penalizes the company by assigning it a discounted share price. We'll talk more about why M&A may fail in a later section of this tutorial.
Varieties of Mergers From the perspective of business structures, there is a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging:
Horizontal merger - Two companies that are in direct competition and share the same product lines and markets.
Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.
Market-extension merger - Two companies that sell the same products in different markets.
Product-extension merger - Two companies selling different but related products in the same market.
Conglomeration - Two companies that have no common business areas.
There are two types of mergers that are distinguished by how the merger is financed. Each has certain implications for the companies involved and for investors:
o Purchase Mergers - As the name suggests, this kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable.
Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be written-up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company. We will discuss this further in part four of this tutorial.
o Consolidation Mergers - With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.
Acquisitions As you can see, an acquisition may be only slightly different from a merger. In fact, it may be different in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm purchasing another - there is no exchange of stock or consolidation as a new company. Acquisitions are often congenial, and all parties feel satisfied with the deal. Other times, acquisitions are more hostile.
In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business.
Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a relatively short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly-listed shell company, usually one with no business and limited assets. The private company reverse merges into the public company, and together they become an entirely new public corporation with tradable shares.
Regardless of their category or structure, all mergers and acquisitions have one common
goal: they are all meant to create synergy that makes the value of the combined companies greater than the sum of the two parts. The success of a merger or acquisition depends on whether this synergy is achieved.
What Does Merger Mean?The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.
Investopedia explains MergerBasically, when two companies become one. This decision is usually mutual between both firms. Related Terms
Acquisition is the process through which one company takes over the controlling interest of another company. Acquisition includes obtaining supplies or services by contract or purchase order with appropriated or non-appropriated funds, for the use of Federal agencies through purchase or lease.
Definition of ACQUISITION1: the act of acquiring 2: something or someone acquired or gained <the team announced two new acquisitions> — ac·qui·si·tion·al adjective — ac·quis·i·tor noun
See acquisition defined for English-language learners » See acquisition defined for kids »
Examples of ACQUISITION1. the country's acquisition of new ships2. The big company's newest acquisition is a small chain of clothing stores.3. The museum has put its latest acquisitions on display.4. Steven Schwartzman, the billionaire CEO of Blackstone, suffers no personal
liquidity problems. But his firm, and others like it—have had to call off a series of proposed acquisitions because they can't get financing. —Daniel Gross, Newsweek, 3 Mar. 2008
Mergers and acquisitionsFrom Wikipedia, the free encyclopedia"Merger" redirects here. For other uses, see Merge (disambiguation). For other uses of "acquisition", see Acquisition (disambiguation).
AccountancyKey concepts
Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management ·
Chart of accounts · Constant Item Purchasing Power Accounting · Cost of goods sold · Credit terms ·
Debits and credits · Double-entry system · Fair value accounting · FIFO & LIFO · GAAP / IFRS · General
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can aid, finance, or help an enterprise grow rapidly in its sector or location of origin or a new field or new location without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.
Look up merger in Wiktionary, the free dictionary.
1 Acquisition o 1.1 Distinction between mergers and acquisitions
2 Business valuation 3 Financing M&A
o 3.1 Cash o 3.2 Stock o 3.3 Which method of financing to choose?
4 Specialist M&A advisory firms 5 Motives behind M&A 6 Effects on management 7 M&A research and statistics for acquired organizations 8 Brand considerations 9 The Great Merger Movement
o 9.1 Short-run factors o 9.2 Long-run factors o 9.3 Merger waves o 9.4 Deal objectives in more recent merger waves
10 Cross-border M&A 11 M&A failure 12 Major M&A
o 12.1 1990s o 12.2 2000s
13 M&A in popular culture 14 See also 15 References
16 Further reading
[edit] AcquisitionMain article: Takeover
An acquisition is the purchase of one business or company by another company or other business entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on public stock markets. An additional dimension or categorization consists of whether an acquisition is friendly or hostile.
Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful.[1] The acquisition process is very complex, with many dimensions influencing its outcome.[2]
Whether a purchase is perceived as being a "friendly" one or a "hostile" depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees and shareholders. It is normal for M&A deal communications to take place in a so-called 'confidentiality bubble' wherein the flow of information is restricted pursuant to confidentiality agreements.[3] In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the board and/or management of the target is unwilling to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can, and often do, ultimately become "friendly", as the acquiror secures endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the terms of the offer and/or through negotiation.
"Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company (often one that has strong prospects and is eager to raise financing) buys a publicly listed shell company, usually one with no business and limited assets.[4]
There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications:
This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2008)
The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment.
The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller's shareholders.
The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation where one company splits into two, generating a second company separately listed on a stock exchange.
As per knowledge-based views, firms can generate greater values through the retention of knowledge-based resources which they generate and integrate. Extracting technological benefits during and after acquisition is ever challenging issue because of organizational differences. Based on the content analysis of seven interviews authors concluded five following components for their grounded model of acquisition:
1. Improper documentation and changing implicit knowledge makes it difficult to share information during acquisition.
2. For acquired firm symbolic and cultural independence which is the base of technology and capabilities are more important than administrative independence.
3. Detailed knowledge exchange and integrations are difficult when the acquired firm is large and high performing.
4. Management of executives from acquired firm is critical in terms of promotions and pay incentives to utilize their talent and value their expertise.
5. Transfer of technologies and capabilities are most difficult task to manage because of complications of acquisition implementation. The risk of losing implicit knowledge is always associated with the fast pace acquisition.
Preservation of tacit knowledge, employees and literature are always delicate during and after acquisition. Strategic management of all these resources is a very important factor for a successful acquisition.
Increase in acquisitions in our global business environment has pushed us to evaluate the key stake holders of acquisition very carefully before implementation. It is imperative for the acquirer to understand this relationship and apply it to its advantage. Retention is only possible when resources are exchanged and managed without affecting their independence.
[edit] Distinction between mergers and acquisitions
Although often used synonymously, the terms merger and acquisition mean slightly different things.This paragraph does not make a clear distinction between the legal concept of a merger (with the resulting corporate mechanics, statutory merger or statutory consolidation, which have nothing to do with the resulting power grab as between the management of the target and the acquirer) and the business point of view of a "merger", which can be achieved independently of the corporate mechanics through various means such as "triangular merger", statutory merger, acquisition, etc. When one company takes over another and clearly establishes itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place.For example, in the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company,[GlaxoSmithKline], was created. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations; therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable. An example of this would be the takeover of Chrysler by Daimler-Benz in 1999 which was widely referred to as a merger at the time.
A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly (that is, when the target company does not want to be purchased) it is always regarded as an acquisition.
[edit] Business valuation
The five most common ways to valuate a business are
Professionals who valuate businesses generally do not use just one of these methods but a combination of some of them, as well as possibly others that are not mentioned above, in order to obtain a more accurate value. The information in the balance sheet or income statement is obtained by one of three accounting measures: a Notice to Reader, a Review Engagement or an Audit.
Accurate business valuation is one of the most important aspects of M&A as valuations like these will have a major impact on the price that a business will be sold for. Most often this information is expressed in a Letter of Opinion of Value (LOV) when the business is being valuated for interest's sake. There are other, more detailed ways of expressing the value of a business. While these reports generally get more detailed and expensive as the size of a company increases, this is not always the case as there are many complicated industries which require more attention to detail, regardless of size.
Mergers are generally differentiated from acquisitions partly by the way in which they are financed and partly by the relative size of the companies. Various methods of financing an M&A deal exist:
[edit] Cash
Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidder's shareholders.
[edit] Stock
Payment in the acquiring company's stock, issued to the shareholders of the acquired company at a given ratio proportional to the valuation of the latter.
[edit] Which method of financing to choose?
There are some elements to think about when choosing the form of payment. When submitting an offer, the acquiring firm should consider other potential bidders and think strategically. The form of payment might be decisive for the seller. With pure cash deals, there is no doubt on the real value of the bid (without considering an eventual earnout). The contingency of the share payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes are a second element to consider and should be evaluated with the counsel of competent tax and accounting advisers. Third, with a share deal the buyer’s capital structure might be affected and the control of the New co modified. If the issuance of shares is necessary, shareholders of the acquiring company might prevent such capital increase at the general meeting of shareholders. The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be modified and the decision maker should take into account the effects on the reported financial results. For example, in a pure cash deal (financed from the company’s current account), liquidity ratios might decrease. On the other hand, in a pure stock for stock transaction (financed from the issuance of new shares), the company might show lower profitability ratios (e.g. ROA). However, economic dilution must prevail towards accounting dilution when making the choice. The form of payment and financing options are tightly linked. If the buyer pays cash, there are three main financing options:
Cash on hand: it consumes financial slack (excess cash or unused debt capacity) and may decrease debt rating. There are no major transaction costs.
It consumes financial slack, may decrease debt rating and increase cost of debt. Transaction costs include underwriting or closing costs of 1% to 3% of the face value.
Issue of stock: it increases financial slack, may improve debt rating and reduce cost of debt. Transaction costs include fees for preparation of a proxy statement, an extraordinary shareholder meeting and registration.
If the buyer pays with stock, the financing possibilities are:
Issue of stock (same effects and transaction costs as described above). Shares in treasury: it increases financial slack (if they don’t have to be
repurchased on the market), may improve debt rating and reduce cost of debt. Transaction costs include brokerage fees if shares are repurchased in the market otherwise there are no major costs.
In general, stock will create financial flexibility. Transaction costs must also be considered but tend to have a greater impact on the payment decision for larger transactions. Finally, paying cash or with shares is a way to signal value to the other party, e.g.: buyers tend to offer stock when they believe their shares are overvalued and cash when undervalued.[5]
[edit] Specialist M&A advisory firms
Although at present the majority of M&A advice is provided by full-service investment banks, recent years have seen a rise in the prominence of specialist M&A advisers, who only provide M&A advice (and not financing). These companies are sometimes referred to as Transition companies, assisting businesses often referred to as "companies in transition." To perform these services in the US, an advisor must be a licensed broker dealer, and subject to SEC (FINRA) regulation. More information on M&A advisory firms is provided at corporate advisory.
[edit] Motives behind M&A
The dominant rationale used to explain M&A activity is that acquiring firms seek improved financial performance. The following motives are considered to improve financial performance:
Economy of scale : This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins.
Economy of scope : This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products.
Increased revenue or market share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.
Cross-selling : For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products.
Synergy : For example, managerial economies such as the increased opportunity of managerial specialization. Another example are purchasing economies due to increased order size and associated bulk-buying discounts.
Taxation : A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company. Tax minimization strategies include purchasing assets of a non-performing company and reducing current tax liability under the Tanner-White PLLC Troubled Asset Recovery Plan.
Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders (see below).
Resource transfer: resources are unevenly distributed across firms (Barney, 1991) and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources.[6]
Vertical integration : Vertical integration occurs when an upstream and downstream firm merge (or one acquires the other). There are several reasons for this to occur. One reason is to internalise an externality problem. A common example is of such an externality is double marginalization. Double marginalization occurs when both the upstream and downstream firms have monopoly power, each firm reduces output from the competitive level to the monopoly level, creating two deadweight losses. By merging the vertically integrated firm can collect one deadweight loss by setting the downstream firm's output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable.[7]
"Acqui-hire": An "acq-hire" (or acquisition-by-hire) may occur especially when the target is a small private company or is in the startup phase. In this case, the acquiring company simply hires the staff of the target private company, thereby acquiring its talent (if that is its main asset and appeal). The target private company simply dissolves and little legal issues are involved. Acqui-hires have become a very popular type of transaction in recent years.[citation needed]
Absorption of similar businesses under single management: similar portfolio invested by two different mutual funds (Ahsan Raza Khan, 2009) namely united money market fund and united growth and income fund, caused the management to absorb united money market fund into united growth and income fund.</ref>
However, on average and across the most commonly studied variables, acquiring firms' financial performance does not positively change as a function of their acquisition activity.[8] Therefore, additional motives for merger and acquisition that may not add shareholder value include:
Diversification: While this may hedge a company against a downturn in an individual industry it fails to deliver value, since it is possible for individual
shareholders to achieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger. (In his book One Up on Wall Street, Peter Lynch memorably termed this "diworseification".)
Manager's hubris: manager's overconfidence about expected synergies from M&A which results in overpayment for the target company.
Empire-building : Managers have larger companies to manage and hence more power.
Manager's compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders).
[edit] Effects on management
A study published in the July/August 2008 issue of the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership continuity in target companies’ top management teams for at least a decade following a deal. The study found that target companies lose 21 percent of their executives each year for at least 10 years following an acquisition – more than double the turnover experienced in non-merged firms.[9] If the businesses of the acquired and acquiring companies overlap, then such turnover is to be expected; in other words, there can only be one CEO, CFO, et cetera at a time.
[edit] M&A research and statistics for acquired organizations
Given that the cost of replacing an executive can run over 100% of his or her annual salary, any investment of time and energy in re-recruitment will likely pay for itself many times over if it helps a business retain just a handful of key players that would have otherwise left.[10]
Organizations should move rapidly to re-recruit key managers. It’s much easier to succeed with a team of quality players that you select deliberately rather than try to win a game with those who randomly show up to play.[11]
[edit] Brand considerations
Mergers and acquisitions often create brand problems, beginning with what to call the company after the transaction and going down into detail about what to do about overlapping and competing product brands. Decisions about what brand equity to write off are not inconsequential. And, given the ability for the right brand choices to drive preference and earn a price premium, the future success of a merger or acquisition depends on making wise brand choices. Brand decision-makers essentially can choose from four different approaches to dealing with naming issues, each with specific pros and cons:[12]
1. Keep one name and discontinue the other. The strongest legacy brand with the best prospects for the future lives on. In the merger of United Airlines and Continental Airlines, the United brand will continue forward, while Continental is retired.
2. Keep one name and demote the other. The strongest name becomes the company name and the weaker one is demoted to a divisional brand or product brand. An example is Caterpillar Inc. keeping the Bucyrus International name.[13]
3. Keep both names and use them together. Some companies try to please everyone and keep the value of both brands by using them together. This can create a unwieldy name, as in the case of PricewaterhouseCoopers, which has since changed its brand name to "PwC".
4. Discard both legacy names and adopt a totally new one. The classic example is the merger of Bell Atlantic with GTE, which became Verizon Communications. Not every merger with a new name is successful. By consolidating into YRC Worldwide, the company lost the considerable value of both Yellow Freight and Roadway Corp.
The factors influencing brand decisions in a merger or acquisition transaction can range from political to tactical. Ego can drive choice just as well as rational factors such as brand value and costs involved with changing brands.[13]
Beyond the bigger issue of what to call the company after the transaction comes the ongoing detailed choices about what divisional, product and service brands to keep. The detailed decisions about the brand portfolio are covered under the topic brand architecture.
[edit] The Great Merger Movement
The Great Merger Movement was a predominantly U.S. business phenomenon that happened from 1895 to 1905. During this time, small firms with little market share consolidated with similar firms to form large, powerful institutions that dominated their markets. It is estimated that more than 1,800 of these firms disappeared into consolidations, many of which acquired substantial shares of the markets in which they operated. The vehicle used were so-called trusts. In 1900 the value of firms acquired in mergers was 20% of GDP. In 1990 the value was only 3% and from 1998–2000 it was around 10–11% of GDP. Companies such as DuPont, US Steel, and General Electric that merged during the Great Merger Movement were able to keep their dominance in their respective sectors through 1929, and in some cases today, due to growing technological advances of their products, patents, and brand recognition by their customers. There were also other companies that held the greatest market share in 1905 but at the same time did not have the competitive advantages of the companies like DuPont and General Electric. These companies such as International Paper and American Chicle saw their market share decrease significantly by 1929 as smaller competitors joined forces with each other and provided much more competition. The companies that merged were mass producers of homogeneous goods that could exploit the efficiencies of large volume production. In addition, many of these mergers were capital-intensive. Due to high fixed costs, when
demand fell, these newly-merged companies had an incentive to maintain output and reduce prices. However more often than not mergers were "quick mergers". These "quick mergers" involved mergers of companies with unrelated technology and different management. As a result, the efficiency gains associated with mergers were not present. The new and bigger company would actually face higher costs than competitors because of these technological and managerial differences. Thus, the mergers were not done to see large efficiency gains, they were in fact done because that was the trend at the time. Companies which had specific fine products, like fine writing paper, earned their profits on high margin rather than volume and took no part in Great Merger Movement.[citation
needed]
[edit] Short-run factors
One of the major short run factors that sparked The Great Merger Movement was the desire to keep prices high. However, high prices attracted the entry of new firms into the industry who sought to take a piece of the total product. With many firms in a market, supply of the product remains high.
A major catalyst behind the Great Merger Movement was the Panic of 1893, which led to a major decline in demand for many homogeneous goods. For producers of homogeneous goods, when demand falls, these producers have more of an incentive to maintain output and cut prices, in order to spread out the high fixed costs these producers faced (i.e. lowering cost per unit) and the desire to exploit efficiencies of maximum volume production. However, during the Panic of 1893, the fall in demand led to a steep fall in prices.
Another economic model proposed by Naomi R. Lamoreaux for explaining the steep price falls is to view the involved firms acting as monopolies in their respective markets. As quasi-monopolists, firms set quantity where marginal cost equals marginal revenue and price where this quantity intersects demand. When the Panic of 1893 hit, demand fell and along with demand, the firm’s marginal revenue fell as well. Given high fixed costs, the new price was below average total cost, resulting in a loss. However, also being in a high fixed costs industry, these costs can be spread out through greater production (i.e. Higher quantity produced). To return to the quasi-monopoly model, in order for a firm to earn profit, firms would steal part of another firm’s market share by dropping their price slightly and producing to the point where higher quantity and lower price exceeded their average total cost. As other firms joined this practice, prices began falling everywhere and a price war ensued.[14]
One strategy to keep prices high and to maintain profitability was for producers of the same good to collude with each other and form associations, also known as cartels. These cartels were thus able to raise prices right away, sometimes more than doubling prices. However, these prices set by cartels only provided a short-term solution because cartel members would cheat on each other by setting a lower price than the price set by the cartel. Also, the high price set by the cartel would encourage new firms to enter the industry and offer competitive pricing, causing prices to fall once again. As a result, these
cartels did not succeed in maintaining high prices for a period of no more than a few years. The most viable solution to this problem was for firms to merge, through horizontal integration, with other top firms in the market in order to control a large market share and thus successfully set a higher price.[citation needed]
[edit] Long-run factors
In the long run, due to desire to keep costs low, it was advantageous for firms to merge and reduce their transportation costs thus producing and transporting from one location rather than various sites of different companies as in the past. Low transport costs, coupled with economies of scale also increased firm size by two- to fourfold during the second half of the nineteenth century. In addition, technological changes prior to the merger movement within companies increased the efficient size of plants with capital intensive assembly lines allowing for economies of scale. Thus improved technology and transportation were forerunners to the Great Merger Movement. In part due to competitors as mentioned above, and in part due to the government, however, many of these initially successful mergers were eventually dismantled. The U.S. government passed the Sherman Act in 1890, setting rules against price fixing and monopolies. Starting in the 1890s with such cases as Addyston Pipe and Steel Company v. United States, the courts attacked large companies for strategizing with others or within their own companies to maximize profits. Price fixing with competitors created a greater incentive for companies to unite and merge under one name so that they were not competitors anymore and technically not price fixing.
[edit] Merger waves
The economic history has been divided into Merger Waves based on the merger activities in the business world as:[15]
Period Name Facet1897–1904 First Wave Horizontal mergers1916–1929 Second Wave Vertical mergers1965–1969 Third Wave Diversified conglomerate mergers1981–1989 Fourth Wave Congeneric mergers; Hostile takeovers; Corporate Raiding1992–2000 Fifth Wave Cross-border mergers2003–2008 Sixth Wave Shareholder Activism, Private Equity, LBO
[edit] Deal objectives in more recent merger waves
During the third merger wave (1965–1989), corporate marriages involved more diverse companies. Acquirers more frequently bought into different industries. Sometimes this was done to smooth out cyclical bumps, to diversify, the hope being that it would hedge an investment portfolio.
Starting in the fourth merger wave (1992–1998) and continuing today, companies are more likely to acquire in the same business, or close to it, firms that complement and strengthen an acquirer’s capacity to serve customers.
Buyers aren’t necessarily hungry for the target companies’ hard assets. Now they’re going after entirely different prizes. The hot prizes aren’t things—they’re thoughts, methodologies, people and relationships. Soft goods, so to speak.
Many companies are being bought for their patents, licenses, market share, name brand, research staffs, methods, customer base, or culture. Soft capital, like this, is very perishable, fragile, and fluid. Integrating it usually takes more finesse and expertise than integrating machinery, real estate, inventory and other tangibles.[16]
[edit] Cross-border M&A
In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A deals cause the domestic currency of the target corporation to appreciate by 1% relative to the acquirers.
The rise of globalization has exponentially increased the necessity for MAIC Trust accounts and securities clearing services for Like-Kind Exchanges for cross-border M&A. In 1997 alone, there were over 2333 cross-border transactions, worth a total of approximately $298 billion. Due to the complicated nature of cross-border M&A, the vast majority of cross-border actions have unsuccessful anies seek to expand their global footprint and become more agile at creating high-performing businesses and cultures across national boundaries.[17]
Even mergers of companies with headquarters in the same country are very much of this type and require MAIC custodial services (cross-border Mergers). After all, when Boeing acquires McDonnell Douglas, the two American companies must integrate operations in dozens of countries around the world. This is just as true for other supposedly "single country" mergers, such as the $29 billion dollar merger of Swiss drug makers Sandoz and Ciba-Geigy (now Novartis).
[edit] M&A failure
Despite the goal of performance improvement, results from mergers and acquisitions (M&A) are often disappointing. Numerous empirical studies show high failure rates of M&A deals. Studies are mostly focused on individual determinants. A book by Thomas Straub (2007) "Reasons for frequent failure in Mergers and Acquisitions"[18] develops a comprehensive research framework that bridges rival perspectives and promotes a modern understanding of factors underlying M&A performance. The first important step towards this objective is the development of a common frame of reference that spans conflicting theoretical assumptions from different perspectives. On this basis, a comprehensive framework is proposed with which to understand the origins of M&A performance better and address the problem of fragmentation by integrating the most
important competing perspectives in respect of studies on M&A Furthermore according to the existing literature relevant determinants of firm performance are derived from each dimension of the model. For the dimension strategic management, the six strategic variables: market similarity, market complementarities, production operation similarity, production operation complementarities, market power, and purchasing power were identified having an important impact on M&A performance. For the dimension organizational behavior, the variables acquisition experience, relative size, and cultural differences were found to be important. Finally, relevant determinants of M&A performance from the financial field were acquisition premium, bidding process, and due diligence. Three different ways in order to best measure post M&A performance are recognized: Synergy realization, absolute performance and finally relative performance.
Turnover contributes to M&A failures. The turnover in target companies is double the turnover experienced in non-merged firms for the ten years following the merger.[19]
[edit] Major M&A
[edit] 1990s
Top 10 M&A deals worldwide by value (in mil. USD) from 1990 to 1999[20]:
Rank Year Purchaser PurchasedTransaction value (in mil.
5 2001 Comcast CorporationAT&T Broadband & Internet Svcs
72,041
6 2009 Pfizer Inc. Wyeth 68,000
7 2000Spin-off: Nortel Networks Corporation
59,974
8 2002 Pfizer Inc. Pharmacia Corporation 59,5159 2004 JP Morgan Chase & Co[31] Bank One Corp 58,761
10 2008 Inbev Inc.Anheuser-Busch Companies, Inc
52,000
[edit] M&A in popular culture
In the novel American Psycho the protagonist Patrick Bateman, played by Christian Bale in the film adaptation, works in mergers and acquisitions, which he once referred to as "murders and executions" to a potential victim.
In the film The Thomas Crown Affair, Thomas Crown is the CEO of a fictional mergers and acquisitions firm, called Crown Acquisitions.
In the sitcom How I Met Your Mother, Marshall Eriksen and Barney Stinson work at a large bank, Goliath National Bank (GNB), involved in M&A transactions
What is the difference between a merger and a takeover?
In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously separate firms into a single legal entity. Significant operational advantages can be obtained when two firms are combined and, in fact, the goal of most mergers and acquisitions is to improve company performance and shareholder value over the long-term.
The motivation to pursue a merger or acquisition can be considerable; a company that combines itself with another can experience boosted economies of scale, greater sales revenue and market share in its market, broadened diversification and increased tax efficiency. However, the underlying business rationale and financing methodology for mergers and takeovers are substantially different.
A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two "equals". The combined business, through structural and operational advantages secured by the merger, can cut costs and increase profits, boosting shareholder values for both groups of shareholders. A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts. In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity. For example, back in 1998, American Automaker, Chrysler Corp. merged with German Automaker, Daimler Benz to form DaimlerChrysler. This has all the makings of a merger of equals as the chairmen in both organizations became joint-leaders in the new organization. The merger was thought to be quite beneficial to both companies as it gave Chrysler an opportunity to reach more European markets and Daimler Benz would gain a greater presense in North America.
A takeover, or acquisition, on the other hand, is characterized by the purchase of a smaller company by a much larger one. This combination of "unequals" can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision. A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company's management. Unlike in a merger, in an acquisition, the acquiring firm usually offers a
cash price per share to the target firm's shareholders or the acquiring firm's share's to the shareholders of the target firm according to a specified conversion ratio. Either way, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders. An example of an acquisition would be how the Walt Disney Corporation bought Pixar Animation Studios in 2006. In this case, this takeover was friendly, as Pixar's shareholders all approved the decision to be acquired.
Target companies can employ a number of tactics to defend themselves against an unwanted hostile takeovers, such as including covenants in their bond issues that force early debt repayment at premium prices if the firm is taken over.
Though the two words mergers and acquisitions are often spoken in the same breath and are also used in such a way as if they are synonymous, however, there are certain differences between mergers and acquisitions.
Merger Acquisition
The case when two companies (often of same size) decide to move forward as a single new company instead of operating business separately.
The case when one company takes over another and establishes itself as the new owner of the business.
The stocks of both the companies are surrendered, while new stocks are issued afresh.
The buyer company “swallows” the business of the target company, which ceases to exist.
For example, Glaxo Wellcome and SmithKline Beehcam ceased to exist and merged to become a new company, known as Glaxo SmithKline.
Dr. Reddy's Labs acquired Betapharm through an agreement amounting $597 million.
nture companies are the most preferred form of corporate entities for Doing Business in India. There are no separate laws for joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies. A Joint Venture may be any of the business entities available in India. Click here for Types of companies and corporations in India.
1. Two parties, (individuals or companies), incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash.
2. The above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business.
3. Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.
Some practical aspects of formation of joint venture companies in India and the prerequisites which the parties should take into account are enumerated herein after.
Foreign companies are also free to open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater in case of a branch office.
Contact us for setting up Joint Venture in India
.Government Approvals for Joint Ventures ...
All the joint ventures in India require governmental approvals, if a foreign partner or an NRI or PIO partner is involved. The approval can be obtained from either from RBI or FIPB. In case, a joint venture is covered under automatic route, then the approval of Reserve bank of India is required. In other special cases, not covered under the automatic route, a special approval of FIPB is required.
The Government has outlined 37 high priority areas covering most of the industrial sectors. Investment proposals involving up to 74% foreign equity in these areas receive automatic approval within two weeks. An application to the Reserve Bank of India is required. Please see Foreign Investment in India - Sector wise Guide for sectorwise guidelines under automatic route. Besides the 37 high priority areas, automatic approval is available for 74% foreign equity holdings setting up international trading companies engaged primarily in export activities.
Approval of foreign equity is not limited to 74% and to high priority industries. Greater than 74% of equity and areas outside the high priority list are open to investment, but government approval is required. For these greater equity investments or for areas of investment outside of high priority an application in the form FC (SIA) has to be filed with the Secretariat for Industrial Approvals. A response is given within 6 weeks. Full foreign ownership (100% equity) is readily allowed in power generation, coal washeries, electronics, Export Oriented Unit (EOU) or a unit in one of the Export Processing Zones ("EPZ's").
For major investment proposals or for those that do not fit within the existing policy parameters, there is the high-powered Foreign Investment Promotion Board ("FIPB"). The FIPB is located in the office of the Prime Minister and can provide single-window clearance to proposals in their totality without being restricted by any predetermined parameters.
Foreign investment is also welcomed in many of infrastructure areas such as power, steel, coal washeries, luxury railways, and telecommunications. The entire hydrocarbon sector, including exploration, producing, refining and marketing of petroleum products has now been opened to foreign participation. The Government had recently allowed foreign investment up to 51% in mining for commercial purposes and up to 49% in telecommunication sector. The government is also examining a proposal to do away with the stipulation that foreign equity should cover the foreign exchange needs for import of capital goods. In view of the country's improved balance of payments position, this requirement may be eliminated.
How to Enter into a Joint Venture Agreement?
Selection of a good local partner is the key to the success of any joint venture. Once a partner is selected generally a Memorandum of Understanding or a Letter of Intent is signed by the parties highlighting the basis of the future joint venture agreement.
A Memorandum of Understanding and a Joint Venture Agreement must be signed after consulting lawyers well versed in international laws and multi-jurisdictional laws and procedures.
Before signing the joint venture agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties.
Before signing a Joint Venture Agreement the following must be properly addressed:
Dispute resolution agreements Applicable law.
Force Majeure
Holding shares
Transfer of shares
Board of Directors
General meeting.
CEO/MD
Management Committee
Important decisions with consent of partners
Dividend policy
Funding
Access.
Change of control
Non-Compete
Confidentiality
Indemnity
Assignment.
Break of deadlock
Termination.
The Joint Venture agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period.
Madaan & Co. has helped US companies & Foreign companies in setting up their Joint Venture operations in India and other countries. Business Joint Ventures are more likely to be beneficial if Joint Venture Entry Strategies are carefully formulated. Negotiating Joint Ventures properly is very important for a win-win Joint Venture. Proper drafting of Joint Venture Agreements are very important for the success of any joint venture. We can help you in setting up your Joint Venture: from entry strategies, to negotiations to drafting agreements to compliance programs.
Some popular joint venture in IndiaBasic listings Advanced Level Telecommunication Training Centre (ALTTC)The Advanced Level Telecommunication Training Centre (ALTTC) was established in 1975, at a total cost of about US $7 million, as a joint venture of the Govt. of India, United Nations Development Programme & International Telecommunication Union to serve the Telecom training needs of South East Asia and the ESCAP region. It serves as the apex training centre of the Department of Telecommunications of the Government of India.web site url: http://alttc.nic.in Delhi Metro Rail Corporation For implementation and subsequent operation of Delhi MRTS, a company under the name Delhi Metro Rail Corporation was registered on 03-05-95 under the Companies Act, 1956. DMRC has equal equity participation from GOI and GNCTD .DMRC, not falling within the category of a Public Sector Undertaking, is vested with greater autonomy and powers to execute this gigantic project involving many technical complexities, under difficult urban environment and within a very limited time frame. web site url: http://www.delhimetrorail.com Electronics Corporation of India Limited(ECIL)ECIL, was formed in the year 1967, to be the torch bearer of technology revolution in the seventies with the motto of R&D and self-reliance, the key factors for growth. Over the years, ECIL has set up extensive infrastructure for design, development, manufacturing and quality assurance which includes , computer aided design and manufacturing, computer networks for material management and MIS, antenna spinning facility, antenna test range, quality control and calibration laboratories and all that is required to enable the company to perform.web site url: http://www.ecil.co.in National Centre for Trade Information (NCTI)With a view to creating an institutional mechanism for collection and dissemination of trade data and improving information services to the business community especially
small and medium enterprises, the National Centre for Trade Information (NCTI) was set up in 1995 under the Ministry of Commerce & Industry pursuant to a Cabinet decision. NCTI a non profit joint venture of India Trade Promotion Organisation (ITPO) and National Informatics Centre (NIC) is a Ministry of Commerce & Industry, Govt. of India recognised Trade Point-India under the Trade Efficiency Programme of United Nations Conference on Trade & Development (UNCTAD). The Trade Point Programme of the UNCTAD has certified NCTI as an Operational Trade Point in New Delhi.web site url: http://www.ncti-india.com Pipavav Railway Corporation Ltd. (PRCL)Pipavav Railway Corporation Ltd. (PRCL) is a Joint Venture of Indian Railways and the Gujarat Pipavav Port Ltd (GPPL), set up to construct, maintain and operate 270 kilometer long broad gauge railway line connecting port of Pipavav, in the state of Gujarat to Surendranagar Jn. on Western Railway . PRCL is the first infrastructure modal of Public - Private Partnership in rail transportation. PRCL enjoys the status of a Railway Administration, under Railway Act, 1989.web site url: http://www.pipavavrailway.com/ Rehabilitation Plantations Ltd., Punalur (RPL)RPL started as a government rubber plantation scheme in 1972 for the settlement of Sri Lankan repatriates which was necessitated by Sirimao-Shastri Agreement of 1964. Later on it was formed into Government Company and incorporrated on 05/05/1976. The authorised share capital of the company is Rs.350.00 lakhs and the paid up capital is Rs.339.27 lakhs. The share capital contribution of Government of India is 40% and remaining 60% was contributed by Government of Kerala.web site url: http://mha.nic.in/RPL.htm Satluj Jal Vidyut Nigam Ltd.The Satluj Jal Vidyut Nigam Ltd. (Formerly NJPC) was incorporated on May 24, 1988 as a joint venture of Govt. of India and Govt. of HP. The 1500 MW Nathpa Jhakri Hydroelectric Power Project (NJHPP) is the first project undertaken by the company.web site url: http://www.sjvnindia.com Tehri Hydro Development Corporation Ltd.(THDC) Tehri Hydro Development Corporation Ltd.(THDC) was incorporated on 12.7.1988 as a Joint Venture of Government of India & Government of U.P.
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.
In European law, the term 'joint-venture' (or joint undertaking) is an elusive legal concept, better defined under the rules of company law. In France, the term 'joint venture' is variously translated as 'association d'entreprises', 'entreprise conjointe', 'coentreprise' and 'entreprise commune'. But generally, the term societe anonyme loosely covers all foreign collaborations. In Germany,'joint venture' is better represented as a 'combination of companies' (Konzern)[1]
On the other hand, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are "co-venturers".
The venture can be for one specific project only - when the JV is referred to more correctly as a consortium (as the building of the Channel Tunnel) - or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for ‘‘one-time’’ contracts. The JV is dissolved when that goal is reached.
Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson and Penske Truck Leasing.
A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits.
A joint venture is not to be taken lightly. For a businessperson to embark on a joint venture, he or she needs to be committed and willing to work cooperatively with the other party involved. A person involved in a joint venture can no longer make all of the decisions for the business alone. For it to be truly a “joint venture,” there has to be 100% commitment from both sides. [2]
When determining whether or not to embark on a joint venture, it is important to ensure both parties are a match with the projected client base. In a joint venture, each party must compliment the other in business. Sometimes, a misunderstanding or a lack of communication can destroy a joint venture. Therefore, it is necessary for both parties to be capable of communicating what they are able to offer to the project and what their expectations are.
Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns. Ultimately, short term and long term successes are both important. In order to achieve this success, honesty, integrity, and communication within the joint venture are necessary.
1 Finding ideas or partners 2 Preparation 3 Partner selection 4 Feasibility study 5 Company incorporation 6 Shareholders' agreement 7 Chinese Law
o 7.1 Equity joint ventures o 7.2 Cooperative joint ventures o 7.3 Wholly Foreign Owned Enterprises (WFOEs) o 7.4 Foreign Investment Companies Limited By Shares (FICLBS) o 7.5 Investment Companies by Foreign Investors (ICFI)
8 Joint ventures in India o 8.1 Introduction o 8.2 Liberalization of policy o 8.3 Automatic licensing and administered licensing o 8.4 Joint venture companies o 8.5 Royalty payments and capitalization o 8.6 India's legal system o 8.7 Articles of Association
9 Dissolution 10 See also 11 References
12 External links
[edit] Finding ideas or partners
In the era of the Internet, finding opportunities for exploiting an idea is sizeable together with remote, or advertised, communicating. There are also the blogging networks as well the social networking sites and search engines. There are also other venues to find a JV partner such as seminars, exhibitions, directories, websites such as http://www.clickbank.com/index.html and the plain newspaper advertising of opportunities. One should not forget websites which have become prosperous like eBay and Amazon.com, Wikipedia, Youtube to name the most obvious. Forming JVs with distributor and marketing agencies is possible in this flat world to market a product. But finding an entrepreneur for a JV is another task!
Nonetheless, there are risk-takers- Venture capitalists, angel investors and venture managers (See Carried Interest [3] – especially in the high-tech industries like IC chips or biotechnology. Although they typically exit once an idea or an opportunity proves itself, there are watchful funds and investors who could go in for a JV.
Joint ventures have also become more prominent in the world of alternative investments since the financial crisis began in 2007. In an Opalesque.TV video, Tim Krochuk of hedge fund GRT Capital Partners describes how hedge funds have begun teaming up with traditional long-only asset managers in joint ventures to provide alternative capabilities to existing traditional asset management firms. The emergence of these joint ventures continues the trend of alternative investments becoming a larger piece of traditional portfolios.
[edit] Preparation
Formulating the JV is a series of steps, one which needs a lot of work and yet, at the same time, precision. One can here only underline the steps or information that will be needed by the JV candidate. They are [4]
the objectives, structure and projected form of the joint venture, including the amount of investment and financing arrangements and debt
the JV(s) products, their technical description and usage alternate production technologies estimated cost of equipment estimated product price(s) costing market analysis for the product, inside and outside the ‘territory’ analysis of competition projected sales and methods of distribution details of offered site, including output projections, transport and warehousing,
testing and quality control, by-products and waste;- supply, utility, and transport requirements;
estimated technology transfer costs foreign exchange projections ( where applicable) staff requirements and training financial projections environmental impact social benefit
[edit] Partner selection
While the following offers some insight to the process of joining up with a committed partner to form a JV, it is often difficult to determine whether the commitments come from a known and distinguishable party or an intermediary. This is particularly so when the language barrier exists and one is unfamiliar with local customs, especially in approaches to government, often the deciding body for the formation of a JV or dispute settlement.
The ideal process of selecting a JV partner emerges from:
short listing a set of prospective partners and some sort of ranking ‘due diligence’ – checking the credentials of the other party availability of appreciated or depreciated property contributed to the joint venture the most appropriate structure and invitation/bid foreign investor buying an interest in a local company
Companies are also called JVs in cases where there are dominant partners together with participation of the public. There may also be cases where the public shareholding is substantial but the founding partners retain their identity. These companies may be 'public' or 'private' companies. It would be out of place to describe them, except to say there are many in India.
Further consideration relates to starting a new legal entity ground up. Such an enterprise is sometimes called 'an incorporated JV', one 'packaged' with technology contracts (knowhow, patents, trademarks and copyright), technical services and assisted-supply arrangements.
The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for 'one-time' contracts, e.g., for construction projects. They dissolve the JV when that goal is reached.
[edit] Feasibility study
A nascent JV project outlines:
the partners the objectives and structure of the JV investment and financing arrangements product(s)and description and usage, output production technology equipment required and costs technology transfer costs cost-benefit analysis market analysis analysis of competition details of the site transport and warehousing by-products and waste supply, utility, and transport requirements foreign exchange projections staff requirements and training
Its feasibility, besides its profitability,is assessed (in terms of Government control over the JV) by considering it, along with the Articles which will regulate it, by its strength and weakness factors (for the economy or the country) in aspects as:
the quality of the technology - its appropriateness to the national infrastructure, exports, etc.
value to national economy and other contributions (i.e.labor intensity, environment factors, utility usage, "greeness" of the technology), waste-treatment and disposal
capability of recipient to absorb the technology cost of the technology and competitiveness supporting strengths (trademarks, patents, know-how,copyrights in case of IT) limits imposed (by its supplier) on the use or non-use of the technology.
[edit] Company incorporation
A JV can be brought about in the following major ways:
Foreign investor buying an interest in a local company Local firm acquiring an interest in an existing foreign firm Both the foreign and local entrepreneurs jointly forming a new enterprise Together with public capital and/or bank debt
In the U.K and India - and in many Common Law countries - a joint-venture(or else a company formed by a group of individuals)must file with the appropriate authority the Memorandum of Association. It is a statutory document which informs the outside public of its existence. It may be viewed by the public at the office in which it is filed. A sample can be seen at http://upload.wikimedia.org/wikipedia/meta/5/5f/Wikimedia_UK_-_Memorandum_of_Association.pdf. Together with the Articles of Association, it forms the 'constitution' of a company in these countries.
The Articles of Association regulate the interaction between shareholders and the Directors of a company and can be a lengthy document of up to 700000 + pages. It deals with the powers relegated by the stockholders to the Directors and those withheld by them, requiring the passing of Ordinary resolutions, Special resolutions and the holding of Extraordinary General Meetings to bring the Directors' decision to bear.
A Certificate of Incorporation [5] or the Articles of Incorporation ( see sample at [6] ) is a document required to form a corporation in the US ( in actuality, the State where it is incorporated) and in countries following the practice. In the US, the 'constitution' is a single document. The Articles of Incorporation is again a regulation of the Directors by the stock-holders in a company.
By its formation the JV becomes a new entity with the implication:
that it is officially separate from its Founders, who might otherwise be giant corporations, even amongst the emerging countries
the JV can contract in its own name, acquire rights (such as the right to buy new companies), and
it has a separate liability from that of its founders, except for invested capital
it can sue (and be sued) in courts in defense or its pursuance of its objectives.
On the receipt of the Certificate of Incorporation a company can commence its business.
[edit] Shareholders' agreement
This is a legal area and is fraught with difficulty as the laws of countries differ, particularly on the enforceability of 'heads of' or shareholder agreements. For some legal reasons it may be called a Memorandum of Understanding. It is done in parallel with other activities in forming a JV. Though dealt with briefly in shareholders’ agreement in Wikipedia, (also see samples in,[7][8]) some issues must be dealt with here as a preamble to the discussion that follows. There are also many issues which are not in the Articles when a company starts up or never ever present. Also, a JV may elect to stay as a JV alone in a ‘quasi partnership’ to avoid any nonessential disclosure to the Government or the public.
Some of the issues in a shareholders' agreement are:
Valuation of intellectual rights, say,the valuations of the IPR of one partner and ,say, the real estate of the other
the control of the Company either by the number of Directors or its "funding" The number of directors and the rights of the founders to their appoint Directors
which shows as to whether a shareholder dominates or shares equality. management decisions - whether the board manages or a founder transferability of shares - assignment rights of the founders to other members of
the company dividend policy - percentage of profits to be declared when there is profit winding up - the conditions, notice to members confidentiality of know-how and founders' agreement and penalties for disclosure first right of refusal - purchase rights and counter-bid by a founder.
There are many features which have to be incorporated into the Shareholders Agreement which is quite private to the parties as they start off. Normally, it requires no submission to any authority.
The other basic document which must be articulated is the Articles which is a published document and known to members.
This repeats the Shareholders Agreement as to the number of Directors each founder can appoint to the (see Board of Directors). Whether the Board controls or the Founders. The taking of decisions by ‘simple’ majority of those present or a 51% or 75% majority with all Directors present (their Alternates/proxy); the deployment of funds of the firm; extent of debt; the proportion of profit that can be declared as dividends; etc. Also significant is what will happen if the firm is dissolved; one of the partner dies. Also, the ‘first right’ of refusal if the firm is sold, sometimes its ‘puts’ and ‘calls’.
Often the most successful JVs are those with 50:50 partnership with each party having the same number of Directors but rotating control over the firm, or rights to appoint the Chairperson and Vice-chair of the Company. Sometimes a party may give a separate trusted person to vote in its place proxy vote of the Founder at Board Meetings. (See also [9] )
Recently, in a major case the Indian Supreme Court has held that Memorandums of Understanding (whose details are not in the Articles of Association) are "unconstitutional" giving more transparency to undertakings.
[edit] Chinese Law
It is interesting to study the JV laws of China because they are of recent vintage and because such a unique law exists.
According to a report of the United Nations’ Conference on Trade and Development 2003, China was the recipient of US$ 53.5 billion in direct foreign investment, making it the world’s largest recipient of direct foreign investment for the first time, to exceed the USA. Also, it approved the establishment of near 500,000 foreign investment enterprises.[10] The US had 45000 projects ( by 2004) with an in-place investment of over 48 billion [11]
Until 1949, no guidelines existed on how foreign investment was to be handled due to the restrictive nature of China toward foreign investors. Since Mao Zedong initiatives in foreign trade began to be applied, and Law applicable to foreign direct investment was made clear in 1979, The first Sino-foreign equity venture took place in 2001 .[12] The corpus of the law has improved since then.
Companies with foreign partners can carry out manufacturing and sales operations in China and can sell through their own sales network. Foreign-Sino Companies have export rights which are not available to wholly Chinese companies as China desires to import foreign technology by encouraging JVs and the latest technologies. Under Chinese law, foreign enterprises are divided into several basic categories. Of these five will be described or mentioned here: three relate to industry and services and two as vehicles for foreign investment.
They are the Sino-Foreign Equity Joint Ventures EJVs) ,Sino-Foreign Co-operative Joint Ventures (CJVs), the Law pertaining to Wholly Foreign-Owned Enterprises (WFOE) (although they do not strictly belong to Joint Ventures) and the Investment Laws pertaining to foreign investment companies limited by shares (FICLBS) and Investment Companies through Foreign Investors (ICFI).
[edit] Equity joint ventures
The EJV Law is between a Chinese partner and a foreign company. It is incorporated in both Chinese (official) and in English (with equal validity), with limited liability. Prior to
China’s entry into WTO – and thus the WFOEs – EJVs predominated. In the EJV mode, the partners share profits, losses and risk in equal proportion to their respective contributions to the venture’s registered capital. These escalate upwardly in the same proportion as the increase in registered capital.
The JV contract accompanied by the Articles of Association for the EJV are the two most fundamental legal documents of the project. The Articles mirror many of the provisions of the JV contract. In case of conflict the JV document has precedence These documents are prepared at the same time as the feasibility report. There are also the ancillary documents (termed "offsets" in the US) covering know-how and trade-marks and supply of equipment agreements.
The minimum equity is prescribed for investment (truncated) [13] (also see [14]:
Where the foreign equity and debt levels are :[15]
less than US$3million, equity must constitute 70% of the investment; between US$3million and US$10million, minimum equity must be US$2.1
million and at least 50% of the investment; between US$10million and US$30million, minimum equity must be US$5
million and at least 40% of the investment; more than US$30 million, minimum equity must be US$12 million and at least
1/3 of the investment.
There are also intermediary levels.
The foreign investment in the total project must be at least 25%. No minimum investment is set for the Chinese partner. The ‘timing’ of investments must be mentioned in the Agreement and failure to invest in the indicated time, draws a penalty.
[edit] Cooperative joint ventures
Co-operative Joint Ventures (CJVs) [16] are permitted under the Sino-Foreign Co-operative Joint Ventures. Co-operative Enterprises are also called Contractual Operative Enterprises.
The CJVs may have a limited structure or unlimited – therefore, there are two versions. The limited liability version is similar to the EJVs in status of permissions - the foreign investor provides the majority of funds and technology and the Chinese party provides land, buildings, equipment, etc. However, there are no minimum limits on the foreign partner which allows him to be a minority shareholder.
The other format of the CJV is similar to a partnership where the parties jointly incur unlimited liability for the debts of the enterprise with no separate legal person being created. In both the cases, the status of the formed enterprise is that of a legal Chinese
person which can hire labor directly as, for example, a Chinese national contactor. The minimum of the capital is registered at various levels of investment.
Other differences from the EJV are to be noted:
A Co-operative JV does not have to be a legal entity. The partners in a CJV are allowed to share profit on an agreed basis, not
necessarily in proportion to capital contribution. This proportion also determines the control and the risks of the enterprise in the same proportion.
It may be possible to operate in a CJV in a restricted area A CJV could allow negotiated levels of management and financial control, as well
as methods of recourse associated with equipment leases and service contracts. In an EJV management control is through allocation of Board seats.[17]
During the term of the venture, the foreign participant can recover his investment, provided the contract prescribes that and all fixed assets will become the property of the Chinese participant on termination of the JV.
Foreign partners can often obtain the desired level of control by negotiating management, voting, and staffing rights into a CJV's Articles; since control does not have to be allocated according to equity stakes.
Convenience and flexibility are the characteristics of this type of investment. It is therefore easier to find co-operative partners and to reach an agreement.
With changes in the law, it becomes possible to merge with a Chinese company for a quick start. A foreign investor does not need to set up a new corporation in China. He uses the Chinese partner’s business license, under a contractual arrangement. Under the CJV, however, the land stays in the possession of the Chinese partner.
There is another advantage: the percentage of the CJV owned by each partner can change throughout the JV’s life, giving the option tot the foreign investor, by holding higher equity, obtains a faster rate of return with the concurrent wish of the Chinese partner of a later larger role of maintaining long term control
The parties in any of the ventures, EJV, CJV or WFOE prepare a feasibility study outlined above. It is a non-binding document - the parties are still free to choose not to proceed with the project. The feasibility study must cover the fundamental technical and commercial aspects of the project before the parties can proceed to formalize the necessary legal documentation. The study must contain details referred to earlier under Feasibility Study.[18] (submissions by the Chinese partner).
[edit] Wholly Foreign Owned Enterprises (WFOEs)
The basic Law of the PRC Concerning Enterprises with Sole Foreign Investment controls WFOEs. China’s entry into the World Trade Organization around 2001 has had profound effect on foreign investment. Not being a JV, they are only considered here only in comparison or contrast.
To implement WTO commitments, China publishes from time to time updated versions of {| class="wikitable" |-its ‘Catalogs for the Guidance of Investments’ (affecting all ventures) - the areas in which investment which is prohibited, encouraged and restricted. All foreign investments which are absent in the list are permitted.
The WFOE is a Chinese legal person and has to obey all Chinese laws. As such, it is allowed to enter into contracts with appropriate government authorities to acquire land use rights, rent buildings, and receive utility services. In this it is more similar to a CJV than an EJV.
WFOEs are expected by PRC to use the most modern technologies and to export at least 50% of their production, with all of the investment is to be wholly provided by the foreign investor and the enterprise is within his total control.
WFOEs are typically limited liability enterprises (like with EJVs) but the liability of the Directors, Managers, Advisers, and Suppliers depends on the rules which govern the Departments or Ministries which control product liability, worker safety or environmental protection.
An advantage the WFOE enjoys over its alternates is the protection to its know-how but a principal disadvantage is absence of an interested and influential Chinese party.
As of the 3rd Quarter 2004 the WFOEs had replaced EJVs and CJVs as follows [19] :
(*)=Financial Ventures by EJVs/CJVs (**)=Approved JVs
[edit] Foreign Investment Companies Limited By Shares (FICLBS)
These enterprises are formed under the Sino-Foreign Investment Act. The capital is composed of value of stock in exchange for the value of the property given to the enterprise. The liability of the shareholders, including debt, is equal to the amount of shares purchased by each partner.
The registered capital of the company the share of the paid-in capital. The minimum amount of the registered capital of the company should be RMB 30 million. These companies can be listed on the only two PRC Stock Exchanges – the Shangri and
Shenzhen Stock Exchanges. Shares of two types are permitted on these Exchanges – Types “A” and Type “B” shares.
Type A are only to be used by Chinese nationals and can be traded only in RMB. Type “B” shares are denominated in Remembi but can be traded in foreign exchange and by Chinese nationals having foreign exchange. Further, State enterprises which have been approved for corporatization can trade in Hong Kong in “H” share and in NYSE exchanges.
“A” shares are issued to and traded by Chinese nationals. They are issued and traded in Renminbi. “B” shares are denominated in Renminbi but are traded in foreign currency. From March 2001, in addition to foreign investors, Chinese nationals with foreign currency can also trade “B” shares.
[edit] Investment Companies by Foreign Investors (ICFI)
Brief coverage is provided.
Investment Companies are those established in China by sole foreign-funded business or jointly with Chinese partners who engage in direct investment. It has to be incorporated as a company with limited liability.
The total amount of the investor's assets during the year preceding the application to do business in China has to be no less than US $ 400 million within the territory of China. The paid-in capital contribution has to exceed $ 10 million. Furthermore, more than 3 project proposals of the investor's intended investment projects must have been approved. The shares subscribed and held by foreign Investment Companies by Foreign Investors (ICFI) should be 25%. The investment firm can be established as an EJV.
[edit] Joint ventures in India
[edit] Introduction
India’s has an open philosophy on capital markets and it closely parallels its English peers in operation. The Bombay Stock Exchange (BSE) has close to 5000 listed shares, and trades in several thousand more, making it the largest stock exchange in the world.[20] The National Stock Exchange is the other exchange at present. English is one of the preferred languages of the market and its policies are first announced in English.
The Indian people are skilled and entrepreneurial by nature as evident in world markets but in India less than 1% of its billion population at present – that is, only 11 million people – representing 3% of households invest in the market.[21]
People who ‘work’ the market in other languages are adept in recognizing concepts in derivatives and futures and trade in them. India is one of three countries that has
supercomputers, one of six that has satellite launching facilities and has over 100 Fortune 500 companies doing R&D in the country.[22]
India does not restrict the repatriation of investments, dividends, profits and if need be, the principal ,through the single autonomous entity, the Reserve Bank of India (RBI). The Indian currency – the Rupee – is 100% convertible for ‘’ earnings’’ at free market rates.
India’s new policies (described below) have resulted in aggregate foreign investment flowing into India increasing from US$103 million in 1990-91 to US$61.8 billion in 2007–08.,[23][24]
[edit] Liberalization of policy
India’s basic outlines of industrial development were framed by Pandit Jawaharlal Nehru in 1956 making the private sector a participant in development, but giving the public sector a dominant position.[25]
However, by the early 1990s the situation in the world economies turned: Japan entered a phase of stagnancy of growth, the pace of the ‘Asian tigers slowed, as did the European economy. But, also, the country’s balance of payments crisis.
To counteract these effects a new policy was born in July 1991, the reformed New Industrial Policy (NIP).[26] It and later modifications (further liberalization) streamlines procedures, deregulated industrial licensing, and vastly expanded the role for the private sector, while shrinking the Public Sector. Also, anti-trust laws ( the Monopoly and Restrictive Practices Act) were trimmed and customs duties for industrial goods slashed. The restrictive Foreign Exchange Regulation Act (FERA) was replaced by the Foreign Exchange Management Act (FEMA).
Industrial policy divided industry into three categories:
those that would be reserved for public sector development, those under private enterprise with or without State participation, and those in which investment initiatives would ordinarily emanate from private
entrepreneurs.
Only six industries are exclusively ‘reserved’ for the public sector.
Trading (except single-brand retailing), agricultural or plantation activities housing and real estate business (except development of townships), agriculture, atomic energy, gambling & betting, lottery business, and retail construction of residential/commercial premises, roads or bridges are on the ‘’’negative’’’ list for foreign participation..
[edit] Automatic licensing and administered licensing
India’s investment policy as of April 2010 is presented at the site.[27] Briefly, India allows investments both through Foreign Direct Investment (FDI), meant for long-term controlling investments and Portfolio Investment – taking a position by buying shares of a company – which is likely short-term capital market operation. Foreign Institutional Investors ("FII’s) from reputable institutions (like pension funds, mutual funds) may (and do) participate in the Indian capital markets.
Industrial approvals are ‘’ automatic ‘’ (RBI approval of investment) for most manufacturing industries with equity investment up to 51% foreign control and as of 1997 to 74% in certain select industries ( See the current policy highlighted above). For another 36 ‘’ sectors’’ there are varying limits ‘’without output restrictions’’. RBI approvals come within two weeks for the invested entity. Investments can flow to the country prior to approvals for such cases. Even in sectors limited to 51%, a higher level of control, up to 74%, is feasible if approach is made to the Foreign Investment Promotiomn Board (FIPB) – thus, "administered’’-licensing. Investments up to 100% are allowed in power generation, coal washeries, electronics, an Export Oriented Unit (EOU) in the EPZ's.
NRI (Non-Resident Indians), PIO (People of Indian Origin), and OCBs (Overseas Commercial Bodies) have relaxed accommodation
Industrial licensing of the 1951 policy is applicable to “Annex II” (not shown here) industries which revolve around certain key natural resources. It is administered through FIPB .
[edit] Joint venture companies
JV companies are the preferred form of corporate investment but there are no separate laws for joint ventures. Companies which are incorporated in India are treated on par as domestic companies .
The above two parties subscribe to the shares of the JV company in agreed proportion, in cash, and start a new business.
Two parties, (individuals or companies), incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash.
Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.
Private companies ( only about $2500 is the lower limit of capital, no upper limit) are allowed [28] in India together with and public companies, limited or not, likewise with partnerships. sole proprietorship too are allowed. However, the latter are reserved for NRIs.
Through capital market operations ‘’foreign’’ companies can transact on the two exchanges without prior permission of RBI but they cannot own more than 10 percent equity in paid-up capital of Indian enterprises, while aggregate foreign institutional investment (FII) in an enterprise is capped at 24 percent.
The establishment of wholly owned subsidiaries (WOS) and project offices and branch offices, incorporated in India or not. Sometimes, it is understood, that Branches are started to ‘test’ the market and get a its flavor. Equity transfer from residents to non-residents in mergers and acquisitions (M&A) is usually permitted under the automatic route. However, if the M&As are in sectors and activities requiring prior government permission (Appendix 1 of the Policy) then transfer can proceed only after permission.[29]
Joint ventures with trading companies are allowed together with imports of secondhand plants and machinery.
It is expected that in a JV, the foreign partner supplies technical collaboration and the pricing includes the foreign exchange component, while the Indian partner makes available the factory or building site and locally made machinery and product parts. Many JVs are formed as public limited companies (LLCs) because of the advantages of limited liability.[30]
JVs are expected in the nuclear industry following the NSG waivers for nuclear trade. The nuclear power industry has been witnessing several JVs. The country has set an imposing target of achieving an installed capacity of 20 GW by 2020 and 63 GW by 2030. The total size of the Indian nuclear power market will be around $40 billion by 2020 with a growth rate (AAGR) of 9.2% in installed nuclear capacity during 2008–20. The total investments made are to a tune of around $1.30 billion following the Indo-US nuclear deal in 2008.[31]
There is a group of industries reserved for the small scale sector wherein foreign investment cannot exceed 24% and if does then approval is necessary from the FIPB, and the unit loses its ‘smallness’ and requires an industrial license.[32]
There are many JVs. lying outside of this discussion – Hindusthan Unilever-Unilever, Suziki-Govt. of India (Maruti Motors), Bharti Airteli-Singapore Telecom, ITC-Imperial Tobacco, P&G Home Products, Whirlpool, having financial participation with the financial institutions and the lay public which are monitored by SEBI (Securities and Exchange Board of India), also an autonomous body. This lies outside this discussion.
Have at least seven shareholders Have at least three directors Obtain government approval for the appointment of its management. Have both a "trading certificate" and certificate of incorporation before
commencing its business. Publish also a prospectus (or file a statement) before it can start transact business. Hold statutory meetings
There are several other provisions contained in the Companies Act 1956 which also need to be followed.
[edit] Royalty payments and capitalization
For the automatic route, RBI allows [33]:
Lump sum payments ‘’not’’ exceeding US$ 2 million.
Royalty payable is limited to 5 % for domestic sales and 8 % for exports,’’ ‘’without’’ any restriction on the duration of the royalty payments’’. The royalty limits are net of taxes and are calculated according to standard conditions. Payments are made through RBI.
The royalty is calculated on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc.
Issue of equity shares against lump sum fees and royalty fees is permitted..
For exceeding this norm, the firm has to approach FPBI.
[edit] India's legal system
India is a common law country with a written constitution, guaranteeing individual and property rights.
There is a single hierarchy of courts.
Arbitration can be in India or International Commercial Arbitration.
The country has recently enacted the Arbitration and Conciliation Act, 1996 ("New Law"). The New Law is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration ("Model Law.[34]
The Articles of Association determine how a company is run. It is a set of 'bye-laws' which form the 'constitution' of the Company. It is often required by Law to be part of the Joint- Venture agreement . Some clauses relating to the following may be absent. Where this the case, it is assumed that the provisions as laid out in the in Company Law apply. The Articles can cover a medley of topics, mot all of which is required in a country's law. Although all will not be discussed, it can cover:
Valuation of intellectual rights, say,the valuations of the IPR of one partner and,say,the real estate of the other
The appointments of directors - which shows whether a shareholder dominates or shares equality.
directors meetings - the quorum and percentage of vote management decisions - whether the board manages or a founder transferability of shares - assignment rights of the founders or other members of
the company special voting rights of a Chairman,and mode of election dividend policy - percentage of profits to be declared when there is profit winding up - the conditions, notice to members confidentiality of know-how and founders' agreement and penalties for disclosure first right of refusal - purchase rights and counter-bid by a founder.
Some agreements mention that the Articles of Association as given in Company Law apply to the agreement except where specifically differing; and others say, explicitly, that they do not bind that the agreement and that it contains all legally acceptable bye-laws. The typical Articles in an Indian Public Sector Company are given in.[35]
A Company is essentially run by the shareholders, but for convenience, and day-to-day working, by the Directors. The shareholders elect the directors at the Annual General Meeting (AGM), which is statutory. Thus, the Board of Directors (BOD).
The number of directors depends on the size of the Company and statutory requirements. The Chairperson is generally a well-known outsider but he /she may be a working Executive, typical of an American enterprise. The Directors may or may not be employees of the Company.
There are usually some major shareholders who form the company. Each usually has the right to nominate, without objection of the other, certain number of directors who become nominees for the election by the shareholder body at the AGM. The Treasurer and Chairperson is usually the privilege of one of the JV partners (which nomination can be shared). Shareholders can also elect Independent directors - persons not associated with the promoters of the company. person is generally a well-known outsider but he /she may be a working Executive. The Directors may or may not be employees
Once elected, the BOD manages the Company. The shareholders play no part till the next AGM. or EGM. The Objectives and the purpose of the Company are determined in advance by the shareholders and the Memorandum of Association (MOA) - which denotes the name of the Company, its Head- Office, its Directors and the main purposes of the Company - for public access. It cannot be changed except at an AGM or Extraordinary General Meeting (EGM) and statutory allowance. The MOA is generally filed with a 'Registrar of Companies' who is an appointee of the Government. For their assurance the shareholders, an Auditor is elected at each AGM. The MOA is currently dispensed with in many countries.
The Board meets several times each year. At each meeting there is an 'agenda' before it. A minimum number of Directors (a quorum) is required to meet. This is either determined by the 'bye-laws' or is statutory. It is Presided by the Chairperson or in his absence, by the Vice-Chair. The Directors survey their area of responsibility. They may determine to make a 'Resolution' at the next AGM or if it is an urgent matter, at an EGM. The Directors who are the electives of one major shareholder, may present his/her view but this is not necessarily so - they may have to view the Objectives of the Company and competitive position. The Chair may have to 'break' the vote if there is a 'tie'. At the AGM, the various Resolutions are put to vote.
The AGM is called with a notice sent to all shareholders. A certain quorum of shareholders are required to meet. If the quorum requirement is not met , it is canceled and another Meeting called. If it at that too a quorum is not met, a Third Meeting is called and the members present, unlimited by the quorum, take all decisions.
Decisions are taken by a show of hands; The Chair is always present. Where decisions are made by a show of hands is challenged, it is done, by a count of votes. Voting can be taken in person or by marking the paper sent by the Company. A person who is not a shareholder of the Company can vote if he/she has the 'proxy', an authorization from the shareholder. Each share carries the votes assigned to it. Some votes maybe for the decision, others not. Two types of decision known as the Ordinary resolution and the other a special resolution can be tabled at a Director's Meeting: The Ordinary Resolution requires the endorsement by a majority vote, sometimes easily met by partners' vote. The special resolution requires 60,70 or 80% of the vote as stipulated by the 'constitution' or the very same bye-laws of the Company. Shareholders other than partners are required to vote. The matters which require the Ordinary and special resolution to be passed are enumerated. A typical Articles of Association is shown in the Nestle S.A. or Nestle Ltd
Difference between jointventure , acquisition and merger
Answer
Basically, a joint venture is when two or more companies make an agreement to do business in one specific area. They can share the insurance, shipping and liability costs and produce higher profits. It is usually a short lived collaboration.
A merger is when two companies come together to form a single company. They combine their respective resources. Sometimes there are losses of jobs, but not all. Those decisions are specified in the merger contract well in advance of the deal.
An acquisition is when one company is buying and taking over another. If it is friendly, often the seller can stipulate who keeps their job and so forth. If it is unfriendly, the company taking over gets to make all the final decisions. They cannot take away benefits already earned.
Difference between merger , joint venture ,and strategic Alliance
As a business professional or an MBA student, you would have frequently encounter the words like mergers, acquisitions, joint ventures or strategic alliances. But most of us would not know the exact difference between these words. They are used interchangeably in a lot of news items and conversations but in theory they are different and it is essential to understand the difference.
Mergers and Acquisitions :
Mergers and acquisitions are more popular form of partnerships which is more simple to understand. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. When one company takes over another and
clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. A merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example,Oracle Corporation is very famous for its acquisitions. Oracle acquires companies and not merge with them. Oracle acquired Siebel,BEA,Peoplesoft and more recently SUN through friendly or hostile take overs.
Mergers vs strategic alliances vs joint ventures
Joint Venture :
A joint venture is a legal partnership between two(or more) companies where in they both make a new (third) entity for competitive advantage. With a JV you will have something more than simple governance; you'll have a completely new entity with a board, officers, and an executive team. Effectively a JV is a completely new organization, but owned by the founding participants. The board of directors generally is constructed with representatives of the founding organizations. This new company will "do business" with the founding entities-usually as suppliers.e.g. Uninor was a joint venture between Unitech(India) and Telenor(France) and KPIT Cummins is a joint venture between KPIT and Cummins Infosystems. In both the above cases,the resulting company is a new independent company with its own set of executives and even name.
Strategic Alliance :
SA is a kind of partnership between two entities in which they take advantage of each other’s core strengths like proprietary processes, intellectual capital, research, market penetration, manufacturing and/or distribution capabilities etc. They share their core
strengths with each other. They will have an open door relationship with another entity and will mostly retain control. The length of agreement could have a sunset date or could be open-ended with regular performance reviews. However, they simply would want to work with the other organizations on a contractual basis, and not as a legal partnership.e.g. HP and Oracle had a strategic alliances wherein HP recommended Oracle as the perfect database for their servers by optimizing their servers as per Oracle and Oracle also did the same.
SRK rejects Lux Cozi sponsorship for KKRKOLKATA: The Kolkata Knight Riders has put on hold its tie-up with hosiery brand Lux Cozi, a deal that had earned widespread criticism and anger among the people of the city.
"Respecting the sentiments of Kolkata and people of Bengal, both, Lux Industries and KKR have decided to put their association on hold until issues are resolved and the sensitivities of the aggrieved group are adequately addressed," the Shah Rukh Khan-owned franchisee stated in a release on Monday.
As per the link-up, the innerwear brand, owned by Ashok Todi, an accused in Rizwanur Rahman suicide case, was supposed to be associated with KKR's apparel merchandising.
The Lux Hosiery had also signed the Bollywood star as their brand ambassador.
"Presently it has come to our attention that the sentiments of a group of people in Kolkata have been hurt due to the personal affairs of individuals associated with one of the parties to the association.
"Our association and we say this on behalf of both Lux Industries Ltd. and KKR, was never intended to hurt any sentiments or disturb any sensibilities," stated the release.
The Todis were charged with abetting the suicide of computer graphics designer Rizwanur Rehman after he married Ashok Todi's daughter Priyanka.
A criminal case has been registered with the Todi brothers who are currently on bail.
SRK in his last visit to the city had met Todis as the deal had come up sparking anger in various parts of the city.
In fact, the Imam of Kolkata's second biggest mosque had written to Khan, appealing to scrap the deal.
"The association was worked upon, on the basis of the fact that, Lux Industries Ltd is a company doing business successfully in India and based in Kolkata for more than last 50 years.
"The association was truly professional and offered a sound synergic alliance between the two organizations. No matters concerning individuals associated with the respective organisations were envisaged as this was a purely professional tie-up."
"Having said the above, we again reiterate that this a professional association that perhaps does not merit to be judged on any personal fronts, but our love and respect for the sentiments of our fellow Kolkatans drives us to put on hold any further activity with regard to our association, till such time an acceptable resolution to the situation is arrived at."
"We sincerely hope that our effort to redress this grievance is positively received and this may bring to end any strife, hurt or anguish caused to anyone who has raised their displeasure in this matter," added the release.
The KKR jersey of black and gold colour has been changed with designer Manish Malhotra bringing purple into it even as the gold lining continues to exist.
The Kolkata side had finished last in the second edition, while in the inaugural IPL edition the side had finished second last.
The third edition of the T20 extravaganza will be held from April 12-March 25
Wall Street Exchange announces tie-up with State Bank of India
United Arab Emirates: Tuesday, August 14 - 2007 at 13:25 PRESS RELEASE
Wall Street Exchange Company LLC, has announced a tie-up with State Bank of India, India's largest bank, for quick money transfer to any part of India through 5,800 branches, under the Speed Remittance facility, 'SBI Express', under which the amount will be credited to beneficiary accounts within 24 hours/ the next working day.
The agreement brings together two major players in the remittances market for providing Draft & TT drawing arrangements and Direct Credit to accounts through 'SBI Express'.
"As many Indian expatriates hold accounts with State Bank of India, the tie-up will be of great benefit to people transferring money to India," said Abdullah Bin Ghalib, GMD of Wall Street Exchange. "More importantly, SBI is a giant among Indian banks with a vast network and proven expertise in serving every corner of India."
State Bank of India has been a pioneer, be it in the area of Corporate Financing, SME Financing, Rural Banking, Retail Banking, International Banking or NRI Banking. It is the only Indian bank to figure in the list of top 100 World Banks compiled by the Banker Magazine (UK) with a world ranking of 70. It has the largest network of branches and ATMs in every nook and corner of India. It also has the largest network of offices abroad among Indian banks, with 84 offices in 33 countries, thus providing world class banking services across the globe. SBI won the Gold Award for the Most Trusted Brand in Banking Category in India in a recent survey conducted by "Readers Digest". The Bank was also rated No. 1 in Customer Loyalty - ahead of high-profile private and foreign banks - in an IMRB/Business World customer loyalty survey of retail banking.
State Bank of India has the largest base of expatriate deposits and market share in remittances among all the banks in India, including the private sector and foreign banks. It is very popular among Indians and Indian expatriates in the Gulf.
"The partnership with SBI adds a new dimension to Wall Street's strategy of becoming a leading player in the remittances market," said Mr. Bin Ghaleb. "Supported by the Emirates Post Group's vision, we are set to increase our customer base manifold and we are in the process of finalizing several new partnerships."
Tie up
As I indicated in an earlier article, there are strong rumours of a "merger" or "tie-up" between Australian carrier Qantas and Malaysian Airlines (MAS). Given the regulatory stranglehold and national politics involved in Asia, a full merger is next to impossible.
Not only do I feel that this tie-up will happen, I strongly believe that it will result in positive results for all the players, not just the airlines.
The future for Qantas is Asia, but either due to a difference in business culture, or national ego, or economic and/or market positions, Qantas really has no serious potential partners in Asia, other than Malaysian. A tie-up with either Singapore Airlines or Cathay Pacific or Japan Airlines and can be written off due to culture or ego reasons. Garuda, Thai, Philippines, Eva, China Air, Air China, or any of the Taiwanese or Chinese airlines are too small or do not offer adequate economic benefits to Qantas.
Qantas CEO, Alan Joyce, had said that Qantas was looking to be the senior partner in any merger or similar relationship that the carrier entered into. The recent failure of the merger talks with British Airways highlights Joyce's desires.
Under the able stewardship of Idris Jala, Malaysian has staged a phenomenal comeback. After years of losses, government intervention and its resultant inefficiencies, Jala has moved MAS in to profitability, for the last 3 years. Even until the third quarter of 2008, despite the economic crises, he has delivered profits. Driven by its formidable low cost carrier (LCC) competitor AirAsia, and Jala, MAS has undertaken ruthless cost cutting and route rationalization. Despite this, Jala recognizes, MAS will never meet the cost base of AirAsia, and has moved the airline up the value chain, focusing on the higher end of the market, instead.
Article Source: http://EzineArticles.com/1812179
Collaborative softwareFrom Wikipedia, the free encyclopedia
This article has multiple issues. Please help improve it or discuss these issues on the talk page.
It may contain original research or unverifiable claims. Tagged since February 2011.
Collaborative software (also referred to as groupware) is computer software designed to help people involved in a common task achieve their goals. One of the earliest definitions for this term was simply: "intentional group processes plus software to support them." (Peter and Trudy Johnson-Lenz [1]).
Johansen[2] proposed a matrix from where different sorts of groupware can be found for different types of collaboration classified according two dimensions: time and space. Within the same time and same place collaboration it can also refer to electronic meeting systemss (EMS) or also to group decision support systems(GDSS). Within the same time
and different place collaboration it can be associated with supporting group processes of individuals not physically co-located, but instead working together across an internet connection, via web-based conferencing. For the same place & different time or different place & different time it can also include remote access storage systems for archiving common use data files that can be accessed, modified and retrieved by the distributed work group members. Today's notion of cloud computing provides just the sort of ideal infrastructure from which these group collaboration processes can be supported.
Contents[hide]
1 Overview o 1.1 Origins o 1.2 Philosophical Underpinnings
2 Groupware o 2.1 Groupware and organizations o 2.2 Design & Implementation Issues
3 Groupware and levels of collaboration o 3.1 Electronic communication tools o 3.2 Electronic conferencing tools o 3.3 Collaborative management (coordination) tools
4 Collaborative software and human interaction 5 Collaborative project management tools
o 5.1 Background o 5.2 Difference between Collaborative Project Management Tools (CPMT)
and Collaborative Management Tools (CMT)o 5.3 Dimensions
6 Collaboration software and voting methods 7 See also
o 7.1 Closely related terms o 7.2 Groupware type of applications o 7.3 Other related type of applications o 7.4 Other related terms o 7.5 Lists of collaborative software
8 References
9 External links
[edit] Overview
Collaborative software is a broad concept that greatly overlaps with Computer-supported cooperative work (CSCW). Some authors argue they are equivalent. According to Carstensen and Schmidt (1999)[3] groupware is part of CSCW. The authors claim that CSCW, and thereby groupware addresses "how collaborative activities and their coordination can be supported by means of computer systems". Software products such as email, calendaring, text chat, wiki, and bookmarking belong to this category, whenever
used for group work, whereas the more general term social software applies to systems used outside the workplace, for example, online dating services and social networks like Friendster, Twitter and Facebook. It has been suggested that Metcalfe's law — the more people who use something, the more valuable it becomes — applies to these types of software.
The use of collaborative software in the workspace creates a collaborative working environment (CWE). A collaborative working environment supports people in both their individual and cooperative work thus giving birth to a new class of professionals, e-professionals, who can work together irrespective of their geographical location.
Finally collaborative software relates to the notion of collaborative work systems which are conceived as any form of human organization that emerges any time that collaboration takes place, whether it is formal or informal, intentional or unintentional.[4]. Whereas the groupware or collaborative software pertains to the technological elements of computer supported cooperative work, collaborative work systems become a useful analytical tool to understand the behavioral and organizational variables that are associated to the broader concept of CSCW.[5]
[edit] OriginsSee also: MUD
Doug Engelbart first envisioned collaborative computing in 1951Doug Engelbart - Father of Groupware, documented his vision in 1962[6], with working prototypes in full operational use by his research team by the mid 1960s[7], and held the first public demonstration of his work in 1968 in what is now referred to as "The Mother of All Demos."[8]. The following year, Engelbart's lab was hooked into the ARPANET, the first computer network, enabling them to extend services to a broader userbase. See also Intelligence Amplification Section 4: Douglas Engelbart, ARPANET Section on ARPANET Deployed, and the Doug Engelbart Archive Collection.
Online collaborative gaming software began between early networked computer users. In 1975 by Will Crowther created Colossal Cave Adventure on a DEC PDP-10 computer. As internet connections grew, so did the numbers of users and multi-user games. In 1978 Roy Trubshaw, a student at Essex University in the UK, created the game MUD (Multi-User Dungeon). A number of other MUDs were created, but remained a computer science novelty until the late 1980s, when personal computers with dial-up modems began to be more common in homes, largely through the use of multi-line Bulletin Board Systems and online service providers.
Parallel to development of MUDs were applications for online chat, video sharing and voice over IP. These would be essential for further development. Studies at MITRE showed the value of voice and text chat, and sharing pictures for shared understanding.
The US Government began using truly collaborative applications in the early 1990s.[9] One of the first robust applications was the Navy's Common Operational Modeling,
Planning and Simulation Strategy (COMPASS).[10] The COMPASS system allowed up to 6 users created point-to-point connections with one another; the collaborative session only remained while at least one user stayed active, and would have to be recreated if all six logged out. MITRE improved on that model by hosting the collaborative session on a server that each user logged into. Called the Collaborative Virtual Workstation (CVW), this allowed the session to be set up in a virtual file cabinet and virtual rooms, and left as a persistent session that could be joined later.[11] In 1996, Pavel Curtis, who had built MUDs at PARC, created PlaceWare, a server that simulated a one-to-many auditorium, with side chat between "seat-mates", and the ability to invite a limited number of audience members to speak. In 1997, engineers at GTE used the PlaceWare engine in a commercial version of MITRE's CVW, calling it InfoWorkSpace (IWS). In 1998, IWS was chosen as the military standard for the standardized Air Operations Center.[12] The IWS product was sold to General Dynamics and then later to Ezenia.[13]
[edit] Philosophical UnderpinningsSee also: Virtual Teams
Technology has long been used to bring people together. However, as distance increases, rules and protocols need to be implemented. One seminal book on the process of working together from a distance is 'Virtual Teams' by Jessica Lipnack and Jeffrey Stamps.[14]
[edit] Groupware
Collaborative software was originally designated as groupware and this term can be traced as far back as the late 1980s, when Richman and Slovak (1987)[15] wrote:
"Like an electronic sinew that binds teams together, the new groupware aims to place the computer squarely in the middle of communications among managers, technicians, and anyone else who interacts in groups, revolutionizing the way they work."
Even further back, in 1978 Peter and Trudy Johnson-Lenz coined the term groupware; their 1978 definition of groupware was, “intentional group processes plus software to support them.”[16]
In the early 1990s the first groupware commercial products began delivering up to their promises, and big companies such as Boeing and IBM started using electronic meeting systems to leverage key internal projects. Lotus Notes appeared as a major example of that product category, allowing remote group collaboration when the Internet was still in its infancy. Kirkpatrick and Losee (1992)[17] wrote then:
"If GROUPWARE really makes a difference in productivity long term, the very definition of an office may change. You will be able to work efficiently as a member of a group wherever you have your computer. As computers become smaller and more powerful, that will mean anywhere."
As collaborative software evolves and migrates into the Internet itself, it contributes to the development of the so called Web 2.0 bringing a host of collaborative features that were originally conceived for within the corporate network. These include functionalities such as document sharing (including group editing), group calendar and instant messaging, web conferencing, among others.
[edit] Groupware and organizations
The study of computer-supported collaboration includes the study of collaborative software and the social phenomena associated with it. There is a wealth of research produced about the impact of groupware in organizations and related social and psychological issues since the early eighties. Since 1984 the great majority of this work has been organized and communicated within the boundaries of a specialized scientific event - the Computer Supported Cooperative Work conferences - which are held by the Association for Computing Machinery Special Interest Group in Computer-Human Interaction biannually. The next CSCW conference would be held in Seattle, Washington in 2012 and the program and the complete conference proceedings from the last conference in 2010 can be consulted here.
[edit] Design & Implementation Issues
The complexity of groupware development is still an issue. One reason for this is the socio-tecjnical dimension of groupware. Groupware designers do not only have to address technical issues (as in traditional software development) but also consider the social group processes that should be supported with the groupware application. Some examples for issues in groupware development are:
Persistence is needed in some sessions. Chat and voice communications are routinely non-persistent and evaporate at the end of the session. Virtual room and online file cabinets can persist for years. The designer of the collaborative space needs to consider the information duration needs and implement accordingly.
Authentication has always been a problem with groupware. When connections are made point-to-point, of when log-in registration is enforced, it's clear who is engaged in the session. However, audio and unmoderated sessions carry the risk of unannounced 'lurkers' who observe but do not announce themselves or contribute.[18][19]
Until recently, bandwidth issues at fixed location limited full use of the tools. These are exacerbated with mobile devices.
Multiple input and output streams bring concurrency issues into the groupware applications.
Motivational issues are important, especially in settings where no pre-defined group process was in place.
Closely related to the motivation aspect is the question of reciprocity. Ellis and others [20] have shown that the distribution of efforts and benefits has to be carefully balanced in order to ensure that all required group members really participate.
One approach for addressing these issues is the use of design patterns for groupware design [21]. The patterns identify recurring groupware design issues and discuss design choices in a way that all stakeholders can participate in the groupware development process.
[edit] Groupware and levels of collaboration
Groupware can be divided into three categories depending on the level of collaboration:[22]
1. Communication can be thought of as unstructured interchange of information. A phone call or an IM Chat discussion are examples of this.
2. Conferencing (or collaboration level, as it is called in the academic papers that discuss these levels) refers to interactive work toward a shared goal. Brainstorming or voting are examples of this.
3. Co-ordination refers to complex interdependent work toward a shared goal. A good metaphor for understanding this is to think about a sports team; everyone has to contribute the right play at the right time as well as adjust their play to the unfolding situation - but everyone is doing something different - in order for the team to win. That is complex interdependent work toward a shared goal: collaborative management.
[edit] Electronic communication tools
Electronic communication tools send messages, files, data, or documents between people and hence facilitate the sharing of information. Examples include:
synchronous conferencing asynchronous conferencing e-mail faxing voice mail Wikis Web publishing revision control
[edit] Electronic conferencing tools
Electronic conferencing tools facilitate the sharing of information, but in a more interactive way. Examples include:
Internet forums (also known as message boards or discussion boards) — a virtual discussion platform to facilitate and manage online text messages
Online chat — a virtual discussion platform to facilitate and manage real-time text messages
Telephony — telephones allow users to interact Videoconferencing — networked PCs share video and audio signals Data conferencing — networked PCs share a common whiteboard that each user
can modify Application sharing — users can access a shared document or application from
their respective computers simultaneously in real time Electronic meeting systems (EMS) — originally these were described as
"electronic meeting systems," and they were built into meeting rooms. These special purpose rooms usually contained video projectors interlinked with numerous PCs; however, electronic meeting systems have evolved into web-based, any time, any place systems that will accommodate "distributed" meeting participants who may be dispersed in several locations.
Collaborative management tools facilitate and manage group activities. Examples include:
electronic calendars (also called time management software) — schedule events and automatically notify and remind group members
project management systems — schedule, track, and chart the steps in a project as it is being completed
online proofing — share, review, approve, and reject web proofs, artwork, photos, or videos between designers, customers, and clients.
workflow systems — collaborative management of tasks and documents within a knowledge-based business process
knowledge management systems — collect, organize, manage, and share various forms of information
enterprise bookmarking — collaborative bookmarking engine to tag, organize, share, and search enterprise data
prediction markets — let a group of people predict together the outcome of future events
extranet systems (sometimes also known as 'project extranets') — collect, organize, manage and share information associated with the delivery of a project (e.g.: the construction of a building)
social software systems — organize social relations of groups online spreadsheets — collaborate and share structured data and information
Gathering applications
This functionality may be included in some wikis and blogs, e.g. Wetpaint. Primarily includes:
Either stand-alone (such as MediaWiki), part of a suite (such as TikiWiki) or web-based such as Wetpaint. A Wiki might include:
workflow management blogs image and file galleries chat calendaring surveys
[edit] Collaborative software and human interaction
The design intent of collaborative software (groupware) is to transform the way documents and rich media are shared in order to enable more effective team collaboration.
Collaboration, with respect to information technology, seems to have several definitions. Some are defensible but others are so broad they lose any meaningful application. Understanding the differences in human interactions is necessary to ensure the appropriate technologies are employed to meet interaction needs.
There are three primary ways in which humans interact: conversations, transactions, and collaborations.[23]
Conversational interaction is an exchange of information between two or more participants where the primary purpose of the interaction is discovery or relationship building. There is no central entity around which the interaction revolves but is a free exchange of information with no defined constraints. Communication technology such as telephones, instant messaging, and e-mail are generally sufficient for conversational interactions.
Transactional interaction involves the exchange of transaction entities where a major function of the transaction entity is to alter the relationship between participants. The transaction entity is in a relatively stable form and constrains or defines the new relationship. One participant exchanges money for goods and becomes a customer. Transactional interactions are most effectively handled by transactional systems that manage state and commit records for persistent storage.
In collaborative interactions the main function of the participants' relationship is to alter a collaboration entity (i.e., the converse of transactional). The collaboration entity is in a
relatively unstable form. Examples include the development of an idea, the creation of a design, the achievement of a shared goal. Therefore, real collaboration technologies deliver the functionality for many participants to augment a common deliverable. Record or document management, threaded discussions, audit history, and other mechanisms designed to capture the efforts of many into a managed content environment are typical of collaboration technologies.
Collaboration in Education- two or more co-equal individuals voluntarily bring their knowledge and experiences together by interacting toward a common goal in the best interest of students' needs for the betterment of their educational success.
Collaboration requires individuals working together in a coordinated fashion, towards a common goal. Accomplishing the goal is the primary purpose for bringing the team together. Collaborative software helps facilitate the action-oriented team working together over geographic distances by providing tools that help communication, collaboration and the process of problem solving by providing the team with a common means for communicating ideas and brainstorming. Additionally, collaborative software may support project management functions, such as task assignments, time-management with deadlines and shared calendars. The artifacts, the tangible evidence of the problem solving process, including the final outcome of the collaborative effort, typically require documentation and archiving of the process itself, and may involve archiving project plans, deadlines and deliverables.
Collaborative software should support the individuals that make up the team and the interactions between them during the group decision making process. Many of today's teams are composed of members from around the globe, with some members using their second or third language in communicating with the group. This situation provides cultural as well as linguistic challenges for any software that supports the collaborative effort. The software may also support team membership, roles and responsibilities. Additionally, collaborative support systems may offer the ability to support ancillary systems, such as budgets and physical resources.
Brainstorming is considered to be a tenet of collaboration, with the rapid exchange of ideas facilitating the group decision making process. Collaborative software provides areas that support multi-user editing, such as virtual whiteboards and chat or other forms of communication. Better solutions record the process and provide revision history. An emerging category of computer software, a collaboration platform is a unified electronic platform that supports synchronous and asynchronous communication through a variety of devices and channels.
An extension of groupware is collaborative media, software that allows several concurrent users to create and manage information in a website. Collaborative media models include wiki (Comparison of wiki software) and Slashdot models. Some sites with publicly accessible content based on collaborative software are: WikiWikiWeb, Wikipedia and Everything2. By method used we can divide them into:
Along with these, already traditional, methods recent expansion of corporate use of Second Life and other virtual worlds lead to development of a newer generation of software that takes advantage of a 3D data presentation. Some of this software (3D Topicscape) works independently from virtual worlds and simply uses 3D to support user "in concept creation, planning, organization, development and actualization". Other [1] designed specifically to assist in collaboration when using virtual worlds as a business platform, while yet another type of software, Collaborative Knowledge Management (cKM), bridges the gap and can be used simultaneously in Second Life and on the web.
By area served we can divide collaborative software into:
Collaborative project management tools (CPMT) are very similar to collaborative management tools (CMT) except that CMT may only facilitate and manage a certain group activities for a part of a bigger project or task, while CPMT covers all detailed aspects of collaboration activities and management of the overall project and its related knowledge areas.
Another major difference is that CMT may include social software, Document Management System (DMS) and Unified Communication (UC) while CPMT mostly considers business or corporate related goals with some kind of social boundaries most commonly used for project management.
[edit] Background
During the mid-1990s project management started to evolve into collaborative project management; this was when the process in which a project's inputs and outputs were carried out started to change with the evolution of the internet. Since the geographical boundaries broadened the development teams increasingly became more remote changing the dynamics of a project team thus changing the way a project was managed.
Former chairman of General Electric, Jack Welch, believed that you could not be successful if you went it alone in a global economy.[citation needed] Therefore Welch became a driving force behind not only collaboration between organizations, but also collaborative project management.
CPMT facilitate and manage social or group project based activities.
Examples include:
Electronic calendars Project management systems Resource Management Workflow systems Knowledge management Prediction markets Extranet systems Social software Online spreadsheets
Online artwork proofing, feedback, review and approval tool
In addition to most CPMT examples, CMT also includes:
HR and equipment management Time and cost management Online chat Instant messaging Telephony Videoconferencing Web conferencing Data conferencing Application sharing Electronic meeting systems (EMS) Synchronous conferencing E-mail Faxing voice mail Wikis Web publishing Revision control Charting Document versioning Document retention Document sharing Document repository
Evaluation and survey
[edit] Dimensions
Different frameworks could be established based on a project needs and requirements in order to find the best software. But the best framework is the one in which the characteristics are so well defined that they cover all the aspects of collaboration activities and management of the overall project.
The challenge in determining which CPM software to use is having a good understanding of the requirements and tools needed for project development. There are many dynamics that make project management challenging (coordination, collaboration, sharing of knowledge and effectiveness of pm's to facilitate the process). Choosing the right CPM software is essential to complementing these issues. According to a survey conducted in 2008 to find out what project managers' expectations and uses of project management
Some collaboration software allows users to vote, rate, and rank choices, often for the purpose of extracting the collective intelligence of the participants. The votes, ratings, and rankings can be used in various ways such as:
Producing an average rating, such as 4 out of 5 stars. Calculating a popularity ranking, such as a "top 10" list. Guiding the creation and organization of documents, such as in Wikipedia where
voting helps to guide the creation of new pages. Making a recommendation that may assist in making a decision.
In the case of decision making, Condorcet voting can combine multiple perspectives in a way that reduces intransitivity. Additional uses of collaborative voting, such as voting to determine the sequence of sections in a Wikipedia article, remain unexplored. It's worth noting that no matter what voting method is implemented, Arrow's Impossibility Theorem guarantees that an ideal voting system can never be attained if there are three or more alternatives that are voted upon.
In addition to allowing participants to rank pre-existing choices, some collaboration software allows participants to add new choices to the list of choices being ranked.[24]
Voting in collaboration software is related to recommendation systems that generate appreciated recommendations based on ratings or rankings collected from many people
What is the difference between Joint Venture, Collaboration and Merger?
Best Answer - Chosen by AskerIAS 31 defines a Joint venture as A contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control: The contractually agreed sharing of control over an economic activity such that no individual contracting party has control.
A collaboration is a layman's term and is not part of any accounting std. It just means the coming together of 2 or more parties for the purpose of brainstorming and sharing of expertise.
In a merger, two separate companies combine and only one of them survives. In other words, the merged (acquired) company goes out of existence, leaving its assets and liabilities to the acquiring company. Usually when two companies of significantly different sizes merge, the smaller company will merge into the larger one, leaving the larger company intact. Mergers are part of Business Combinations, the subject of IFRS 3.s
