Vexatious Joint Venture
When you do decide to JV for India, care and effort is needed from both the foreign and Indian partner. The foreigner needs to learn ...
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This week I have been contemplating the mortality of Joint Ventures (JVs) as one I helped negotiate a few years ago nears its natural end.
Few Indian companies, or their promoters, demonstrate great skill in managing JVs. And equally, few international investors into India have enjoyed long-term success through JVs. Most JVs seem to have a relatively short life and too many have ended acrimoniously.
Until FDI policy was broadly liberalised (with a few odd exceptions like retail and insurance) many foreign investors had no choice but to find an Indian JV partner. These policy-driven JVs were often highly unstable, not least as some Indian promoters seemed to specialise in partnering with and then (too often) fleecing gullible foreigners.
Even Indian corporates of repute seem to find it difficult to sustain JVs. Over the years Tatas have had a large number of JVs with foreign majors, but few (with notable exceptions) have survived for especially long. Foreign partners have often found dealing with Tatas complex and frustrating. The same could equally be said of many other large industrial houses.
The blame for broken JVs is of course not solely with the Indian party. Many foreign partners have too readily changed their strategic thinking, taken advantage of a looser FDI policy to seek control of the JV, or been insufficiently patient and persistent when the inevitable bumps in the business occur. Indian business people are surprised by the inconsistency and short-termism of even major MNCs.
There are sometimes sound reasons for structuring an investment as a JV rather than a 100 per cent -owned business. In such cases, expectations and operating parameters need to be clearly set out in advance. Critically, communication, mutual respect and trust need to be built up and maintained. I once sat on a JV board to which a Chinese director came bearing his own food and drink for his short stay in India and touched nothing else; this hardly communicated well to the local partner.
Done right, some JVs can create great value for all parties and last a generation or more. One UK-based company for whom I am a director has a series of rock-solid JVs across Asia (though in India its business is wholly-owned).
There are, of course, successful examples of JVs in India. In insurance, ICICI Prudential and HDFC Standard Life have both done well. In automotive, Hero Honda and Maruti Suzuki created fantastic businesses over many years before the partners separated. BT Mahindra lasted nearly 20 years and spawned Tech Mahindra. Wipro and GE have had a very long partnership.
But JVs bear significant risks. I typically advise friends contemplating an entry to India to invest in a 100 per cent subsidiary unless the logic for a JV is completely undeniable, or of course FDI policy requires it. Often foreigners think too loosely about the advantage of the local insight that can come from a JV partner, when in reality much of that input comes from professional management that they could hire themselves.
When you do decide to JV for India, care and effort is needed from both the foreign and Indian partner. The foreigner needs to learn the long-term thinking, patience and relationship-building that very often underpins success in India.
And the Indian partner needs to suppress the temptation to exploit every advantage, and to learn to leave something on the table for his overseas partner.
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