How a successful joint venture became an economic disaster due to disagreements with the Indian partner about the strategic direction and the European company lost India as a market.
Joint venture failed due to its own success
It was a success story: a European global market leader and an Indian partner in a joint venture dominated the Indian growth market for mechanical engineering. With innovative technology "Made in Germany" and with the help of the local partner, they aggressively gained market share together, so that sales and profits quickly flowed into the millions.
But success soon led to different interests and differences of opinion among the shareholders, which quickly escalated. The Indian partner wanted to grow the company even more aggressively with the aim of listing its shares on the stock exchange within a few months. He promised himself “tens of millions.” However, the German side – typical of medium-sized companies – wanted to focus on sustainable growth and avoid an IPO at all costs. As a family business, the shareholder structure should please remain as originally agreed... The Indian partner felt cheated out of his “millions” and then began to let the German partner feel his frustration more and more. After a short time, all reporting to the German shareholder stopped and a lack of transparency arose. And after a further 12 months, in which the German partner (from the Indian partner's point of view "outrageously") continued to show no interest in an IPO, technical drawings and production equipment were misused by the Indian partner in a new production company secretly founded by the Indian partner. This ultimately resulted in the final break in the partnership and years of legal disputes that went through all instances.
JV “Partner” sidelined European technology suppliers
Contrary to the initial expectations of the European partner, the legal disputes for many years meant that not the Indian partner, but the European company, was temporarily no longer able to operate in the Indian market and completely lost control in India. So it took almost 10 years until justice was finally given at the highest level of Indian jurisdiction - but in the meantime millions of euros had been burned on the dispute, accompanied by a lasting loss of image for the German technology leader in the Indian market.
In this situation, WB was commissioned to analyze market conditions and, as part of crisis management, determine how a new market entry seemed possible under difficult conditions, such as the aggressive “lawsuit culture” of the former partner. For example, the Indian partner sued every step the German company took in India. The European company wanted to free itself from all legacy issues in India and establish new market access “from scratch”.
Successful crisis management project
Under the direction of Ralph Tobergte, who works at WB as an interim manager for particularly challenging renovation projects, the following work has been successfully completed in recent years:
- Assumption of local responsibility for the direction of the restructuring that enables a new market entry
- Development of a possible strategic realignment (strategy development)
- Establishing contact and negotiating with former customers and business partners in order to restore the basis of trust
- Establishment of a new sales and service structure
- Planning to build a local personnel structure
- Rebuilding of Compliance and risk management
- Discussions with business associations, ministries and authorities
After two years, all the prerequisites have been created so that the company is able to act and actively participate in India with a clear strategic direction. This meant that one of our most extensive and complex crisis management projects was successfully completed.
From dream partner to nightmare
The initial situation was really complicated and the capital already lost was enormous. There was a standstill for several years and there was no prospect of improvement. The former Indian partner actively used his excellent network against the German company and did not shy away from drastic steps, such as spreading false suspicions and massive threats in the market.
The European company spent years defending itself using all legal means available. In such an environment, reviving our own market activities in India was out of the question.
Lessons learned: Trust is good, local commitment is better!
Why did the said joint venture break up with the partner and then lead to a catastrophe?
From our perspective, very classic patterns were already taking place when setting up the business: the European shareholder leaves the complex and time-consuming bureaucratic processes exclusively to the Indian partner or the local Indian managing director. Failure to deal with the matter means that the European partner soon becomes overwhelmed and dependent on the Indian partner or managing director (and sometimes also susceptible to blackmail). Due to a lack of detailed knowledge, the processes in India can no longer be supported or actively controlled on a fact-based basis. The (own) Indian company has largely become independent.
The aim in India must always be to prevent this drifting apart of trust, understanding and control - in all phases of cooperation. Only if you “invest” in India technically and operationally and take care of the local organization including strategy and processes can a company, be it a joint venture or your own, function in the long term in India.
