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January 20, 2007

To JV or not to JV?

Business Today has an article on "India Inc's tryst with joint ventures".
To be sure, right from the Godrej-Procter & Gamble joint venture that came apart in 1996 to the more recent Tata-Birla partnership in Idea Cellular (see JVs that Fell Apart) Indian promoters have walked a thin line between control and losing it. "I think JVs last only for short periods of time. The reason for getting into a JV is that you are looking for an advantage that you do not possess," explains Godrej Group Chairman Adi Godrej. Over the past decade, Godrej was involved in two significant JVs-one with GE for home appliances and the other with P&G for soaps. Both the JVs didn't last, yet Godrej has few regrets. "In the case of the JV with P&G, both of us realised that we were better off on our own. From our perspective, we had the experience of working with an MNC while for them it was about the need to have a presence in India," he recalls.

Another promoter, who has had his share of learnings via JVs, is B.K. Modi, who over the years struck partnerships with global majors like Xerox, Alcatel, Motorola and Olivetti, only to bid goodbye to them some years down the line. Today, Modi's cellular play Spice Communications, where he is the Chairman, has had partners like Australia's Telstra and Distacom in the past. The latest affiliate is Telekom Malaysia, which has picked up 49 per cent in Spice. But Modi today is sitting pretty. Or at least that's what he says. "I will call the shots, even once we go public, after which I will retain a majority holding," he explains. Clearly, Modi has realised that equal stakes ventures-as in those with Xerox and Alcatel in the past-don't go very far.

Sharing the same objectives right from the start is vital in making a JV work. Consider, for instance, the tie-up between Bajaj Electricals and Black & Decker of the US, which was a 50:50 JV. One reason it didn't last is, as Shekhar Bajaj, Chairman & Managing Director, Bajaj Electricals, points out, "The us way of thinking is about high margins while in India, we are looking for a high turnover with low margins." Bajaj adds that an ideal way to go about a JV would be to begin with a licensing agreement, and then gradually extend the scope of the relationship.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.