The business model of Joint Venture

Sometime back I wrote about the Hero Honda and Honda competing in the Indian automobile market. Now, it’s been agreed that Honda will exit from the joint venture. Around ten years back Honda started its own Indian venture and started competing with scoters to begin with. And the business strategy worked so far. We have similar stories with Suzuki moving out of TVS JV and Yamaha from Escorts.

In my previous organization; I have seen a JV very closely; starting from scratch to become a full fledged company and I always believed that was a master stroke to form a JV there by getting a steady business and access to latest technologies. It was a product JV and building a services business around would have made sense and exactly it was built around this concept. And it was a great success.

Initially, it made sense to both the counterparts, for Indian counter parts; who wanted cash for expansion and access to latest technology; it was a great win situation. For foreign counterpart it was more of access to new market and knowhow of local market. But in license raj this knowledge of local market only meant the knowledge of how to get the required permission from government. Rest of R&D, product concept, marketing, launching was done by foreign counterpart. It worked well in this way for some time and there were so many success stories around this model.

I remember reading somewhere about GE-Wipro joint venture which was conceptualized to be a great story. Over the years both the parties realized the drawbacks and decided to pull out. If my memory serves me correct, somewhere Premaji said it was the best thing happened to look beyond GE.

An overseas partner is expected to bring three advantages to the table; money, technology and brand. The relevance of these three things to be evaluated in current context. Indian businessmen are no more strapped for money. Many of them have done big-ticket acquisitions in India and abroad. And in last few years democratization of technology happened and technology is available for acquisition. Thus, Indians can buy the required technology out of the shelf rather than a JV. Now days, Indian brands are making more sense, and Indian brands are truly global now a days.

Thus, Hero is not seems to be worried about this breakup. TVS survived this and running stronger without Suzuki. The size of multinational, which appears to be a great advantage for JV is no more a positive point of India Inc.

In a way, the playing field has been leveled between multinationals and India Inc.