Published on June 17, 2008
Joint ventures in India A critical analysis
Joint Venture: A preferred way to enter India In certain sectors, having a JV is a must for making an entry into India as 100% foreign investment is not allowed in those sectors JV offers a low risk option to entering a newer market like India Motorola entered India in JV with Blue Star Engineering company, a brand with a repute and a vast distribution network JV provides the partners an opportunity to leverage their core strengths Xerox entered India in venture with Modi group which gave Xerox an early lead in the photocopier market and help secure a strong brand recognition. On the other hand this JV provided a distinctive impetus to the image of Modi group
Cases against JVs Time wasted first in negotiating the joint venture and then aligning thinking of each partner Decision-making takes longer Less freedom and flexibility Sharing of technology with local partner raise Intellectual Property Rights concern
Concerns of Doing a JV ~ Case Study Change of strategy of either of the partners creates rift in certain JVs The 70: 30 JV between Hotline Group (India)-Haier (China) missed at that point Haier planned to increase share to 49 %, to introduce wide range of products including washing machines, multi-split air conditioners etc Haier wanted to focus on imports Hotline disagreed to these, the JV broke off even before the operations started Haier re-entered Indian market with a 100 % subsidiary in 2003
Concerns of Doing a JV ~ Case Study In some cases access to technology or capital provides sufficient confidence in the partners to go alone, making JV redundant JV between TVS Group (India) and Suzuki Motors (Japan) formed in 1983 was called off in 2001 Causes of failure of JV have been attributed to Uneasy relation between the two partners, in early 90’s TVS lobbied hard against Suzuki increasing its stake in the JV company Suzuki’s contribution to the JV was shrinking Conflict around change in strategy of the partners Suzuki looking for manufacturing facility of its own It was becoming evident that the Indian side can go without the Japanese collaborator
Concerns of Doing a JV ~ Case Study At times either of the partners are accused of breaching the terms of JV, creating tensions in it The Danone-Wadia group joint venture formed in 1995 is in trouble Group Danone owns 25.5% of Britannia, India’s largest cookie maker, while the Wadia family owns 24.5% Wadias accused Danone of using the popular Britannia brand Tiger for products outside India; not permitted as per the existing agreement between the two Recently Wadias objected to Danone’s investments in Indian bio-nutrition firm Avesthagen, based on regulations that a foreign company needs the consent of its Indian partner before pursuing business ventures in a similar area
Concerns of Doing a JV ~ Case Study There are cases of JV falling apart due to lack of synergy The 40: 60 JV between Godrej & Boyce Mfg (India). and GE Appliances (USA) formed in 1993, called off in 2001 Causes of failure of JV GE was a less known brand among the consumers at that time Off take of high capacity refrigerators and washing machines failed to match expectations JV failed to meet projected turn over (against a turnover projection of Rs 35 billion for the 1996-97 fiscal, the JV managed only Rs 8.13 billion in 1998-99) Tiff between the promoters, GE insisting on raising stake has not found favour with Godrej Poor cultural integration between the two partners, GE alleged that lack of professionalism in the Indian partner had aggravated the situation
After a JV fails… Press Note 1 (PN 1), requires foreign investor to obtain prior approval in case it has an existing financial/technical collaboration in the same field in India irrespective of sector of operation and nature of activities The onus to provide requisite justification to the Government that the new proposal would or would not in any way jeopardize the interests of the existing partner or other stakeholders would lie equally on both. There are cases where Indian partners of failed JVs alleged to have made efforts to block foreign partners from ventures referring to PN1, without any sound reasons
After a JV fails… Modi Group-Walt Disney Television In 2001 Walt Disney's local partner, the KK Modi group objected to Disney's attempt to establish a wholly owned subsidiary in India TVS Group, for about three years, kept denying the much needed ‘no objection certificate’ to Suzuki to start a new investment venture in India after the TVS-Suzuki joint venture was called off in 2001 Wadia Group is objecting to Groupe Danone’s investments in Indian bio-nutrition firm Avesthagen
Rays of hope… In recent developments, the Foreign Investment Promotion Board (FIPB) ruled in favour of the foreign investors and brushed aside objections raised by Indian partners FIPB gave green signal to the Japanese companies Prime Polymer and Mitsui Chemicals’ proposal to set up a 100% subsidiary even after protests by Indian company Tipco Industries which had a technical pact with Prime Polymer FIPB noted that the existing collaboration was sick and the exclusivity of the license ended in 2000. Accordingly, the Indian collaborator could not claim jeopardy due to technology being transferred to a third party in 2007 This case as a precedent, Indian partners may not get away with efforts to block foreign partners from ventures here without sound reasons
Before entering into a JV… Compatibility be the foremost criteria for selection of a partner Take measures to be sure that the partner has a compatible work culture (something JV makers usually ignore) Be sure about the organisational behaviour of the partner to ensure synergies Need to have clear long term goal and set the terms and conditions of the JV Preempt the conflicts that may arise due to frequent changes in regulatory environment Clearly define the role and responsibilities of each partner Maintain transparency of operations and regular communication between the stakeholders
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