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ABOUTKalyan City is a fast emerging residential townshipin the Thane district of Maharashtra state, India. It isa central suburban town and resides 54 km northeast of Mumbai. This blog regularly shares qualityacademic materials. Here we also document ourunique experiences and vivid memories of life.Read our lucid, informative articles to excel yourunderstanding, knowledge and success.
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TEAMArticles published on Kalyan City Life blogis inspired by our work experience, fieldresearch, study of various good books andpapers, seminars and consultations fromsubject scholars. Our unique collection ofuseful study notes is an outcome of a teameffort and hard work of Gaurav Akrani, Prof.Mudit Katyani and Manoj Patil.
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What is Foreign Collaboration?Definition, Meaning, Examples
Post: Gaurav Akrani. Date: 6/18/2012 10:50:00 AM IST.No Comments. Label: Finance.
Definition of Foreign Collaboration
In general, the definition of foreign collaboration can be stated as follows.
“Foreign collaboration is an alliance incorporated to carry on the agreed taskcollectively with the participation (role) of resident and nonresident entities.”
Alliance is a union or association formed for mutual benefit of parties.
Foreign collaboration is such an alliance of domestic (native) and abroad(nonnative) entities like individuals, firms, companies, organizations,governments, etc., that come together with an intention to finalize a contract onsome tasks or jobs or projects.
In finance, the definition of foreign collaboration can be specified as follows.
“Foreign collaboration includes ongoing business activities of sharinginformation related to financing, technology, engineering, managementconsultancy, logistics, marketing, etc., which are generally, offered by a nonresident (foreign) entity to a resident (domestic or native) entity in exchange ofcheap skilled and semiskilled labour, inexpensive highquality rawmaterials,low cost hitech infrastructure facilities, strategic (favourable) geographiclocation, and so on, with an approval (permission) from a governmentalauthority like the ministry of finance of a resident country.”
Foreign collaboration is thus an alliance (a union or an association) formed formutual benefit of collaborating parties.
Meaning of Foreign Collaboration
The meaning of foreign collaboration is depicted in the following chart.
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Following important points convey the meaning of foreign collaboration:
1. Foreign collaboration is a mutual cooperation between one or moreresident and nonresident entities. In other words, for example, an alliance(a union or an association) between an abroad based company and adomestic company forms a foreign collaboration.
2. It is a strategic alliance between one or more resident and nonresidententities.
3. Only two or more resident (native) entities cannot make a foreigncollaboration possible. For its formation and as per above definitions, it ismandatory that one or more nonresident (foreign) entities must alwayscollaborate with one or more resident (domestic) entities.
4. Before starting a foreign collaboration, both entities, for example, aresident and nonresident company must always seek approval(permission) from the governmental authority of the domestic country.
5. During an ongoing process of seeking permission, the collaboratingentities prepare a preliminary agreement.
6. According to this preliminary agreement, for example, the nonresidentcompany agrees to provide finance, technology, machinery, knowhow,management consultancy, technical experts, and so on. On the other hand,resident company promises to supply cheap labour, lowcost and qualityrawmaterials, ample land for setting factories, etc.
7. After obtaining the necessary permission, individual representative of aresident and nonresident entity sign this preliminary agreement. Signatureacts as a written acceptance to each other's expectations, terms andconditions. After signatures are exchanged, a contract is executed, andforeign collaboration gets established. Contract is a legally enforceableagreement. All contracts are agreements, but all agreements need notnecessarily be a contract.
8. After establishing foreign collaboration, resident and nonresident entitystart business together in the domestic country.
9. Collaborating entities share their profits as per the profitsharing ratiomentioned in their executed contract.
10. The tenure (term) of the foreign collaboration is specified in the writtencontract.
Examples of Foreign Collaboration
Some prominent examples of foreign collaboration are depicted below.
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The examples of foreign collaboration between an indian and abroad entity:
1. ICICI Lombard GIC (General Insurance Company) Limited is a financialforeign collaboration between ICICI Bank Ltd., India and Fairfax FinancialHoldings Ltd., Canada.
2. ING Vysya Bank Ltd. is a financial foreign collaboration formed betweenING Group from Netherlands and Vysya Bank from India.
3. Tata DOCOMO is a technical foreign collaboration between TataTeleservices from India and NTT Docomo, Inc. from Japan.
4. Sikkim Manipal University (SMU) from India runs some academicprograms through an educational foreign collaboration with abroaduniversities like Liverpool School of Tropical Medicine from UK, LomaLinda and Louisiana State Universities from USA, Kuopio University fromFinland, and University of Adelaide from Australia.
Objectives of Foreign Collaboration
The objectives of foreign collaboration are listed in the following image.
The main intention or prime goal or objective of foreign collaboration is to:
1. Improve the financial growth of the collaborating entities.
2. Occupy a major market share for the collaborating entities.
3. Reduce the higher operating cost of a nonresident entity.
4. Make an optimum and effective use of resources available in the residententity's country.
5. Generate employment in the resident entity's country.
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