Why you should invest time, patience and personal resources in the phase BEFORE signing the contract in a joint venture.
The right joint venture partner seems to have been found and now the actual contract should be drawn up immediately. To this end, your future Indian partner will present you with a comprehensive "term sheet" on the basis of which the next operational steps will be discussed - a legal document that already sets far-reaching legal boundaries. STOP.
At this point you should pause, because a joint venture agreement should be the bottom line at the end of a discussion process and summarize the agreements reached together, never at the beginning of the contract negotiations.
In our many years of practice, we have already “buried” more joint ventures than probably anyone else on the market. And the reason for the failure of these joint ventures was usually the partners' lack of goal congruence at the beginning.
Always remember that the failure of such a joint venture not only means having to engage in grueling trench warfare, but is usually also accompanied by an immense loss of money - and all because goals, principles and expectations were not sufficiently developed and communicated at the beginning.
However, communication in India works differently than in our western culture. “Trust in advances” does not exist in India, exchanging “open words” is difficult, Western companies are too impatient and inexperienced in conducting so-called “socializing small talk”. But it is precisely this investment of time, patience and personal resources at the beginning that is deeply meaningful. In our years of practice, we have repeatedly seen cases in which joint (preliminary) contract negotiations were rushed and technical questions were clarified, even though elementary (relationship) questions between the joint venture partners had not yet been conclusively answered.
1.What do we want to achieve together? Why don't we pursue our goals alone? What added value should the other partner bring us?
Ask yourself what demonstrable added value collaboration offers you compared to the alternative of going it alone. You can also find market knowledge, contacts, suitable land, etc. yourself.
2.What are our mutual expectations of the other partner? What are we willing to bring to the table?
Which characteristics and abilities of the Indian partner do we assume are essential? Does he even have these? Can and does he want to provide them to the joint venture? A phase of extensive research and honest clarification is required here, typically a step-by-step sampling of increasing scope. Nobody likes to reveal too much about themselves initially. However, transparency about essential questions is essential before committing to your partner.
3.What must definitely not happen? What does the Indian side also want to avoid at all costs? Can we talk about it together and place our fears and needs?
Knowing each other’s own “no-gos” and needs is an essential part of future collaboration. It is crucial for you as a Western company to know reliably at this early stage whether the Indian side is also prepared to deal with unpleasant situations To show openness and transparency on topics - even if this behavior contradicts Indian cultural customs.
4.What “hidden agenda” is there? What are your companies' activities outside of the joint venture?
Everyone involved has goals and wishes that they do not communicate openly to the other person. Indian companies, for example, often simply need capital, technical Western know-how, licenses and are therefore very interested in cooperation. You, on the other hand, may simply want to increase your “global footprint”, are simply looking for contacts, and are concealing the planned sale of business areas of the parent company, which are the basis of cooperation for the Indian partners. Mutual honesty increases cohesion in the long term - if the partner wants to withdraw from the joint project when the "hidden agenda" is revealed, this failure before the actual start is the better alternative than a lengthy dispute later.
5.How would we like to work with each other and what company culture should we live? What cultural bridges need to be built?
Most joint ventures still fail due to the so-called "soft factors" of intercultural cooperation. Your Western management style will probably be less authoritarian than is usual and necessary in India. You will be familiar with a different tone in HR matters. Your communication style and your ability to compromise will diverge.
Please also read our article on this "Prevent the culture clash at joint ventures in India"
Don't be afraid to discuss this topic with your counterpart. From their reaction you can learn important behavior for the future.
6.How do we imagine the future of our joint investment? Where should this be in 5 or 10 years? What would we like to have achieved then?
Your Indian counterpart may want to quickly prepare an IPO in view of the joint company's success. Instead of going public, you would rather continue the structures of your owner-managed, medium-sized family business. You are aiming for sustainable business growth, while your Indian partner is aiming for the shortest possible “return on investment”. Discuss these things openly in the preliminary discussions.
7.What should our exit strategy look like? At what point do we want to diverge and how?
As in any marriage, there are ups and downs in a joint venture. You should openly discuss with your Indian partner at the beginning at what point you want to dissolve the joint venture and how this should happen so that it remains fair for everyone involved. Like you, your Indian counterpart is also aware of the fact that most joint ventures are “divorced” after about 5 years.
Your joint venture should become a prosperous joint venture. We can give you valuable tips and provide you with comprehensive support, as we have personally supported joint venture partnerships on site in numerous different industries and stages. Please give us a call or arrange a non-binding conversation.
