JV offers a low risk option to entering a newer market like India... but Time wasted first in negotiating the joint venture and then aligning thinking of each partner... Change of strategy of either of the partners creates rift in certain JVs...

1. Joint ventures in India
A critical analysis

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. THANK YOU…