Question

Assume that you have been approached by a competitor in Mexico to engage in a joint venture. The competitor would offer the classroom facilities (so that you would not need to rent classroom facilities), while your employees would provide the teaching. You would split the profits with this business. Discuss how your potential return and your risk would change if you pursue the joint venture.

Answer 1

ANSWER:

The joint venture is basically for training residents. In this the class room facilities are provided by the Mexican partner while the trainers are from abroad. The probable risks with this venture are control of the quality of the training, control of the joint venture in terms of day to day activities, getting residents to attend the lectures / trainings, local laws and probable changes in them with regard to immigration of trainers, repatriation of share in the revenues etc.

The two joint venture partners should spell out clearly spell out who will be running the facilities in terms of controls, arranging for immigration of trainers, the facilities offered to trainers in terms of salaries, accomodation, transportation, safety etc. Similarly as the question does not specify whether the Mexican training venture is a captive facility or not that is the students are captive or to be reachout through advertisment. If we assume that the Joint Venture needs to reach out to the students then advertising involved, control on the quality and coverage of advertisements needs to be discussed at the time of entering into the JV.

Another major point to be discussed is the responsibility of JV partners in terms of investments. It is given that the Mexican partner will provide the classroom facilities while the overseas partner provides the trainers. It needs to be spelt out in the agreement with regards to investments in advertisments, quality control, scheduling and controlling the student fee receipts etc.

As mentioned above the major risks would be the local laws regarding immigration of foreign nationals for work purpose into Mexico like the sectors allowed, controls in the number of foreign nationals, their qualifications etc. Similarly any change in the laws during the life of JV will affect the performance either positively or negatively. (Example the change in British immgration laws in terms of the visa fee and other conditions in the recent past affected the Indian immigrants to that country in a negative way). Simlarly any change in the Mexican laws with regard to the repatriation of invested funds,profits, taxes will have substantial effect on the profitability of the venture. In addition,the JV partners also need to arrive to an agreement about shaing of profits / losses in the JV.