Page 69 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Retail Business Environment

Notes Diversification

There are some inherent risks in joint ventures, which might be faced by the Indian parties,
some over which the management can exercise little control and some over which the
management can exercise a degree of control. Expropriation, price controls, governmental
discrimination and non-convertibility of currency fall under the former category. The possibility
of expropriation should be a factor in any decision on joint ventures. However, there are two
points which need mention in this connection are:
 The threat of expropriation usually develops over a long period of time and a careful
study of the trends in the country could provide a forewarning.
 Joint ventures have a better chance of avoiding expropriation than full direct investment
because of the involvement of the local capital and entrepreneurs.
Price control mechanism does provide for an increase in prices with escalation in costs but
usually there is a time lag. Government discrimination should be taken as a fact of life. Even in
India, different states have different incentives exchange controls, permit conversion of local
currency within their domain, there might be delays in repatriation of funds. Fluctuations in
exchange rates are a risk over which the management can exercise a certain degree of control.

Selection of a Country for JV

Some factors, which could be considered for selection of a country for the establishment of joint
ventures, are given below:

Market for the Product Concerned

1. Size of the market
2. Market growth

3. Existing competition-local and foreign.
Government Regulations

1. Tax concessions and incentives
2. Price controls-their severity
3. Local content requirements
4. Export obligations

5. Extent of equity holding permitted
6. Degree and nature of protection
7. Repatriation of profits and capital

Economic Stability

1. The economy and its management-economic and fiscal policies-growth rate
2. Degree of inflation

3. Trade balance, balance of payments and balance of its indebtedness
4. Import and debt service cover.

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