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Consortium

Reviewed by Annapoorna | Updated on Sep 30, 2020

Catalogue

What is a Consortium?

A consortium refers to a group of two or more individuals, companies, or governments which work together to attain a common objective. Entities that engage in consortium pool resources; otherwise, they are just responsible for the obligations set out in the consortium's agreement.

Every entity that is falling under the consortium will, therefore, remain independent with regards to their ordinary business operations and cannot interfere in another member's operations that are unrelated to the consortium.

Application of the Concept of Consortium

Not-for-profit sector

Consortiums are usually found in the not-for-profit sector, for instance, among educational institutions. Educational consortiums usually pool resources such as libraries, research activities, and professors. They allow participation among the partners to benefit their students. Students visiting one such institution can take up classes at any other partnered school for credit without any extra cost. Such educational consortiums have partnerships between institutions that are related to one another.

For-profit sector

Corporate consortiums (for-profit) exist but are less prevalent. Internationally, one of the most famous for-profit consortiums is the airline manufacturer - Airbus Industrie GIE. European aerospace manufacturers cooperate within the consortium to manufacture and sell commercial aircraft.

Demonstrating the complexity of such an arrangement, the four partner companies in Airbus (British Aerospace, Aérospatiale, Construcciones Aeronáuticas SA, and DASA) were concurrently subcontractors to and shareholders of the consortium.

This arrangement led to some conflicts of interest and inefficiencies, and an eventual shift to Airbus SAS happened in 2001 that saw a consolidation of the original consortium members and overheads getting reduced.

While consortiums share resources, they autonomously act when it comes to day-to-day operations. Whereas, in case of a joint venture (JV), two or more parties usually share ownership in a venture, together with risks, profits, losses, and governance.

Banking Sector

Banks might create a consortium bank to finance a specific project (such as providing affordable housing to low or moderate-income home buyers) or to perform a specific deal (such as selling loans in the loan syndication market).

The consortium utilises individual banks' assets to achieve their objectives. All member banks possess an even ownership share with no one member having a controlling interest. The consortium bank dissolves after the consortium bank meets its objective.

Consortium in India

The CII report, known as 'Can the Indian PSEs enhance their Geostrategic reach', exhibits a roadmap to expand exports and geostrategic reach of public sector enterprises (PSEs) by 2022. The report states that to enhance India's geostrategic reach, its public sector enterprises should bid for international projects as a consortium, function with the government to design WTO-smart subsidies and improve exports.

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