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In this blog post, Shivali Wal, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the benefits for Indian companies intending to invest in Joint Ventures/Wholly Owned Subsidiaries in Netherlands.


What are Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS)?


A joint venture is a type of business agreement wherein two or more parties collectively agree upon blending and sharing their resources for acquiring a common interest for a stipulated time. A new joint venture (JV) can exist in the form of a new business project or activity.

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In a joint venture (JV), the burden of profits, losses and costs are incurred by each of the participants of the venture. However, this venture, in form is independent of the participating members’ other interests in business, making it an entity of its own.

A wholly owned subsidiary (WOS) is a company whose common stock is completely owned by another company. In a regular situation, 51-99% of the subsidiaries are in the ownership of a parent company. The company holding the stocks is called a parent company, and the company whose stocks are being held is called a Host company. It is possible for a company to convert into a WOS through acquisition or through spin-off from the parent company. This form of an investment is widely popular in for overseas investments.

What is direct investment outside India?

Direct investment outside India are those investments which are either under the Approval Route (prior sanction from Reserve Bank of India is mandatory) or the Automatic route (no prior sanction from Reserve Bank of India is required), this can be done by way of making a contribution to the capital of the country or by purchasing existing shares of a foreign entity by various modes such as:

  1. market purchase
  2. private placement
  3. through stock exchange as a long-term interest in the foreign entity (JV or WOS).

What is the Importance of overseas direct investments?


Globalization of trade and commerce is a process which requires multiple forces to pull together and lend a helping hand to each other. For the sake of growth of the Indian economy in conjunction with the rest of the world, it is essential that India gets involved in overseas investments.

Joint Ventures/Wholly Owned Subsidiaries abroad is thus a great option as it gives rise to economic co-operation between India and the host countries. There is an exchange of research and development, sharing of skills and technology, entry into a global market, the introduction of employment opportunities, efficient and adequate use of raw materials, heightened exports of goods and services from India into the host countries, earnings through the goods and services provided, etc.

Hence, it is safe to say that such an investment is a win-win situation for both the participating countries, with the pooling of the resources these countries are using their strengths and potentials in an efficient fashion. The concept of borrowing fills the space for any lack of expertise. These countries co-operate and empower each other with their strengths, and the end product is a healthier global economy.


What is ‘financial commitment’?

As defined by the Reserve Bank of India, “Financial commitment means a number of direct investments outside India by an Indian Party –

  1. by way of contribution to equity shares or CCPS of the JV/WOS abroad
  2. contribution to the JV/WOS as preference shares (for reporting purpose to be treated as a loan)
  3. as loans to its the JV/WOS abroad
  4. 100% of the amount of corporate guarantee issued on behalf of its overseas JV/WOS and
  5. 50% of the amount of performance guarantee issued on behalf of its overseas JV/WOS
  6. bank guarantee/standby letter of credit issued by a resident bank on behalf of an overseas JV / WOS of the Indian party, which is backed by a counter guarantee / collateral by the Indian party
  7. Creation of charge (pledge/mortgage/hypothecation) on the movable/immovable property or other financial assets of the Indian party/its group companies.”

Criteria for an Indian company to make an investment in a JV/WOS abroad in the financial services sector

For an Indian company to invest in a JV/WOS abroad in the financial services sector, it has to be involved in the financial sector within the territory of India as well. Additionally, the following conditions must also be fulfilled.

  1. It has made a net profit for the three years preceding the date of investment in a financial service sector.
  2. For the sake of conducting financial services related activities, it must be regulated by an appropriate regulatory authority in India.
  3. It has taken approval for carrying out such services from the appropriate authority in India and the country that the company intends to invest in.
  4. It has satisfied the norms in regards to the capital capacity under the advice of  the regulatory authority  in India

Benefits involved with Joint Ventures


A joint venture acts as a catalyst for accelerating the growth of the business and the efficiency of the business, multiplying the profits that an ordinary business has to offer a joint venture which, if successful, can contribute in the following ways:

  • Access to new markets and distribution networks:

Increasing the scope of the market not only increases the chances of sales and profits but provides an underlying safety and security for the consumption and use of the goods and services. It also promises better local market intelligence provided by indigenous joint venture partner.

  • Increased capacity:

In a joint venture, the participating companies are willing to co-exist to increase their capacities as a joint effort. This, in turn, increases the scope of achievement.

  • Sharing of risks and costs:

Since the participating parties share the capital outlay, the capital shock incurred at the time of loss or the cost of goods and services is a common interest to the parties. The burden of incurring costs and losses is hence distributed.

  • Increased access:

Increased access to greater resources thereby increasing the scope of either party. Such access may include specialized staff, technology, finance, skills, raw materials, knowledge, etc.

  • Reduced risk:

There is less government intervention if case of an alliance being formed with an indigenous and local business as opposed to how much it may be in case of the business existing solely in a foreign country.

  • Closer control over production, marketing, and other business operations.


Joint ventures often save the trouble to look for outside investors. The partners in a JV have access to each other’s database, enabling the partners to use the same to market products of their own or offer one partner’s good and services to another’s customers. A joint venture is also very flexible in nature. For instance, joint venture can exist for a stipulated frame of time and work jointly only on a portion of a larger business thus setting a point of limitation on the both the parties


Risks involved with joint ventures

Partnering with another business could be complicated. A balanced relationship is a product of invested time and efforts by the parties. A misunderstanding arising between the parties is the biggest threat to the functionality of a joint venture; it can happen due to the following reasons:

  • There is a lack of communication, or there is an ambiguous form of communication between the parties.
  • The objectives of the joint venture were mistaken, and they differ from party to party
  • There is a difference in the potential of the partners regarding the skills, expertise, capital, etc.
  • There is a difference in the manner of operating and conducting business between the partners thus creating friction.
  • Proper care and commitment had been lacking in the founding stage of the business, making the business weak at its foundation.

Advantages and disadvantages of a WOS



The most relevant advantage of WOS is that the parent company can exercise control in operational and functional matters over its subsidiaries. The level of this control, however, fluctuates with a reduction in the intensity with the passing time.

For the management of the subsidiaries, the parent company may send over its executive which ensures a controlled and a standard level of work for the companies. The intellectual property is firmly secured, and thus there is a check over anti-competitive activities. This is since the parent can access the data and security protocols. Cost sharing is a feature because a parent and its subsidiaries could make use of same financial bodies, administrative bodies and jointly develop marketing programs.



The establishment of a subsidiary can turn out to be an expensive affair. It is not doubtful that hiring of a local company can strengthen the scope of the parent company by ensuring many advantages such as market entry, the cost that the parent company must incur for the payment of its assets could be exorbitant, especially in case of a bidding war. Although the local companies may facilitate the relationship between the parent company and the local suppliers and purchasers, the establishment of a relationship between the two is time consuming.

The parent company may also find it difficult to hire local employees as the cultural barrier may come in the way. The burden of representation of a parent body for its subsidiaries could be a big liability especially in the matter involving a legal suit against the subsidiaries where in the parent company is vicariously liable.


Benefits of Indian company Investing in Netherlands


Strategic Location

Due to the strategic geographical position of Netherlands, it opens its bay to more than 95% of Europe, thus targeting a large consumer population.

Investing in Netherlands will thus enable India to expand its operations through Europe without having to incur major costs as it may have to in the case of investing in a country with poor networking. Owing to its great connectivity along the coast (port of Rotterdam being the second largest in Europe), Netherlands gives access to over 500 million consumers spread across in Western Europe.

International Business Climate

Roughly 50% of the Dutch GDP is generated from overseas and international business, being the host to more than 8,000 foreign companies. Netherlands is a pioneer in exercising a balanced business climate with the due amount of rigidity and flexibility. The connectivity of Netherlands is commendably proven by being the No.1 country on DHL’s Global Connectedness Index.

The Netherlands Foreign Investment Agency provides free and confidential assistance to potential investors to enable smooth and functional operations of a company that has just started or is expanding in the Netherlands.


Superior Infrastructure

Netherlands is ranked No.2 in the world for an overall performance of logistics, which directly reflects upon their convenient connectivity. With several seaports, well-located airports and an in-exhaustive system of roads and highways, it offers a competitive infrastructure that will serve as a strong foundation.


Highly Educated, Multilingual Workforce

With the majority of the Dutch population being highly educated, vocationally trained and skilful in their respective fields, the Dutch population is undoubtedly very versatile. Moreover, 90% of the population speaks fluent English, preventing any lingual barriers in the way of business. Thus, the Dutch population is a perfect blend of European work ethics and great communication skills, both being essentials in determining the efficiency of a workforce.

Effective government

The Netherlands is an efficient parliamentary democracy and it is given credit all over the world for its honesty and efficacy. As per the World Bank, the Netherlands is one of the most efficient worldwide.

The Netherlands foreign investment agency (NFIA)


The Netherland Foreign Investment Agency is available for assisting the companies that are potential investors. As an operational unit of the Ministry of Economic Affairs, it offers various guidelines, models, and instructions to help companies establish themselves in Netherlands or expand within Netherlands.


The nature of benefit arising out of an investment will greatly depend on the structure of the investment. Hence, as discussed above, a JV or WOS has its benefits and drawbacks. The best way to ensure the maximum efficiency of a business model would vary from situation to situation. Hence it is vital to understand every aspect of the business, including its nature, the costs involved, demanded expertise, scope, and need for expansion.

India, to a large extent, would benefit from making an overseas investment in Netherlands. In the past, India has had a series of tie-ups with the Dutch, Tata Consultancy finds its operations in Netherlands, to name a few.

With the sharing of resources of both the nations and combined strategies, both the Nations could benefit with one and other. On June, 2015 the concluding statement of the IMF on the investigations held by them on the economy of Netherlands has stated that the economy of Netherlands is constantly recovering and improving in an escalating fashion, Thus assuring that the Netherlands provides a safe environment for overseas investments, if proper care is observed along with the requisites of a successful business.



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