Clear understanding between partners key to success of JV, says Venu Srinivasan

State clearly what each partner would get from the JV, before entering into it, says TVS Motor chief

The most important thing for a Joint Venture (JV) to succeed is the clear understanding between the partners, that why they are in the JV and it should be stated very clearly even at the cost of having friction at the beginning, said Venu Srinivasan, chairman and managing director of automobile major TVS Motor Company.

Speaking on the points to be taken care of in a joint venture, in the Annual Regional Meet 2014 of the Indo-German Chamber of Commerce, he said, "Have a prenuptial agreement, as they do in America today before marriage, that if it breaks up, who will get what. And very clearly say that these will be the outlines of the arrangement and you should be able to put it down in a single piece of paper. Those JVs have always worked well."

 

For instance, in TVS' joint venture with Wabco, the company knew we could not be a long-term player in that segment considering the control system technology is booming and it needs a lot of attention. Then TVS sold the majority stake to Wabco. Referring to the JV the company had with Japanese automajor Suzuki, he said that in the case of Suzuki, "We felt that in long term it was in our interest, because it could become a global size company and this is a global market, we bought Suzuki. And we have done this in various cases, depending on where the JV was going."

It may be noted that TVS Motor also has entered into a long term cooperation agreement with BMW Motorrad last year to develop a new series of motorcycles that will cater to below 500 cubic centimeters.

"What makes Joint Venture successful? If both partners are seeking the same payback, its unlikely to be successful, it is going to end up in competition. But if the Indian partner says it has introduced the other partner to India, but he will get some short term benefit out of it, while in long term the other partner would get the benefit of entering into India and become successful, it would work," he added.

He said that there is large opportunity for the German Mittelstand (which are the small and medium-sized enterprises in Germany) to enter into JV with Indian firms, especially with India is again on its growth path.

The large companies like BMW and Daimler can come to India on their own, they have huge administrative, legal, international relationship departments who can come and set it up. But for a Mittelstand company of 100-500 or 700 million Euros, they would not have the ability to tackle another country, deal with the industrial relations, deal with the local regulations, deal with anglo-saxon laws as opposed to German laws. They would benefit significantly if they have a joint venture.

There is no competition between the partners, or one trying to outdo the other. The Indian partner would benefit in the short term, by growing his business and getting some share of the profits, and the German company would get an access to the Indian market, which is growing, with the large German investment in Bosch, Daimler, Volkswagen and other companies to come. They can become effective suppliers to these companies, and they get the advantage of keeping their effort and costs low.

Srinivasan added that the country, while had seen a drop in growth recently, is expected grow better in near future, and various measures by the Central government are expected to increase the ease of doing business, which would help the industry to grow in a higher rate.