Many small and medium-sized businesses in India are fighting for their very survival, despite high overall economic dynamism. The reason for this is the enormous increase in market entry by foreign producers in various areas of the economy in recent years and the resulting painful increase in competition.
The manufacturing sector in India has traditionally been extremely fragmented. With the exception of a few large players, the market is dominated by a multitude of small and very small companies, which often only produce a few components and these are usually of poor quality and with little know-how.
The production and processes in these (mostly) family businesses are largely outdated and therefore they are essentially no longer competitive in the open Indian economy. Due to the rapid changes in the market, these companies feel immense pressure to increase their quality and efficiency as quickly as possible. In order to ultimately be able to survive in the increasingly tough competition, the “Indian medium-sized companies” are more or less dependent on a technological “quantum leap” and “help from outside”.
“I want a joint venture from you!”
A joint venture with a Western company is apparently seen as the perfect solution to all of these problems. At least in the eyes of countless Indian family businesses it seems to be the best way to bring know-how into their own company - in any case it is the most popular. And that's why Indians are almost always interested in a joint venture agreement with German companies.
The following typical situation always occurs at the relevant trade fairs: You are an exhibitor and are inundated with business cards from all sides.
Everyone only wants one thing from you: a joint venture. The arguments are exactly the same: “We fit together perfectly”; “We have complementary products, immediately usable production facilities and excellent specialist staff” and also is “Our cost structure is simply unbeatable”.
Of course, your future JV partner has the best connections in the relevant scene, right up to the top of the Indian government, and this list is rarely missing a close personal friendship with one or two well-known business bosses.
All of these relationships are of course extremely important, because as we assure you, even the best and cheapest products in India can only be sold through relationships! And before you get back to Germany, you will already have a joint venture contract in your email inbox that you just have to sign. This story is by no means fictional – hundreds of companies in India have experienced the same thing.
Indian industry faces a “technology dilemma”
What exactly makes collaboration in the form of a joint venture so attractive for Indian companies? It is also known to “the Indians” that around 80% of all joint ventures do not survive the first 10 years.
The answer is quite simple: India is in a “technology dilemma”. The pace of change in the industry is rapid. Just compare products that were produced and sold in India ten years ago with products today. There is a huge technological difference here - and therefore an almost hopeless situation for the Indian industry: How are small family businesses supposed to make the leap to international quality requirements within a very short time - and how can they survive the consolidation phase that is always coming?
The answer is quite simple: foreign know-how is necessary! And because simple “copying” is not only illegal, but also not that easy and because it is unfortunately not so easy to get a production license from abroad, you try to do it using the joint venture approach.
