Document Type

Article

Disciplines

International Law

Abstract

Consider a hypothetical United States corporation, BathyTech Industries,' that for three years has been involved in the research and development of bathymetric navigation technology.' BathyTech's research department has made significant advances toward developing a prototype system. However, it has expended very considerable sums and substantial additional risk capital is necessary to bring the product to the point of commercial application. BathyTech has not previously marketed navigational systems, and has little experience in marketing outside the United States. Nevertheless, there is substantial market demand for an effective bathymetric navigation system. The board of directors and management are reluctant to invest the amounts still required and have decided to seek financing and marketing assistance from outside the corporation. BathyTech is considering a joint venture arrangement, pursuant to which a foreign firm with an established marketing network would combine resources with BathyTech for the purposes of completing development of the system and effecting subsequent sales and marketing. BathyTech is willing to contribute its technology and know-how, but is unwilling at present to contribute any additional capital. Preliminary discussions with Nippon Navigations Inc., a Japanese corporation, reveal a possible partner. Nippon Navigations has a marketing network for navigational systems and has useful business contacts in its own and other countries. Nippon Navigations has been engaged in some research and development work in bathymetric navigation systems, but its work has not progressed to the same stage as that of BathyTech Industries. Nippon Navigations is therefore interested in combining forces with BathyTech, as it has both a profit motive and a desire for access to BathyTech technology.

The parties' initial discussions indicate that their objectives and goals appear to be complementary to a significant degree. The parties have determined that BathyTech will contribute its existing operations in the bathymetric navigation field, including technology, which the parties have agreed should be valued at $45 million (an amount roughly equivalent to the physical plant of BathyTech plus the amount already expended in research and development). In essence, BathyTech will be contributing an ongoing business, including tangible assets, employees, patents, and technology (i.e., trade secrets, technical data and know-how). Nippon Navigations, although contributing all of its interest in the field, including tangible and intangible assets, will also be required to contribute $45 million as consideration for the development costs already expended by BathyTech. The $45 million will be contributed by Nippon Navigations in the form of one cash installment of $5 million, which is the value of the physical plant contributed by BathyTech, and cash contributions of $10 million during each of the first four years of operations, all of which will be used to complete the development and engineering of the prototype system. Thereafter, the systems will be produced and marketed throughout the world by the joint venture company. To the extent additional capital is needed, the joint venture partners [JVPs] will be equally responsible for the funds.

A distinct joint venture company, incorporated as New York Navigations Inc., will complete the development efforts of BathyTech and produce several prototype systems. Full-scale production and worldwide marketing activities will follow. Each JVP will own an equal share of New York Navigations, and each will participate equally in managing operations of the new company.

This hypothetical situation highlights the value of a joint venture structure: it provides new opportunities for growth, new markets and venture capital. The joint venture has provided a particularly attractive and flexible vehicle for international business activities, especially in fields requiring high initial cost outlays. The details and concerns which must be addressed during the negotiation of a joint venture agreement are explored in the balance of this article.

Accessibility Requirements

1

Download

Share

COinS