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“Secret formula for corporate marriages”
Sanmar’s joint
venture success hailed
Venkatachari Jagannathan Reproduced
with permission from www.domain-b.com
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| At a time when divorces between foreign and
Indian partners are more the norm than the exception, the Chennai-based
Sanmar group shows the way to a long and happy married life.
This, despite the group being the majority/equal partner in
its joint ventures, barring one. |
| Ever since India kicked off its economic reforms,
divorce notices between foreign and domestic companies have
been flying thick and fast. The main reason - the inability
of the Indian partner to bring in additional cash, when required.
Added to this was the desire of foreign partners to have their
own 100 per cent subsidiary in the country to gain management
control. Also, liberalisation obliterated the need for a local
partner who knew the tricks of securing an industrial license. |
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| George Shedlarski with N Sankar and N Kumar during
the Silver Jubilee celebrations of Sanmar Engineering Corporation. |
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| But the Sanmar group was not marred by any of the
above though it has partnered with several Fortune 500 companies,
that too as a majority/equal partner. |
| Some of the 15 marriages are more than two decades
old. For instance Sanmar Engineering Corporation (SEC) - an amalgam
of 13 independent companies involved in process engineering products
and services - celebrated the silver jubilee of its first joint venture
company Flowserve Sanmar Ltd. |
| Interestingly SEC constituents figure in 10 joint
ventures while four are in the field of speciality chemicals and one
in life insurance sector. |
| How is it that Sanmar group is able to manage its
partners so well even as some of them compete fiercely between themselves
globally? Replies N Kumar, Vice Chairman, Sanmar group, “Trust
and transparency are the two core values we practice with all our
joint venture partners.” |
| That apart the Chennai group believes in the principle
that operational management should be with one of the partners who
will be accountable to the other. Group Chairman N Sankar outlines
in detail the success formula. According to him the joint venture
should not be a vehicle by which either partner harvests profits for
itself - by selling agency arrangements or preferential price supplies
or by off-loading unrelated expenses by charging corporate overheads. |
| He also feels that if the partners are going to
refer the dos and don’ts frequently to decide who can do what
then it means something is wrong in the partnership. Also important
is the ability of the partners to service the growing need for capital
as the business expands. |
| The other success formula is to recognise the importance
of the overseas collaborator and not to show the majority stake power.
All the joint venture companies sport first the name of their foreign
partner in their name. |
| It is not that Sanmar group’s joint ventures
didn’t face any rough weather at all. But all were sorted out
sitting across the table. “Whether it is at the operational/middle/top
management level, issues were ironed out in a smooth fashion at all
levels,” explains Kumar. Dialogue is what is important, he emphasises. |
| Vouching that is George A. Shedlarski, President,
Flow Control Division/Flow Solutions Division of the $2.1 billion
Flowserve Corporation, “Any business venture goes through different
phases. Commitment on the part of both the partners is needed to make
it a success.” |
| His words carry more weight as it was with Michigan,
US-based Durametallic Corporation, that SEC inked its first joint
venture way back in 1976 to float Durametallic India Ltd to manufacture
precision mechanical seals. Durametallic Corporation later became
part of Flowserve Corporation due to change in ownership and consequently
the Indian joint venture too changed its name. |
| Owning 40 per cent in Flowserve Sanmar, the US company
was initially surprised to find its Indian partner having joint ventures
with many of its competitors. But what saved the marriage was that
none of the other joint ventures competed with Flowserve Sanmar’s
product portfolio. |
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| A galaxy of high profile executives of Sanmar
and their joint venture partners with distinguished guests at
the Silver Jubilee of SEC. |
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| Today Flowserve Sanmar manufactures 14,000
varieties of seals - pusher seals, dry running and split seals
to metal bellows seals and non-contacting seals. |
| Interestingly Flowserve Corporation
has other investments in India. It has facilities in Hubli and
Bangalore manufacturing industrial valves. According to Shedlarski,
Flowserve Corporation has invested around $10 million in India
and have floated a similar joint venture in Singapore joining
hands with Sanmar group. Today the US company sources from its
Indian venture and meets its global demands. |
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| So why didn’t Flowserve Corporation think
about buying out Sanmar group’s stakes or float an 100 per cent
subsidiary. Is it because of the small market for the products here? |
| Responds Shedlarski, “We haven’t thought
of increasing our stakes. Certainly it is not because the market size
is small. Actually we are happy with the existing arrangement.” |
| Concurring with him is Joseph M Izzo, Vice President,
Systems/Administration, BS & B Safety Systems Inc – the
second oldest joint venture partner in SEC group - “On the upside
Sankar is creating an environment of trust. The global market is growing
and we indeed are sourcing from India.” |
| The venture he talks about is BS & B Safety
Systems (India) Ltd a 50:50 partnership between the US company and
the Sanmar group. The sixty five year old BS & B group operates
in more than 25 countries and manufactures bursting discs and other
pressure relief devices. |
| Last year SEC clocked a turnover of Rs.218 crore
and targets Rs. 297 crore this fiscal. On Rs. 182 crore capital employed
SEC hopes to earn a before tax profit of Rs. 57.8 crore this year.
The engineering group has drawn up an ambitious plan of reaching Rs.
665 crore turnover by 2005-06. Towards that end SEC is investing around
Rs. 12 crore in the three-year old Sanmar Alloy Castings Ltd, one
of the three companies that doesn’t have an overseas partner. |
| With not much of new projects coming in India,
SEC sees future growth potential mainly from exports. In fact
the groups aims to achieve an export income of Rs. 100 crore
this year up by Rs. 40 crore when compared to last year’s
figure. |
| The strategy that is planned is to position
Sanmar Engineering Services on the front to do the marketing
while the joint venture and casting unit figuring in the middle
and rear respectively. SEC also benefits from the synergy that
exists amongst the products of its constituents. The group specializes
in high value added products and systems for critical applications
in the process industries. |
| July 9, 2001 |
| (Copyright: www.domain-b.com, India's first
online business magazine) |
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| Reg Ingram and Dan Button. |
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