The Building Blocks…

The genesis of any joint venture lies in a common strategic intent that brings the negotiating parties to the bargaining table. In addition, there are other factors that should be taken into account before signing on the dotted line:

• It is essential to understand the partner’s ethos and value system before forging a deal. Typically, this takes somewhere in the range of 18-30 months, and happens alongside the due diligence process. The duration, though long, is worthwhile, since being on the same wave length is a prerequisite for a JV to really ‘click’.
• Solid management is a critical aspect in any JV. Since conflicts tend to arise when management meddles in shareholder issues, it can help to build a ‘Chinese wall’ between the two. It is also desirable for the management team to have a clearly demarcated role and strictly adhere to the business plan. The ultimate goal should be to enrich the business, and to eventually create tangible returns for shareholders.
• Recognising the value that each partner brings to the table early, and documenting this in the agreement, is another crucial factor. Irrespective of whether a firm is a majority or a minority partner, it must operate like an equal collaborator. The majority partner, which is often a foreign MNC, might offer technology and processes. The ‘junior’ partner, though, should also leverage its core strengths, including local ‘know-how’, and develop competencies in other critical areas. For instance, the Anand Group brings its ‘operating engineering model’ into play in many of its JVs. This entails doing most of its shop-level hiring from ITIs, and funding people’s education to make them more employable. Many of these workers move on after 2-4 years with the firm, and this constant churn reduces the urge to unionise. Just 3 of the Group’s 51 plants have unions. That said, some of them move up the chain, even to the senior-most positions.
• It is vital to cherry-pick the areas of control within the joint venture. It is essential to understand that usually, a 50-50 venture does not work, and one of the two parties must necessarily be the majority partner. However, it is not wise to seek control in an area where one has little expertise. It must also be understood that in today’s start-up era, employing traditional JV practices may not work in the long run. Gaining absolute control in a specific domain does not always bear fruit, and collaboration is now the name of the game.

…and the keys to Sustainable Growth

While thorough ideation is indispensable, no amount of planning can prevent a JV from fizzling out. The hard reality is that there is no fool-proof method to ensure long-term success. However, following a few simple guidelines can be useful:

• Above all, relationships hold the key to success. Organisational reputation and technical details are both important, but one cannot downplay the importance of personal credibility and human interaction. More often than not, joint venture partnerships transcend the boundaries of boardrooms and informal associations come handy. At the end of the day, the essence of success lies in handling people and cultural issues with care, respect and mutual understanding.
• Trust is the invisible fabric that binds any two entities together. In 1997, hit by the East Asian crisis, the Anand Group’s South Korean majority partners decided to stop funding the JV midway. The two sides reached a ‘gentleman’s agreement’, whereby the Anand Group would take on the majority share until the situation had improved. By 2000, things were looking up, and the holding structure was reversed back as planned. For the Anand Group, this one-time leap of faith built a lifelong, unbreakable bond.
• Harmonising the culture is key. It is usually desirable for processes and key result areas to be decided by the majority shareholder, but both sides need to go the extra mile to familiarise themselves with each other’s culture. This is a perennial work-in-progress, since every culture has its nuances and achieving absolute harmony is impossible. In this regard, cultural training is a good idea, because sustaining a JV without at least some degree of cultural conflation is a Herculean task.
• The JV’s senior management must represent the group’s philosophy. The company’s core values must reflect in the top brass for them to percolate down through the organisation.
• It is important to stick to the JV’s underlying philosophy, and not to get swayed by the markets. Any well-structured JV will have strategic objectives and longer-term goals, but markets tend to take a shorter-term view of ‘success’. Allowing business decisions to be influenced by stock-market movements is half the battle lost.
• Typically, it is the foreign partner that becomes the overriding brand, but it is advisable to have distinct strategies for each market, which might react differently to the new brand. Co-branding can be a double-edged sword, and in some cases, putting the local brand first allows for easier re-branding if, say, the JV has to dissolve.
• Flexibility is crucial. Circumstances evolve over time and as such, the requirements for each side can change, too. It is therefore sensible to be adaptable, and to make decisions without being fixated on a particular set of beliefs or assumptions.
• JVs formed on the back of a limited agenda tend to be short-lived. On the contrary, those that pursue a wider agenda of long-term growth, and which are cognisant of shareholder expectations on both sides, usually have a longer shelf life. The ability to create tangible returns is ultimately what sustains a venture.
• Finally, it is essential to bear in mind that even if things nosedive beyond repair, and a situation arises where breaking apart is the only way out, keeping it amicable without losing mutual respect is a must. Having a dispute settlement process enshrined in the agreement is necessary, but not allowing the situation to spiral into an ugly mess requires a deft human touch.