What are the advantages and disadvantages of establishing a joint venture in Bulgaria?

What are the advantages and disadvantages of establishing a joint venture in Bulgaria?

The joint venture  is an association or partnership between two or more undertakers in order to form a strategic alliance that will provide benefits including competitive market and lower costs. However, we must also take into account the disadvantages borne by the creation of a joint venture.

Joint ventures can be created as civil or commercial companies. Civil companies are created under the Obligations and Contracts Act, while commercial companies are incorporated under the Commercial Act.

Joint ventures established by foreign partners, with or without a Bulgarian partner, are treated as Bulgarian companies (local entities) and are subject to the Bulgarian Commercial Act.

The distribution of capital of a joint venture is determined between each part and is not necessarily equal.

The benefits of the creation of a joint venture

The joint venture offers many advantages, but one has to  know the drawbacks of this alliance as well.

• Operational benefits 

- The joint venture enables the pooling of knowledge, finance and technology and allows the development of synergy.

- The joint venture allows to master new technologies and access to new skills, quickly and economically.

- The joint venture acts as a diversification.

- Financial risks are less important because the capital is shared.

- Nationalisation of the company and the product: the joint venture is national and not foreign, relations between the joint venture, government, trade unions and consumers are simplified and are a guarantee of quality and trust.

• Competitive advantages 

- The penetration of foreign markets is facilitated by the creation of a joint venture as a result of the already present implementation in the country of distribution channels. Therefore, the company will gain in competitiveness, increase sales while reducing manufacturing time.

• Economic benefits 

- The joint venture can limit the costs and risks because the costs are not borne by a single company.

- The advantage also operates on the commercial risk which is greatly diminished due to the experience of the local market already established by the company and its management control of local trade.

- Choosing to create a joint venture in Bulgaria can also benefit from a significant tax advantage.

The disadvantages and limitations of the creation of a joint venture

However, the joint venture has drawbacks that you have to  be aware of before deciding to relocate abroad and undertake a partnership.

Indeed, as the capital is not owned by one partner, the benefits must also be shared. The legal structure of a joint venture is quite complex and its creation and dissolution are quite expensive.

The partnership can also become complicated while distributing dividends or how to manage the business. Both partners will not necessarily have the same vision for managing business strategy, marketing, etc...

In addition, a joint venture also involves being able to adapt to the culture, business customs or local mentality. There may also be in some cases  conflicts of interest, risk of loss of market share or a risk of stealing the know-how.

It is therefore important to understand the challenges of such a partnership and assess all risks, which may differ by country before signing an agreement to create a joint venture.

" Oberthur Trustee AD " : an example of a joint venture in Bulgaria

" Oberthur Trustee AD ", the name of the joint venture between FCO Group ( the François - Charles Oberthur Group ) and the printing house of the Bulgarian National Bank (BNB), which is dedicated to the printing of banknotes.

The capital is 70% owned by FCO Group. The activity of the company has already started and the number of employees is expected to reach 200 by 2016. This joint venture will enable the Group FCO to position itself as the industry leader in high technology.