2

MINISTRY OF EDUCATION AND SCIENCE,

YOUTH AND SPORT

NATIONAL TECHNICAL UNIVERSITET

“KHARKOV TECHNICAL INSTITUTE”

Course project

from discipline “Joint Venture”

on theme “Argumentation of expediency of

JV creation with foreign partner”

Made by

student of the 3rd course

group BF 28v

Olga Zdorovenko

Checked by: Shevchenko M.M.

Kharkov 2011

PLAN

Introduction………………………………………………………………………...3

1.      Reasons of JV creation with foreign partner…………………………………..5

2.      Analysis of microenvironment factors of JV…………………………………14

3.      Analysis of financial conditions of foreign partner…………………………..22

4.      Social-cultural features of business communication with foreign partner………………………………………………………………………...29

5.      Argumentation of expediency of  JV creation with foreign partner………………………………………………………………………...35

Conclusion………………………………………………………………………...38

List of using literature…………………………………………………………….39

INTRODUCTION

              There are a lot of forms of doing business. Among them the major forms of international business are exporting, licensing, joint venture and direct investment. Course project devote to the creation of joint venture between Ukrainian company “Ukrpapir” and Italian company “Stigma”.

              Ukrainian enterprise “Ukrpapir” (Kharkov) to carry a decision about entrance into foreign market by the way of JV creation with foreign partner.

              “Ukrpapir” is produce office paper and cardboard tare.

                  Office paper realize thought network of supermarkets “Topolek”, “Caravan”, “Fozzy”. 

                  Cardboard tare produce on custom-made and realize wholesale from own warehouse, which situated in Kharkov.

              Also possible delivery of products of the company’s “Ukrpapir” own vehicle.

              Enterprise has 20th year experience of work on the Ukrainian market and has significant industrial capacity, qualified human resources. “Ukrpapir” has a possibility to pay in statutory fund of future JV 50 thnd € in a current year.

              During last year’s economic activity of the enterprise characterized by the following problems:

1)     Reduction of the volumes of selling of the office paper and cardboard tare products.

2)     Equipment of the enterprise request modernization.

3)     Development of the new types of products don’t introduce in manufacturing under the conditions of investment resources absent.

4)     Out of date, conservative system of management on the enterprise.

              Potential partner for JV creation is choosing foreign company from Italy “Stigma”. Italian company “Stigma” operates in the chemical industry and has possibility to pay in statutory fund of the future JV 65 thnd € over 1 year.

              Economical activity of the Italian company “Stigma” is characterized by the following indicators:

1)     Equity by the end of the year – 20000 €;

2)     Current liabilities by the end of the year – 17600 €;

3)     Current assets at the beginning of the year – 11500 €;

4)     Current assets by the end of the year – 12000 €;

5)     Non-negotiable assets by the end of the year – 20600 €;

6)     Revenue from sales (without VAT) – 20200 €;

7)     Revenue from operational activity – 5150 €;

8)     Accounts receivable – 5000 €.

              The aim of the course project is consolidate knowledge from the important questions from theory and practice of JV functioning between Ukraine and Italy.

              The major tasks are:

1)     To analyze reasons of JV creation with Italian partner.

2)     To analyze factors of JV macro environment.

3)     To analyze financial conditions of Italian partner.

4)     To analyze social-cultural features of business communication with Italian partner.

5)     And to substantiate expediency of JV creation with Italian partner.

1.      Reasons of JV creation with foreign partner

This chapter devotes to the general characteristic of JV creation with foreign partner on the Ukrainian territory. Also we should characterize conditions of JV creation, starting conditions, which have both partners.

Let’s start with Ukrainian partner – Ukrainian company “Ukrpapir”, which operates in the pulp and paper industry.

In terms of production increasing and profitability of the pulp and paper industry in Ukraine - one of the attractive branch of the economy. This branch occupies nearly 1% of the total GDP of Ukraine and during last years demonstrates significant speed of growth. This industry of Ukraine produces more than 150 types of products, but satisfies demands of the state and population in paper in average only on 50%. Capacity of loading is established is 47%.

Pulp and paper industry joined enterprises, which produce paper, cardboard and goods from them; synthetic fibers, fibre and semi finished products (wooden mass), cellulose from plant raw materials. Basic raw materials of the branch – soft wood and waste products of its processing, in a less degree - straw, fiber and sheave of hemps and flax, cotton, cane, bulrush, mackle paper and rags.

Leaders of the domestic industry are JSC “Kiev Pulp and Paper Works’, JSC “Koryukovka Technical Paper Plant”, JSC “Rubizanskiy PPW”, JSC “Zhidachev Pulp and Paper Works” and JSC “Izmail Pulp and Paper Works”. Among them the most successful enterprises are JSC “Malin Paper Factory”, LLC “Donetsk-Vtorma”. In June, 2003, fourteen most powerful enterprises of the industry and leading traders, who work on the domestic pulp-and-paper market, set up association “Ukrpapir”. Today “Ukrpapir” joined 40 enterprises of the pulp-and-paper industry. Enterprises and organizations – members of association, occupy leading place among producers of pulp-and-paper production in Ukraine. By results of the last year, on share of these enterprises due 63% of total volume of paper production and cardboard in Ukraine, including: 97,3% volume of newspaper paper, 85% office paper, 97% cardboard. Limitation of the Ukrainian State budget during last years doesn’t allow separating centralized financial means on domestic pulp-and-paper industry development. So, practically all works from reconstruction and modernization in the enterprises realized at the expense of own means, means of shareholders and borrowing bank capital.

Last years pulp and paper industry of Ukraine shows positive results in case of increasing of the production volume. Hereby, reserves of intensive development leave only in average and small enterprises. Possibility of accumulation of the production volume on the large-scale enterprises at the expense of intensive factors is practically empty.

Policy of protectionism, successfully apply by government during last years, allow domestic manufactures occupy permanent market share on the Ukrainian market.  But serious problem of industry are deficit of raw materials in the domestic market and growth of prices on energy resources, which occupies significant market share in the structure of cost price. Solving of raw material problem, possible at the expense of construction on the territory of Ukraine plant from cellulose production, which plans to start on the nearest time, or at the expense of transfer of enterprise into alternative types of raw materials. A lot of manufactures solve this problem in such way: they sign up long-term contracts on import cellulose and mackle paper from CIS, Central and Eastern Europe.

Among the problems that pulp, paper, and cardboard producers face is first of all the problem of raw stock supplies to paper and cardboard manufacturing. The problem is not new, and its solution is to create a pulp manufacturing enterprise in Ukraine, however the economic situation in the country yet prevents this step from occurring. Thus, today the primary task is to support the development of the secondary raw stock market – that is, the market of scrap paper. For this very reason, companies operating in the industry keep making bulk investments in the system of scrap paper procurement in Ukraine. .

By results of foreign experts, Ukrainian market of cardboard-paper production supposed perspective as for investments attraction and profit receiving. Company “Jaako Poyry” was represents document, presented on the ground of analyzing of the situation and perspectives of development of cardboard-paper market in Ukraine. Projects includes concrete proposition how develop cardboard-paper market in Ukraine. Today executive management of association “Ukrpapir” on the base of this document starts project “Concept of pulp-and–paper industry development in Ukraine” [1].

Therefore, the main direction of development for local pulp and paper companies in the short term is to reconstruct and upgrade available paper and cardboard manufacturing machinery, improve production processes, and introduce new and more efficient chemicals and technological additives, which will improve quality of finished product.

One should also expect facilitated growth of technologies related to the utilization of local natural resources, including processing of straw, which is practically a free resource in Ukraine [2].

Today Ukraine’s cardboard and paper products market has plenty of free niches which may be challenging for investor to develop. The most effective directions for investments, as experts from the Association claim, are development of the following materials:

      fiber semis for cardboard and paper production based on utilization of annual crops (including straw);

      printing types of paper;

      perforated paper for form sheets;

      office paper for copiers; and

      bag paper.

Analysis of local cardboard and paper enterprises’ performance as well as the situation with their assets helps determine key problems in the way of further development. The conclusion was that the gradual upgrade of effective assets via project financing is the only realistic way to develop effective enterprises of Ukrainian pulp and paper industry over the next several years [3].

The foreign partner for JV is Italy, which operates in the chemical industry.

Italy – with a turnover of about 46 billion Euros in 2009 - represents the third main producer of chemicals in Europe (figure 1.1). Almost 3 thousand companies are active in the sector employing about 119 thousand people.

Figure 1.1 – Italy is the third EU chemical producer.

Being a country with a strong industrial basis, Italy represents a large market for chemicals accounting for more than 53 billion euros. For many products Italian market ranks even second in Europe. The country can take advantage from its positioning in the centre of Mediterranean. Because of these reasons, many chemical foreign owned companies have decided to place here their strategic basis to manage operations in Southern Europe. Key features of the Italian chemical industry in 2009 represent in a table 1.2

Table 1.2 - Key features of the Italian chemical industry, 2009

There are about 200 Industrial Districts in Italy and most of them show very strict connections with chemicals. Enterprises from Industrial Districts are known around the world for their high quality and innovative products. To do that they often work in partnership with Italian chemical companies, which are able to develop sophisticated intermediate products responding to any specific requirement.

Investing in the chemical industry in Italy means catching the opportunity to find many different customers with high propensity to risk testing together new products.  On the other hand, choosing Italian chemical products means enjoying the secret upon which relies the success of Italian industrial districts.

Chemical industry in Italy is characterized by the well balanced presence of three different actors, all of them playing a very important role: Italian SMEs, Italian medium and large companies and foreign owned companies (figure 1.3).

SMEs play a very important role in many European countries but their presence is particularly important in Italy where they account for 41% of the total value of production. Such companies are active especially in fine and specialty chemicals where scale economies are not very relevant and the key of success often consists in offering to customers tailor made products. 

Foreign owned companies producing in Italy are more than 200 employ about 40 thousand workers and represent 36% of the whole Italian chemical production value. With a value of 6.6 billion Euros they account for 41% of total exports of the Italian chemical industry testifying that their presence in Italy is not aimed only at serving the domestic market and that Italy is considered as a valuable productive base. Many of them also realize R&D activities in Italy.

Figure 1.3 – Distribution of Italian chemical production

Italian leaders at European or global level

Medium and large Italian companies represent 23% of the whole chemical production. There are some big players of basic chemicals, but also several very dynamic medium and medium-large enterprises. Main Italian chemical companies usually focus their activity on very specific families of goods, offering a wide product range in order to satisfy every demand on a particular market (table 1.3).

Thanks to high technological content of products and strong service offer, many of them are now market leader in their specific niche at European or even World level. Many are active on foreign markets not only with a commercial presence, but also with production units. 

Table 1.4 – Main Italian chemical companies – 2009, mln €

Innovation in the Italian chemical industry.

For Italian chemical enterprises R&D represents a key activity in order to be considered valuable partners from customers.

Actually, in Europe Italy is second only to Germany for number of innovative chemical companies (nearly 1200) and also for number of companies with R&D activity. The possibility for downstream sectors to offer innovative products often stems from the developing of new chemical intermediates with specific properties.

Chemical companies constantly innovate also to improve processes as well as environmental standards. Not only major companies, but also smaller ones are strongly engaged in innovation. In the last years, according to a recent survey of Federchimica on innovation, more than 70% of chemical firms have been strengthening R&D as it is considered critical for facing increasing international competition.

In Italy a good number of graduates in chemistry and chemical engineering is available. The quality of Universities is excellent as proved by the considerable number of scientific publications obtained.

For chemical companies making research means more and more entertaining strong relationship with Universities and Research Institutes. In particular, there are important opportunities to cooperate with the National Research Council (CNR), whose activity regards base research as well as technology transfer and the developing of new applications. Federchimica has signed an agreement with CNR in order to promote such cooperation. Moreover, in Italy are located 27 Scientific and Technological Parks with specific competencies on chemicals and bio-medicals.

Advanced industrial relations and competitiveness.

              High quality employees, competitive labour costs and industrial relations with strong innovative content and collaborative bargaining attitude with Trade Unions: this is probably one of the best assets of the Italian chemical industry. With the objective of pursuing the necessary flexibility of labour in the awareness and continuous respect of the importance of human resources, Italian chemical companies may benefit of a wide flexibility as regard to:

      opening clauses allowing firms and Trade Unions to define at company level different and less expensive rules than the national collective bargaining;

      daily and weekly working time which may be defined at company level respecting the average yearly working time;

      wages through the "Participation premium" (implemented at company level as a variable part of an annual salary and linked to productivity and economic performance).

Other Italian features affect:

      participation of employees to the costs of their lifelong learning;

      new rules concerning apprenticeship which led to significant labour cost savings [4].

On the basic of this information, we can say, that Italian company “Stigma” is very attractive and very good partner for Ukrainian company “Ukrpapir”. And JV between Italy and Ukraine will be successful and profitable for both parts. I can prove it with the help of figure 1.5.

              Figure 1.5 – Strengths of the Italian chemical industry [4]

              The next point of the chapter is defining aims of the JV between Ukraine and Italy.

              Aims for Ukrainian partner are:

      creation of long-term partnership;

      increasing quality and competitiveness of the domestic products;

      attraction of the foreign investments;

      cost cutting (labor, material, financial);

      mastering of the progressive methods of organization and management of manufacturing.

Aims of the foreign – Italian partner are:

      expanding of the target market;

      entering into new area of the economic activity;

      cost cutting (labor, material, financial).

              So, the aim of Joint Venture between Ukrainian company “Ukrpapir” and Italian company “Stigma” is creation of long term partnership; attraction of the investments and expanding of the new target and selling markets.

              And now, let’s consider such question, as defining share of partners in the statutory fund of JV. Share of partner in the statutory fund we calculates with the help of formula: 

, where

PV – present value of the money

FV – future value of the money

r – interest rate

n – Number of years.

              So, FV = 65.000 €

                r = 7.75 %             

                n = 1 year

              Then, share in statutory fund of Italian partner is 55 % and Ukrainian partner is 45%. In the process of decision making more power has Italian partner. As for profit of the future JV, it will divide between partners in part – 55×45.

              After analyzing of the both market (Ukrainian – pulp-and-paper industry and Italian – chemical industry) it’s obvious, that both markets have a good tendency for future development, and JV between companies of these markets (Ukrainian “Ukrpapir” and Italian “Stigma”) will be profitable and successful.

2.      Analysis of microenvironment factors of JV

              Microenvironment includes general factors, which not only influence into short-term activity of the enterprise, but also on long-term activity. Strategic factors of macro environment, which influence into enterprise development, are:

      factors, which have high probability of realization

      factors, which have high influence into enterprise functioning [5, p. 250].

              Changes in macro-environment influence into strategic position of the enterprise in the market and influence into the elements of microenvironment. So, the aim of macro environment analysis is monitoring and analysis of events and tendencies in the country of partner, which aren’t controlled by enterprise and which can influence into potential effectiveness of its strategy.

              Since, number of macro-environment factors is too big, during analysis of macro environment recommended to consider four directions with the help of PEST-analysis (P – political-legal, E – economical, S – sociocultural, T – technological factors). The aim of the PEST-analysis is monitoring changes in macro environment into four directions and detection if tendencies, events which aren’t controlled by enterprise and which can influence into potential effectiveness of its strategy [6, p. 300].

              Let’s consider PEST-analysis of the foreign partner – Italy (table 2.1).

Table 2.1 – PEST-analyses of macro environment JV

              The next step – is systematization of the PEST analysis results (table 2.2)

Table 2.2 – PEST analysis of Italian environment

Possibility of factor show are estimated by assigning it’s weight between 0 (low probability) to 1 (high probability). The amount of weights for each group of factors should be equal units.

The degree of influence (importance) factor in economic activity is determined with the help of 5-point scale:

5 - high impact, a serious danger;

1 - no influence, minor threat.

The overall impact of group factors for JV is determined by multiplying the probability factor to the manifestation of his power and influence and calculated the total weighted score for this company. The total score indicates the degree of impact on the joint venture and necessitates the determination of their response to current and projected environmental factors [12, p. 330].

Let’s evaluate the overall impact of environmental factors and measures to give account of their impact in Table 2.3.

Table 2.3 – Evaluation the overall impact of environmental factors

According to the table 2.3 the most impact on enterprise activity has economical factors with total estimation equal 4; then go political-legal factors and technological factors with total estimation equal 3.4. And minimum impact on enterprise activity has sociocultural factors with total estimation equal only 3.2.

So enterprise should consider economical factors, because from these group of factors depend economic activity of the enterprise and its development. In case of economical factors show, enterprise should quickly react and implement measures, which help enterprise to be successful and profitable. 

3. Analysis of financial conditions of foreign partner

Acceptance of decision about JV creation with foreign partner request analysis of his financial conditions and defining of risk zone in his activity.

For defining of financial conditions of foreign partner we should calculate following indicators:

      Current ratio;

      Share of own current assets in total assets;

      Autonomy factor;

      Profitability realization;

      Current asset turnover ratio;

      Accounts receivable turnover ratio;

      Accounts payable turnover ratio.

First of all, let’s characterize each indicator and define formula, how calculate them.

1. Current Ratio – means a liquidity ratio that measures a company's ability to pay short-term obligations.

The Current Ratio formula is:

    (1)

 
Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry.

This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory and prepaid as assets that can be liquidated. The components of current ratio (current assets and current liabilities) can be used to derive working capital (difference between current assets and current liabilities). Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales [13].

2. Share of own current assets in total assets formula is:

Share of own current assets in total assets = (2)

Share of own current assets in total assets is characterized share of own current assets in the total sum of money, paid in advance into its activity. Than higher value of this indicator, it means, that enterprise is financially durable, stable and independent of external creditors. The most spread value of the indicator – not less, than 0.6 (60%). In the enterprise with high value of share of own current assets creditors invest money, because such enterprise has bigger possibility to sink a debt at the expense of own means [14, p. 230].

3.      Autonomy coefficient

         The autonomy coefficient is a good indicator of the level of leverage used by a company.  Autonomy factor is characterized degree of financial independence of the enterprise from creditors.

The Autonomy coefficient formula is:

(3)

Autonomy coefficient should be not less, than 0,5—0,6. It is considered that at small values of this factor it is impossible to count on trust of the enterprise from banks and other investors. A low equity ratio will produce good results for stockholders as long as the company earns a rate of return on assets that is greater than the interest rate paid to creditors.

4. Profitability realization

Effectiveness of the organization activity is characterized by the relative index of profitability, which can be calculated and analyzed in a dynamics. The indexes of profitability estimate a size of profit, got from every monetary unit of facilities, enclosed in the assets of organization.

Profitability realization – shows, how much profit from sales is on one   unit of the realized products.

The Profitability Realization formula is:

(4)

5. Current asset turnover ratio

Current asset turnover ratio – ratio that indicates how efficiently a firm is using its current assets to generate revenue.  They sometimes are referred to as efficiency ratios, asset utilization ratios, or asset management ratios [15, page 150-155].

The formula is:

  (5)

6.      Accounts receivable turnover ratio

              The accounts receivable turnover ratio measures a companies effectiveness in terms of qualifying their credit borrowers and collecting monies owed from them.  The A/R turnover ratio is an indication to how many times the accounts receivables are "turned over" throughout the year.  The higher the value of the ratio, the better the company is in terms of collecting their accounts receivables.  A lower accounts receivable turnover ratio indicates that the company is not making efficient use of their funds; remember, accounts receivables are basically grace periods that are given to customers to pay their bills.  It is essentially an interest free loan given to the customer.  There is an opportunity cost of doing this.

              Like any other ratio, there is an exception.  If your accounts receivable turnover ratio is too high, it can indicate that the companies’ credit lending policies are too stringent, preventing prime borrowing candidates from becoming customers.  

              A good turnover ratio is not as cut and dry as having a higher ratio than another company.  Industry, relative performance, and credit lending terms all play a part.  It is essential to compare apples with apples; meaning, measure the A/R turnover ratio against the industry average.  Each industry will have different lending and collection processes.  Also, it is very valuable to compare the current A/R turnover ratio against past values to gauge relative performance.

              As you can see in the formula below, this formula is calculated using an average accounts receivable figure.  Therefore, you will need to take the period ending values off the balance sheet for the periods in question and average them.  Credit sales will need to be added up for the periods in question as well.  It is important to note that an average value can hide issues such as delinquencies if you have a few other balances which are paid immediately [16]. 

(6) 
 

7.        Accounts payable turnover ratio

Accounts Payable Turnover Ratio - a short-term liquidity measure used to quantify the rate at which a company pays off its accounts payable to suppliers. The accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period.

Accounts Payable Turnover Ratio = (7)

The measure reveals how many times per period a company pays its average payable amount. For example, if the company makes $100 million in purchases from suppliers in a year and at any specific point holds an average accounts payable of $20 million, the accounts payable turnover ratio for the period is 5 ($100 million/$20 million). A falling turnover ratio is a sign that the company is taking longer to pay off its suppliers, which could be a bad sign. A rising turnover ratio means that the company is paying off suppliers at a faster rate, which is good [17].

And now, let’s calculate these financial ratios and define financial conditions of our foreign partner – Italy (table 3.1).

Table 3.1 – financial analysis of the Italian partner

After financial coefficients calculations, which characterized financial conditions of the Italian enterprise “Stigma”, we should analyze their deviation from standards values by the formula:

  (8)

              For defining risk zone of partner activity, we should calculate group index of financial conditions (W), which has following formula:

(9)

Results of this calculation (formula 8 and 9) we can see in table 3.2

Table 3.2 – Estimation of group index of financial condition.

So, we see that group index of financial condition (W) equal 74.63. It means, that enterprise has zone of high risk and characterized by deterioration of payment discipline, volume of accounts receivable higher than accounts payable, which caused additional attraction of debenture capital. Enterprise becomes more depending from external resources of financing. Also aggravates correlation between profitability and cost price, as results rise possibility of loss profit in the limit of financial strength (under zero profitability).

After financial analysis of the JV Italian company “Stigma” we see, that it has good financial performance. Behind this, company has strong position in the Italian chemical market. Regarding risk factors, we have an environment with an average level of adverse conditions. Seven indicators, which I calculated during financial analysis, characterized company as stabile and efficiency. So, JV with Italian company “Stigma” is good chance for Ukrainian company “Ukrpapir” to overcome current difficulties in all spheres of its activity.

4. Social-cultural features of business communication with foreign partner

Italy is a country of remarkable beauty and varying regional characteristics, Italy is unmistakably a place of cultural achievement and historical pride. Italian culture permeates every aspect of life and as a result, for those wishing to integrate effectively into Italian society or perhaps hoping to successfully break the Italian business market, an understanding of this culture is a vital tool.

Italian Culture – key concepts and values

Individualism – Italian culture has been described as highly individualistic, signifying a society that emphasizes individual responsibility and close family ties. This means that Italians will tend to take care of themselves and their immediate family first. Across Italy you will find many Italian businesses owned by individuals and families. In a business context, individualism influences an Italian's preference to do business with people they are already familiar with.

Bella Figura – The term Bella Figura is often used to describe the ability to present oneself well and behave with an air of demure and formality and is a key element in Italian business culture. In some areas of Italy, particularly the south, maintaining Bella Figura is believed to enhance beauty and peace in the world. In Italian culture, appearances and other's opinions are considered extremely important. It is vital therefore, when doing business in Italy, to ensure that all presentations and business materials are aesthetically pleasing to your Italian counterparts.

Affective Communication - An important aspect of Italian culture is the openly expressed thoughts and feelings common to most Italians. Emotions tend to flow easily in this culture with large hand gestures and close personal contact frequently found during Italian conversations. As a result, Italians are often guided by their feelings and in business situations this is important to remember, as establishing solid relationships based on trust are a vital for successful business negotiations [18].

And let’s consider some important factors, which characterized business etiquette in Italy.

1. Relationships & Communication:

      Italians prefer to do business with people they know and trust. 

      Italians much prefer face-to-face contact, so it is important to spend time in Italy developing the relationship. 

      Your business colleagues will be eager to know something about you as a person before conducting business with you. 

      Demeanour is important as Italians judge people on appearances and the first impression you make will be a lasting one. 

      Italians are intuitive. Therefore, make an effort to ensure that your Italians colleagues like and trust you. 

      Networking can be an almost full-time occupation in Italy. Personal contacts allow people to get ahead. 

      Take the time to ask questions about your business colleagues family and personal interests, as this helps build the relationship

      Italians are extremely expressive communicators. They tend to be wordy, eloquent, emotional, and demonstrative, often using facial and hand gestures to prove their point.

2. Business Meeting Etiquette:

      Appointments are mandatory and should be made in writing (in Italian) 2 to 3 weeks in advance.

      Reconfirm the meeting by telephone or fax (again in Italian). 

      Many companies are closed in August, and if they are open many Italians take vacations at this time, so it is best not to try to schedule meetings then.

      In the north, punctuality is viewed as a virtue and your business associates will most likely be on time. 

      The goal of the initial meeting is to develop a sense of respect and trust with your Italian business colleagues. 

      Have all your printed material available in both English and Italian. 

      Hire an interpreter if you are not fluent in Italian. 

      It is common to be interrupted while speaking or for several people to speak at once. 

      People often raise their voice to be heard over other speakers, not because they are angry. 

      Although written agendas are frequently provided, they may not be followed.

      They serve as a jumping off point for further discussions. 

      Decisions are not reached in meetings. Meetings are meant for a free flow of ideas and to let everyone have their say.

3. Business Negotiation:

      In the north, people are direct, see time as money, and get down to business after only a brief period of social talk. 

      In the south, people take a more leisurely approach to life and want to get to know the people with whom they do business. 

      Allow your Italian business colleagues to set the pace for your negotiations.

      Follow their lead as to when it is appropriate to move from social to business discussions. 

      Italians prefer to do business with high-ranking people. 

      Hierarchy is the cornerstone of Italian business. Italians respect power and age. 

      Negotiations are often protracted. 

      Never use high-pressure sales tactics. 

      Always adhere to your verbal agreements. Failing to follow through on a commitment will destroy a business relationship. 

      Heated debates and arguments often erupt in meetings. This is simply a function of the free-flow of ideas. 

      Decisions are often based more on how you are viewed by the other party than on concrete business objectives [19].

4.      Dining and Entertainment:

      Business entertainment is generally done at lunch or dinner in a restaurant.

      Dinner entertainment is more of a social occasion to get to know people. Business discussions are usually very limited.

      If you invite, you pay for the meal.

      Business may be discussed at a breakfast meeting, but it is not common.

      Cocktails are not common in Italy. Drinking without eating is rare. Hard drinking is unusual and not appreciated. Even mild intoxication is considered ill-mannered. Women drink very little in Italy.

      At formal occasions, women generally do not propose toasts.

      Italians do not use bread plates. Break bread and place it next to your plate on the table.

      Ask for your check when you are finished eating. It may not be brought to you until you ask.

      Do not leave the table until everyone is finished.

      Roll pasta with your fork on the sides of your pasta plate. Don’t roll pasta on your spoon.

      Keep both hands above the table during dinner -- never on your lap. Do not put your elbows on the table.

      Use your knife (not your fingers) to pick up pieces of cheese to put them on your bread or cracker.

      Eat fruit with a fruit knife and fork, except for grapes and cherries.

      When finished eating, place knife and fork (tines up) side by side on the plate at the 5:25 position. The fork should be on the left and the knife should be on the right with the blade of the knife facing the fork.

      Keep your wineglass almost full if you don't want a refill.

      Burping is considered extremely vulgar.

      When invited to a home, guests arrive 15 to 30 minutes after the stated time.

      Allow hostess to begin eating before guests.

      Wait for hostess to offer second helping.

      Italians are proud of their homes and love to give tours. Feel free to ask for a tour when invited into someone's home.

5. Dress:

      Italy is a major center of European fashion. Italians are chic. Even people in small towns spend a great deal of money on their wardrobes and dress well at all times.

      Dress elegantly but conservatively.

      Jackets and ties are required in better restaurants.

      Old, torn, dirty clothing are seldom seen and not appreciated.

      Men and women dress conservatively and formally for business (men: suits and ties; women: dresses or suits). Women should wear feminine clothing.

6. Gifts:

      Italians are very generous gift givers. You may be very embarrassed if you give a "cheap" or practical gift.

      Gifts should be beautifully wrapped.

      Gifts are opened in front of the giver when received.

      Gifts are generally not exchanged at initial business meetings, however, having a gift in your briefcase in case your Italian hosts give you one is recommended.

      Gifts may be exchanged at the end of negotiations, but not necessarily.

      High quality liquor, gifts with company logos, desk accessories, music and books are appreciated.

      When invited to someone's home, always bring a small gift for the host or hostess.

      Send flowers or a gift to the host's home the day of or the day after a party.

      Give chocolates, flowers (an uneven number) and pastries.

      Chrysanthemums are a symbol of death, red roses are symbols of love or passion.

      Don’t give knives or scissors, which are considered bad luck.

      Do not wrap a gift in black with gold ribbon, which symbolizes mourning.

7. Helpful Hints:

      Italians are open, curious and tolerant of others’ uniqueness and manners. They will tolerate lateness, inefficiency and sincere mistakes, but dislike arrogance and rudeness.

      Italians enjoy a lot of good humor and can be self-deprecating.

      Send a thank you note after being entertained or given a gift.

      Stand when an older person enters the room.

      Give attention to or bring a small gift for children.

      Cover your mouth if you must yawn, but try not to yawn.

      Men should always remove their hats when entering a building.

      Don’t remove your shoes in public.

      Refrain from asking personal questions [20].

8. Business Cards:

      Business cards are exchanged after the formal introduction. 

      To demonstrate proper respect for the other person, look closely at their business card before putting it in your card holder. 

      It is a good idea to have one side of your business card translated into Italian. 

      If you have a graduate degree, include it on your business card. 

      Make sure your title is on your card. Italians like knowing how you fit within your organization [19].

As conclusion, I want to said, that where ever business takes you, learning the culture, etiquette and protocol of the host country is a key step to success. Italy is no exception. Just as you would prepare your presentation before a big meeting, it's important to prepare yourself by understanding the Italian customs, protocol and etiquette in a business setting.

5.      Argumentation of expediency of  JV creation with foreign partner

Based on information, represent in previous four chapters, we had concluded, that Joint Venture between Italian company “Stigma” and Ukrainian company “Ukrpapir” should be created. But for this we should propose name and mission of the future JV.

Name I propose such name: Stigma GROUP.

Mission 

Our activity directed on maintenance and development of pulp and paper industry and manufacturing sufficient quantity of paper products with high quality, which helps us to satisfy needs and wants of our potential customers.

              Our activity directed on support of high level of income, creation of new workstations and culture of production, which preserve and protect environment.

As for organizational structure of JV, I prefer functional structure.

In the functional structure, each job becomes the focus point. Similar function-based jobs done by the employees are put together in silos in the functional structured based organizational. Specialization is centralized and employees who are doing these specialized jobs are clustered, thus each unique department is born.

The functional areas will have personnel with varied skills, but those skills are grouped on their similarities. The people who have identical skills can be grouped easily and they can be placed in separate units and a aforesaid organizational structure is formed. The ultimate controlling authority coordinates with all levels which are commonly called the top management. When an organization handles a solitary product, the aforementioned functional organizational structure is most suited and most frequently used.

In such as model, the purchasing function concentrates on purchase activities. Human Resources personnel handle the hiring, training, and firing activities. The accounting department takes care of financial activities. Manufacturing focuses on rolling out the finished product. The sales team takes the role of promoting the finished product in the marketplace. Marketing activities market the product with a long range goal of staying competitive in the market.

The organizational structure with functional focus tries to allocate the available people according to their roles, forming what is referred to as a functional department. Each department usually has a department head with the title of department manager, or something similar. At times, these department heads may be given a title of Director, if the board gives their function such a representation.

Imagine that a functional organizational structure operates in silos, due to the controlling nature used in such structures. When project management is necessary, each project is performed inside a single departmental unit. In the necessity of drawing information or efforts from other departments occurs for project management, it is done by requesting assistance from the other unit. The procedure for getting this cooperation between departments is to route the request through the head of the unit to the other head of the other unit from whom the information is sought. In other situations, the communication flow is restricted inside the functionally silo of the department.

Functional organizational structures are ideal for organizations having a lone product or a cluster of products which can easily group under a single head.

The benefits in utilizing a structure which relies upon the functional model are:

        The chain of command is linear and sound;

        The human resource abilities are constantly nurtured by concentrated tutoring, leadership, and guidance;

        Professional similarities between the organizational participants in each of the different functional offices;

        The development of professional expertise attained by clustering specialists in the present function as a single unit;

        Provides an easy path for the employees to grow within the organization sideways as well as upwards in the organizational tree [21].

Also, I decide to allocate JV “Stigma GROUP” in Italy, because based on figure 1.5 (chapter 1) our partner has better economic and technological conditions, that Ukraine. We see that situation with pulp and paper industry development in Ukraine not so good, as desired.

As for volume of power between Ukraine and Italy we have such numbers: 55×45. So in decision making process Italian partner has more power (10 times more, than Ukraine partner). As for profit distribution, it also depends from shares of investment means in statutory fund – 55% of profit goes to Italian partner and 45% – to Ukranian partner.

After these investigations we should name reasons of JV creation:

      Expanding of new target markets

      Diversification of risks

      Attracting of foreign investments

      Introduction of new management system at the enterprise.

      Improvement of paper product quality and possibility to use complementary capabilities and resources of both partners

      Sharing of scientific and professional skills with partner

Thereby, “Ukrpapir” can solve own problems, such as reduction of the volumes of selling of the office paper and cardboard tare products, outdated equipment and problem of new range of products development.

Conclusion

After investigation the joint venture as a form of international economic activity of Ukraine with Italian partners, we have following conclusions:

A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits.

              During accomplishment of course project I investigated pulp and paper industry in Ukraine and chemical industry in partner country (Italy). Also was made analysis of macro environment of Italian partner and its current financial conditions. After detail analysis of this data I made a conclusion, that we should create JV and this form of collaboration will acceptable for both partners.

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