Reliance Industries Ltd is reportedly on the verge of entering into a global joint venture (JV) with Dow Chemicals. Are such JVs making a comeback in India?
Corporate partnerships between Indian and foreign companies have unravelled with steady regularity since the early 1990s. Some of the more famous splits in the 1990s were between Procter & Gamble and the Godrej group, DCM and Daewoo, and the Tatas and Unisys. Few of the JVs that came into being in the 1980s and the 1990s survive today; most burnt out in a blaze of acrimony.
Add to this the confrontations arising from the controversial Press Note 18, which insisted that a foreign company that already had a JV in India, and wanted to start a new venture in the same or allied field, should get a no-objection certificate from its Indian partner. The altercations between the Modis and Xerox and between ITC and BAT fall into this category (The rules have been changed with the introduction of Press Note 1 in 2006, and foreign companies with Indian JVs are less likely to be held hostage by their local partners).
A common complaint against Indian business groups is that they are obsessed with control, and are very uncomfortable in true corporate alliances. They do not have the maturity to accept a genuine partnership.
There have been many serious issues on the other side as well. Many multinationals saw their Indian JVs as mere stepping stones into a large market; the Indian partner could be milked for his local knowledge and then abandoned. There have been many cases of the foreign partner trying to keep the local partner out of serious decision-making, based on the belief that he does not have the requisite skills and strategic vision.
Apart from tissues of corporate culture, there were hardcore business obstacles as well. On the Indian side, for example, the local partner would often not be willing to put up adequate capital to fund the business. On the multinational side, the foreign partner used transfer pricing to keep profits down in the Indian JV, and save on taxes.
The recent spats between the Wadias and Danone or between Hutchison Whampoa and the Ruias show that the troubles in JV-land have not gone away. So, when a company like Reliance (which has traditionally steered clear of long-term partnerships and preferred to go it alone) starts getting into JVs, it is but natural to ask: Why? And do 21st century JVs have a better chance of success?
It is our guess that the new JVs that Indian groups will get into will be different from those in the 1980s and the 1990s. The new partnerships will be among equals. Look at the reason that Dow Chemicals is talking to Reliance in the first place. It has nothing to do with a quick entry into India. Dow Chemicals has been struggling, and now seeks to move its production facilities to Asia.
Yet, it doesn’t want to put too much of its capital at risk and prefers doing the job in collaboration with a company like Reliance.
In short, the talks are based on the belief that Dow Chemicals could benefit from Reliance’s superior production efficiency and financial management. This is not about a multinational using an Indian company to acquire what is vaguely known as “local knowledge.” It is a proposed partnership of equals.
As Indian companies globalize, they will be sought for what they do rather than for whom they know. The 21st century JV is likely to have a longer life span than its late-20th century sibling.
Will our new joint ventures not see a repeat of the acrimonious outcomes of the past? Comments are welcome at firstname.lastname@example.org