In our Article series on joint ventures A lot has already been reported about the (advantages and) disadvantages of this strategy. However, if you actively decide on a joint venture in India, agree in advance (!) - together with your partner - the overarching common business goals.
Based on this, a suitable strategy and planning should be created in the form of a business plan that is as detailed as possible. Be sure to do this with each other. Don't leave it to your partner just because he or she supposedly knows the country and the market better than you. Please make the effort, it's really worth it! Also and especially because with every strategy and planning round you get to know your new market a little better.
We advise you to put everything in writing or document what is important to you in terms of goals, strategy and planning. Finally, have your counterpart sign the final version. This creates a common basis, structure and a certain level of commitment and who knows whether you will urgently need these documents again at some point.
Clear ownership relationships
You probably already have some thoughts about this ownership employed at your (new) Indian company. Do you want to be majority or minority owner? Do you even prefer a 50:50 joint venture? The answer to this fundamental question should be derived from your overall corporate strategy. This mosaic piece is in turn an important building block for the further construction of your Indian entity. The financial assessment of the non-cash contributions that the participating companies may have to make when setting up a non-cash company is of crucial relevance here.
Who brings what into the company?
So you should negotiate with your Indian partner right at the start of planning and put in writing what each side will bring into the planned joint venture: cash, land and buildings, machines, technologies and know-how, brands, customers or well-trained and qualified employees etc. And also how the respective deposit should be evaluated. Ultimately, there must be agreement on this too. Show your Indian partner that you are seriously considering this and that you expect the same from him. If necessary, actively talk to him about it.
Of course, you don't want to take advantage of all potential Indian partners. However, certain patterns in the behavior of Indian companies repeat themselves again and again. For example, the land and buildings that the Indian side would like to bring into the joint venture or rent to it are very popular. Please make the effort and see the vaunted land with your own eyes in India, with any buildings that may already exist. And evaluate the operational suitability for your planned activities. Or hire an external, independent service provider who can do this for you on site.
You should then have the value of land and real estate appraised by a professional, as an independent third party. This is important both for a planned contribution in kind (foundation in kind) and for any rent that may have to be paid later. There are certainly cases where the Indian side set the rents independently and unilaterally, which later led to years of unnecessary and extremely grueling disputes between the JV partners. In your own interest, you should avoid such unnecessary secondary theaters of war.
Evaluate and value your own technology
As part of the strategy and planning rounds, you naturally have to ask yourself very quickly which technologies and products you actually want to bring into the joint venture. What would you like to teach your Indian joint venture partner? How much do you want to open up to him? What unique selling points could you possibly do without (in the global market)? Unfortunately, we have often had the experience that at the end of the day, two companies from the same industry – beneath the noble surface – are more competitors than business partners
There is also the option of charging your Indian joint venture (or subsidiary) royalties for the products sold in the Indian market, which are only made locally through or with the help of the technologies, procedures and processes that you have developed at great expense and in Europe and/or America can be produced. As a shareholder in the joint venture, you pay part of these royalties indirectly yourself, which would be essentially a payment from your left pocket to your right pocket, but the other part comes indirectly from your Indian partner. In this way, you can generate an immediate cash flow from India into your parent company, which should immediately and hopefully permanently cover some of your research and development expenses and your other ongoing expenses for your India business.
