JOINT VENTURES IN INDIA

By- Anant Jain

Introduction

A joint venture is when two or more companies perform a business project together for a set period of time.

Reason for JV’s JV provides a lower risk option of

entering into a new country. .example- Motorola

entered India in JV with blue star company, a brand with reputation and vast distribution network.

It also provides an opportunity for both the partners to leverage their core strengths and increase the profits.

It also provides a learning opportunity for both the partners.

The Market before JV’s• The license raj that existed prior to

economic liberalization (1940s-1980s) in India did not allow foreign companies to enter the market.

• In the mid-’80s when the Indian government started permitting foreign companies to enter the Indian market through minority joint ventures.

• The entry of these new foreign companies transformed the very essence of competition from the supply side to the demand side.

SECTORS PERCENTAGES

Mining (commercial) 51%

Banking (Pvt), Airport (Existing) 74%

Insurance 26%

Telecommunication 49%

Alcohol distillation and brewing, Floriculture, Horticulture , Animal Husbandry, Petroleum and Natural gas, Construction and Development, SEZ’s and Free Trade

Warehousing Zones, Trading etc..

100%

Regulations governing JV in India

Successful joint venture require:• Each participant has something of value to

bring to the venture. • The participants should engage in careful

preplanning. • The agreement or contract should provide

for flexibility in the future. • There should be provision in the agreement

for termination including buyout by one of the participants.

• Key executives must be assigned to implement the joint ventures.

• A distinct unit be created in the organizational structure which has the authority for negotiating and making decisions

Successful joint venture Example :-

Reasons for failure of a joint venture• Inadequate preplanning for the joint

venture. • The hoped-for technology never

developed. • Agreements could not be reached on

alternative approaches to solving the basic objectives of the joint venture.

• People with expertise in one company refused to share knowledge with their counterparts in the joint venture.

• Parent companies are unable to share control or compromise on difficult issues

Unsuccessful joint venture Example :-

Problems of JV’s1. Valuation Problems.2. Transparency.3. Division of management responsibility

and degree of management independence

4. Changes in ownership shares.

6. Dividend Policy.

7. Marketing and Staffing Issue.

8. Cultural Problems.

The Beginning Of A New Chapter In India’s Automotive Saga

Hero’s Partner Honda In India

What Was Hero Before JV.• Hero Cycles manufactured Over

16000 Bicycles a day.• They Sold about 86 million bicycles

in aggregate as of 2002.• They had nurtured an excellent

network of dealers to serve India’s expansive markets.

• Over the years Hero Group had entered multiple business areas.

Some Facts About Honda• HMC initial plans called for both two-

wheeler market and the electric generator market.

• HMC first chose Kinetic Engineering Ltd. And formed Kinetic Honda Motors Ltd. But this JV would work in field of Scooters Manufacturing.

• HMC came to Hero Group as the Last compromise choice for its motorcycle venture.

Honda selected the Hero Group for a variety of reasons, which included:

• Its engineering capability• Relevance and salience of HERO brand.• Distribution network.• Commitment to Quality.• Know-how and experience in handling

large volume production and distribution.• Tight focus on financial and raw material

processes.• Warm Industrial Relations.

The Deal Is Done.(June 1984)

• Honda agreed to provide tech. know-how to HHM and setting up manufacturing facilities. This included the future R & D efforts.

• Honda agreed for a lump sum fee of $500,000 & 4% royalty on SP.

• Both Partners held 26% of the equity with other 26% sold to the public and the rest held to financial institutions.

Success Story of HHM• HHM had grown consistently, earning the

title of the world’s largest motorcycle manufacturer after having churned out 1.3 million vehicles in 2001.

• World’s largest two-wheeler manufacturer with annual sales volume of over 2 million motorcycles.

• Owns world’s biggest selling motorcycle brand – Hero Honda Splendor.

• Over 9 million motorcycles on Indian roads.

• Deep market penetration with 5000 outlets.

Cont…

• 2008 Inaugurates third plant in Haridwar. • 2009 Technical agreement with Honda

extended till 2014 • 2010 Sales cross the 4 million mark

(2009/10). • On December 16, Hero and Honda

announce they are parting ways • 2011 Sales cross 5 million (2010/11). • In August, 2011, the company changes

formal name to Hero MotoCorp and unveils new brand

Reasons for success• The deep penetration network of hero

largely benefited the sales.• Absence of major competitors in initial

years.• Sound and proven technical capabilities of

Honda and the reliability of Hero.• Increased market for motorcycles:

– Better Fuel efficiency.– Change in people’s perception.– Decrease in price difference with

scooters.

Thank You