| Thursday, Feb 07, 2002 |
| The secret of joint ventures that work -- `Clear-cut management control vital' |
Our Bureau
CHENNAI, Feb. 6 |
Mr N. Sankar, Chairman, Sanmar group.
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| MR N. Sankar, the Chairman of the Sanmar group, has given a bunch of tips on how to run a successful joint venture, including writing into the agreement an `exit mechanism' and a `poison pill' clause that makes it expensive for the foreign partner to dump the Indian side. |
| Have everything cleared and understood upfront, particularly who should manage the venture — this was Mr Sankar's central message in his address to the alumni of the Indian Institute of Management, Ahmedabad's Chennai Chapter. |
| The Chennai-based Sanmar group has some 15-odd joint ventures with American, European and Australian companies. |
| While a joint venture offered advantages for both sides — the foreign partner gets quality products at a fraction of his home costs and the Indian partner gets access to technology and markets, difficulties existed in terms of a mismatch of objectives, progressive need for investments and work culture differences, Mr Sankar said. |
| He said that no joint venture would work "no matter what you do" if it were between an Indian group and a foreign partner with a very strong corporate brand name; if the partners' financial strengths were largely different; and if the relationship was based on short-term objectives. |
| He stressed that "no business could be managed jointly" — the running of the joint venture should be with one of the partners. Also, expanding a venture to more than two partners, whether the third party is Indian or foreign, "is a sure-fire case for disaster". |
| Mr Sankar noted that there were many reasons why a joint venture came to an end. "Notwithstanding the statements made at the time of formation, there is no doubt in my mind that as time passes, the Indian partner's relevance tends to dwindle", Mr Sankar said. |
| But "such an end is not necessarily a catastrophe". For this, the joint venture agreement must provide an appropriate mechanism by which the partner exiting gets a fair price for his share, compensating for the opportunity lost. |
| Mr Sankar also pointed out some practical difficulties in setting up and running a venture. During negotiations, the Indian negotiator "after having spent several tortuous hours negotiating and initialling a deal" might find that the MNC negotiator had a restricted authority for committing investments, whereupon the MNC top management might want to go over the deal again, he said. |
| The Sanmar group has evolved a system where the company manager only runs the joint venture, while all the partnership issues "are kicked up to a higher level, from where is given an agreed decision". |
