Make In India Advisory

These issues are often inherent in structuring a strategic alliance and may include:

• The relative values of technology and other assets contributed to a joint venture.
• The relative values of the ownership structure of the joint venture itself.
• The value of an investment by a corporate partner in a start-up entity in exchange for the use of the technology the start-up is developing.
• The value of the synergies in a marketing or distribution alliance.

• It is experienced that in JVs between companies of a foreign culture (American, French, British, German) and Indian companies, there is an inherent cross-cultural context, which is downplayed since there is no language barrier in discussions with the Indian partner, due to the pre-eminence of English as the language of business in India.
• Further, Indian partners are well travelled, good communicators in general and have high social skills, all of which provide a false sense of cultural comfort. The reality is that speaking the language is different from understanding each other. The two partners can finish a meeting with each other drawing opposite conclusions and interpretations of the same discussion.
• It’s not just language and communication— work ethic, value systems, corporate culture within teams and other cultural aspects are different too.

• Foreign companies are often large corporate entities with institutional ownership and professional managers while most Indian companies are family owned and family member-led.
• Typically, most managers focus on short- to mid-term goals to earn their bonuses and be recognized for promotions while a family has a longer-term view linked to shareholder returns. Further, foreign company managers change regularly, which creates uncertainty about the India strategy while the Indian family is more stable.

• Most foreign companies can access wider sources of capital and at a lower cost. They draw on market-driven banking partners, government funding agencies, tax incentives and other innovative sources of capital, which are not as accessible to many Indian companies. They access bank debt at interest rates that are 5-7% cheaper, although they may have to account for foreign exchange depreciation in the future.
• However, the Indian partner needs to fund the JV at a higher cost right from the start. Consequently, the Indian partner has a need for a shorter break-even period and a higher return on capital employed.

• Many JVs are with new Start-ups and MSMEs. Even in acquisition-driven JVs, the challenge is to develop new lines of business. This calls for the ability to invent or reinvent. Many large foreign companies are no longer entrepreneurial and are run by managers who didn’t build these businesses. They tend to over-research and over-plan for all scenarios.
• While the Indian company has a strong entrepreneurial culture, Indian partners come with the background of recent success in their core business and have a “know-it-all” attitude. They are unwilling to invest in a step-by-step approach to establish a new business.

• Both partners want control. It’s natural since each feels that it is investing time and money. The foreign company is insecure about giving its brand and technology, and the Indian company worries about its financial investments. Yet, businesses need clear defined leadership structures to succeed.

• Most people have a “Win-Lose” approach to doing business with outsiders and they encourage the same culture within their teams.
• The respective “Win-Lose” behavior of each of the JV partners affects important decisions where what’s best for the JV may not be best for one’s company. Some examples are product strategy, industrial strategy, financial strategy and many others.
• This creates an environment where trust and transparency are lacking. Further, negotiating strategy of the two partners is different and based nearly always on a “Win-Lose” approach.