So, Honda has decided to exit Hero Honda. The 26-26 joint venture between the Munjals and Honda dates back to the 1980s when the first wave of liberalisation took place. Apart from Honda, two other Japanese motorcycle makers had come to India at that time: Suzuki with TVS and Yamaha with Escorts. In the past, there has been talk, more than once, that the two partners will go their separate ways. About ten years ago, Honda had set up a fully owned subsidiary that made scooters to begin with and later motorcycles too. This added grist to the rumour mills. But the two partners stuck together and proved their detractors wrong. This time the breakup seems to be final. The fine print of the divorce papers is not yet out. Maybe Hero Honda (or whatever it is called once the Japanese partner pulls out) will be able to source technology from Honda for some more time in the future.
Joint venture as an entry strategy for India had lost all its relevance for overseas companies many years ago. When there were curbs on foreign direct investment, joint ventures made sense. Indian businessmen gave their name on rent to their foreign partners. Their contribution in the company, at best, was restricted to environment management — clearances from the various departments and ministries of the government. Indian partners, on their part, said they brought the knowledge of local markets to the venture. But the argument lacked conviction. Most of them were a product of the Licence Raj when core competence meant the right connections with bureaucrats and politicians and not marketing acumen or manufacturing excellence. Still, several businessmen made a living off it.
Once the restrictions on foreign investment were lifted, these partnerships became irrelevant. Most Indian partners sold out and made returns decent enough to live comfortably for the rest of their lives. Those who were arm-twisted to sell out lobbied hard to protect their interests. Thus came into existence Press Note 18 (Press Note 2 in its current avatar) which made it mandatory for any overseas company to get the nod of its Indian partner before starting out on its own in the country. Foreign companies would have to pay a price to go solo in the country. (Joint ventures now largely exist in sectors like telecommunication, retail and insurance where foreign investment is capped.)
In the Hero Honda case, there has been no uproar so far from the swadeshi lobby. Nobody seems to be outraged that a hugely successful (Hero Honda lords it over 50 per cent of the Indian motorcycle market) and profitable enterprise has been left in the lurch by a foreign company. When Honda had exited from Kinetic some years ago, various industry associations had swung into action to protect the interests of Indian businessmen. In comparison, there isn’t even a murmur of protest this time. The conclusion is fairly straightforward: Joint ventures have lost their relevance for Indian businessmen as well. As a business model, the joint venture is truly dead and gone. The Munjals are not talking about life after Honda right now. But clearly they are ready to ride on their own.
Of the three Indo-Japanese motorcycle joint ventures, Hero Honda survived the longest. Escorts sold out to Yamaha and Suzuki exited from TVS to be on its own. For Escorts, that was the end of its two-wheeler business; but TVS has bounced back — it is the third-largest two-wheeler company in the country after Hero Honda and Bajaj Auto. This should provide some comfort to the Munjals.
An overseas partner is meant to bring three advantages to the table: money, technology and brand. The relevance of each of the three needs to be evaluated in some detail in the current context. Indian businessmen no longer feel strapped for cash. Many of them have done big-ticket acquisitions in India and abroad; it shows that there are enough people who have faith in their ability to deliver results. Two, the last few years have seen democratisation of technology across the globe. The stranglehold of large multinational corporations has eased. Thus, Indians can buy technology off the shelf rather than tie themselves down in a joint venture. Three, the rapid strides made by Indian brands like Bharti have taken some sheen off brands owned by multinational corporations. The Hero brand is no lemon. It begins to make sense why the Munjals have let Honda exit their joint venture company.
In a way, the playing field between Indian and multinational corporations has been levelled. The advantage of size that the multinational corporations had, which looked so intimidating a decade ago, no longer scares Indian businessmen. Investment bankers say that there aren’t too many queries from Indian businessmen for joint ventures with multinational corporations these days. Collaboration for specific projects is fine, but joint ventures have gone out of fashion. PricewaterhouseCoopers’ Deepak Kapoor says this is a signal Indian business has finally come of age — the newer generation of cocky entrepreneurs does not want to be dependent on overseas partners for success. Most of them want to be in full control of their businesses.
