Equity-Based Joint Ventures

• If two or more parties share control of a company, it is known as a joint venture. Moreover, a joint venture is an agreement that stands for a limited amount of time, as the arrangement lasts during the early days of the company during its start-up. An equity-based joint venture is a type of joint venture where each party owns a specific percentage of the company, and hence the company's assets and profits. These percentages are according to the amount of capital put into the new company. So, if an investor put 40 percent of capital into a joint venture start-up, he would be entitled to 40 percent of the company's assets and profits.
  
  

International Business

• An equity-joint venture is especially advantageous in terms of foreign direct investment. Imagine an entrepreneur who wishes to conduct business in a foreign company. He has some of the money, but has little knowledge of the country's laws, culture, institutional framework, market and consumer behavior. So, he decides to set up an equity-based joint venture with another entrepreneur. This second entrepreneur is a native of the country that they wish to invest in. The second entrepreneur puts in some additional capital into the business, and brings in legal and business expertise to the company.
  
  

Emerging Economies

• Equity-based joint ventures are rather common in emerging economies, especially the BRICs, that is, Brazil, Russia, India and China. As these countries have shown a considerable rate of growth over the past decade or more, the desire for entrepreneurs from developed countries to invest in them has been considerable. There is a clear advantage on both sides of the equation. The entrepreneur from the developed country can take advantage of an un-tapped market. If he were to invest in his home country, there would be little room due to existing and fierce competition. The entrepreneur from the undeveloped country can take advantage of the first entrepreneur's experience with the particular product as well as the large amount of capital he brings in.
  
  

Macroeconomic Advantages

• Equity-based joint ventures have a positive impact on the country of investment. When such a company forms, foreign money is put into the local economy. If the joint venture is hiring labor, unemployment falls and wages can possibly increase. This in turn increases the local residents' incomes, who in turn pay higher taxes, consume more and save more. This type of foreign investment inevitably has a positive impact on each component of a country's gross domestic product.