2. Forms of joint ventures.

According to the law of the Republic of Kazakhstan "On Foreign Investments" the joint venture is a company with foreign participation, created with the laws of the Republic of Kazakhstan on the territory of RK, in which a part of property (shares) is owned by a foreign investor. Joint ventures are an important form of realization of nearly all types of international industrial and technical cooperation. They are created by combining the capital owned by entrepreneurs of the two or more countries for the implementation of joint activities. Here partners are bound by ties of common property that involves the joint management of this property and the distribution of income from business activities in certain ratios.

The joint venture (the firm) is registered in the country of one of the founders on the basis of its existing law that defines the location of its headquarters, and therefore nationality.

Forms of formation joint ventures are very diverse:

- Exchange of shares between companies, which retain their economic independence.

- Distribution of share capital between the founders at par or certain ratios established by the legislation of the country of registration.

- The acquisition of a foreign company share stake in the national company, not giving her the right to control.

Questions, connected with salary, provision of vacations, pension, and some cases with participation of workers of the enterprises with foreign participation must be decided in individual employment agreements (contracts) with each of them.

1.3. Types of joint ventures.

At the present time there are four types of joint ventures in the world:

1). Licensing. It is one of the first types of joint commercial activities. In the license agreement the licensor passes the patent and/or the "know-how." Agreement "On the transfer of "know-how"" is used in international law to refer to the other side of the transfer knowledge, experience, skills expressed in the form of documentation. One side sends its experts to another side to establish the manufacturing process and the process of creating of products. In western countries the great importance is attached to the conclusion of licensing agreements, because they have certain advantages. The licensor (the person selling the license) is entering the international market with minimal risk, and the licensee (the person who buys a license) does not have to start from the ground, because he gets right to the use the manufacturing process, trademark, patent, trade secrets in exchange for a royalty. In countries with unstable political situation the risk of expropriation reduces. The licensor may transfer production abroad, if the business is not profitable in his own country. Payments for licenses, at least partially cover their own costs on research and development.

2). Contracting production. It is joint venturing, in which a foreign company enters into a contract with local manufacturers to produce the necessary products.

3). Management under the contract. In this case, the firm offers foreign partners “know-how” in the field of management, and foreign partners offer “know-how” in control, and the foreign partner provides the necessary capital. Thus, there are not the goods exported, but management service. Joint ventures are being created in different parts of the world for the organization of the hotels. Management contract is a way out to the foreign market with minimal risk and earning the income from the very inception.

4). Co-ownership.¹ In such joint ventures there should be agreement between the parties on long-term problems of cooperation, union party assets (cash, equipment, etc.) self-controls, participation of parties in the profit and loss account in accordance with the attached capital.

Four benefits of joint ventures over other forms of international economic cooperation:

-High liability of partners, a higher interest in the development and modernization of manufacturing.

-Joining resources forces occurs not only in production but also in pre-production and marketing cooperatives.

- Agreement on joint ventures has strong partnerships and long-term relations.

- Joint ventures give the opportunity to use a complex interaction in all spheres.

The joint venture has its own specific issues. Since participants include equity capital there is a legitimate requirement guarantees the protection of the invested capital and its return in certain circumstances. As JV has the only production process, management, staff, there may be conflicts and conflicts of interest. Many JV collapse first of all because of different objectives: one partner may be willing to reinvest the proceeds in the expansion, and another - to receive dividends, or one partner may seek to become more involved in management than the other. If things go bad, the more active partner blames the less active in the lack of attention to the enterprise, and the latter blames the first for making bad decisions. Moreover, one partner may suspect another in extracting itself to greater benefits from the company (especially in regard to technology). Therefore the choice of JV partner is very important, especially if the separation of ownership by virtue of government regulation is obligatory process.

Advantages of joint ventures

1. Joint ventures enable companies to share technology and complementary IP assets for the production and delivery of innovative goods and services.

2. For the smaller organization with insufficient finance and/or specialist management skills, the joint venture can prove an effective method of obtaining the necessary resources to enter a new market. This can be especially true in attractive markets, where local contacts, access to distribution, and political requirements may make a joint venture the preferred or even legally required solution.

3. Joint ventures can be used to reduce political friction and improve local/national acceptability of the company.

4. Joint ventures may provide specialist knowledge of local markets, entry to required channels of distribution, and access to supplies of raw materials, government contracts and local production facilities.

5. In a growing number of countries, joint ventures with host governments have become increasingly important. These may be formed directly with State-owned enterprises or directed toward national champions.

6. There has been growth in the creation of temporary consortium companies and alliances, to undertake particular projects that are considered to be too large for individual companies to handle alone (e.g. major defence initiatives, civil engineering projects, new global technological ventures).

7. Exchange controls may prevent a company from exporting capital and thus make the funding of new overseas subsidiaries difficult. The supply of know-how may therefore be used to enable a company to obtain an equity stake in a joint venture, where the local partner may have access to the required funds.

Disadvantages of joint ventures

1. A major problem is that joint ventures are very difficult to integrate into a global strategy that involves substantial cross-border trading. In such circumstances, there are almost inevitably problems concerning inward and outward transfer pricing and the sourcing of exports, in particular, in favour of wholly owned subsidiaries in other countries.

2. The trend toward an integrated system of global cash management, via a central treasury, may lead to conflict between partners when the corporate headquarters endeavours to impose limits or even guidelines on cash and working capital usage, foreign exchange management, and the amount and means of paying remittable profits.

3. Another serious problem occurs when the objectives of the partners are, or become, incompatible. For example, the multinational enterprise may have a very different attitude to risk than its local partner, and may be prepared to accept short-term losses in order to build market share, to take on higher levels of debt, or to spend more on advertising. Similarly, the objectives of the participants may well change over time, especially when wholly owned subsidiary alternatives may occur for the multinational enterprise with access to the joint venture market.

4. Problems occur with regard to management structures and staffing of joint ventures.

5. Many joint ventures fail because of a conflict in tax interests between the partners.

Chapter 2. Creation of joint ventures in the Republic of Kazakhstan.