In this segment, we’re diving deep to give you a holistic perspective on setting up successful joint ventures in and outside India.
Our agenda to share valuable industry insights sees us meet Tejbir Singh Anand in this video, the man at the helm of the ALP Group as its Managing Director. His experience has seen him orchestrate 8 successful joint ventures in India as well as overseas for his group, and his invaluable business knowledge can help provide a benchmark to companies looking to plan, structure, and execute successful joint ventures.
Watch the full video shared above or read the transcript of the interview, shared below:
Thank you Tejbir, for joining us today. Before we get into the discussion regarding your experience of being in a joint venture with a foreign company, we’d like to know more about you, about the ALP Group and the work that y’all have been doing in the product lines in the Indian market as well as overseas.
ALP in India is primarily into the rubber and plastic extrusion and molding business. Mostly, the application for this is in the automotive industry such as car manufactures, bus manufacturers, etc. Apart from that, we also have a company which does thermal and acoustic insulation for building and construction applications, in the HVAC and refrigeration industry.
Outside India, we have 6 companies across various geographies such as US, Europe, Australia, South Africa, and Thailand. Some of them are into manufacturing and some into distribution. Primarily, the product is conceived, made, and developed in India and we sell them via these external outlets.
Are these companies (be it in India or overseas) primarily joint ventures?
Yes, we have 5 joint ventures outside India and 3 joint ventures in India.
And how has the experience been so far? Especially, working with companies from different companies and cultural backgrounds?
It depends; every culture and every background is different. As long as the partnership works to the strength of both the partners, and the basic understanding as well as the trust factor is there (with the ultimate goal being success of the business), along with the clarity in terms of defined roles and responsibilities, there is no reason why it shouldn’t work.
So typically at a starting point (let’s refer to it as the opportunity exploration phase), what do you look for in partners for joint ventures?
If we’re looking for a company entering India, we look at the kind of technology that the partner is bringing in. That’s what the joint ventures are for; either we don’t have that technology, or we don’t have that product line. So, it’s about how proficient they are in terms of R&D, future technological changes and advances.
Secondly, it’s extremely important to analyze the background of the company as well, whether it is a family-owned company, or a partnership, or an MNC, etc. And thirdly, getting an insight into their working, behavior, policy structure, procedures, etc. also matters a lot in these scenarios.
However, when we go outside India, it’s the opposite. What we’re looking for in that case is a local supporting partner, somebody who understands the local culture, people, customs, administration, etc. Somebody who understands something which we don’t. These factors coupled with the trust factor are important when we look for joint ventures outside India.
It’s interesting you mention the point of SMEs being family-owned and managed. On the other hand, there are a majority of MNCs coming into India with a management hierarchy and it’s this management hierarchy which has the conversations with the Indian partners.
Are there issues which typically arise in such equations? If yes, how do you mitigate them?
Every JV has some issues; if the bigger picture (of attaining mutual success) with the trust factor is clear, the road is smooth. And when it comes to building trust, it comes down to how your policies are, the way your procedures are in place, how transparent your activities are and how much both parties are interested and the kind of effort they’re putting in for the same.
So, with these factors, an entrepreneur can judge what is the involvement of the other party and the transparency that they’re working with. So, with these factors you can establish whether the trust factor exists or not.
So, any SME coming into and India joining an SME (which is a family-run business), it is important for them to understand the family’s background in terms of their corporate governance, compliance, procedure and policies in the company, their management, systems, background checks on the management, etc. other than merely looking at numbers and due diligence before getting into an agreement.
And in a post-setting phase of the joint venture, when it’s operational, are there checks and balances put in place for the monitoring of the association?
Whenever you have a JV, your roles and responsibilities should be clearly defined and if these roles and responsibilities are acted upon proficiently, then a major issue generally doesn’t arise. Post the JV also, if whatever you have agreed to do for each other has been carried out proficiently, it doesn’t lead to any issues.
And what about the consideration that the local partner brings in a significant amount of a value-add or advantage to the table as compared to the foreign partner? Does it translate to any premium in terms of equity or having a bigger say in how the business is run?
It all depends what business you’re getting into. In our business, there is no premium for the local partner. That’s because if we’re giving them the support of local knowledge about the administration, HR, etc., it’s also the other party which is bringing in technology and a product; that’s why we’re getting together.
Therefore, it circles back to the business you’re in and whether you get a local advantage premium or not. However, in a country like India, it helps if you have a local partner because there are so many hidden factors and we have different challenges of our own with the Government, the frequent changes in policies and frameworks, compliance matters, etc. which a foreign entrant might not understand. Hence, a local partner from India serves as a big advantage.
Do you face similar issues when you go outbound for joint ventures?
Not much, to be honest. That’s because when we’re going outbound, we’re moving to the developed world. There, the transparency from the Government is ever-present, data is readily available, and all the checks and balances are in place.
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So, we don’t face that much of an issue whenever we’re moving outbound for collaborations. However, if we move to a country like India, then we might face certain similar issues.
Going back to the point of trust, it’s not built only in the workplace but outside the office as well. From your experience owed the joint ventures you’re in, how do you build trust?
It’s dependent on the human nature. Personally, I like to invite my partners over to my place for drinks or for a meal and when I go outbound in their geography, they reciprocate the same. It circles back to how open you are and how comfortable you are. If it’s a purely professional relationship, then maintain it as such.
But I believe it’s also important to create the right mix in joint ventures. You tend to get closer as you have an association outside the workplace/office. And this happens at all levels and not just one; when my overseas partners come in, we take them out for dinners/drinks because at the end of the day, the promoter firms from both the sides don’t interact day to day, rather it’s the people one step down the line who interact on a daily basis.
And these relationships which are being created and fostered will inevitably impact how quickly the learning curve is completed. Where joint ventures are instrumented in terms of bridging a technical gap, the new entrant will learn from the incumbent. How do you take the association forward in that case?
It depends on the industry, like I said. Look at Maruti from 1984 when they came in. The incumbent was dominant, and Suzuki was a minority. Right now, it’s the other way around. It all depends on how the promoter in India looks at his business; if he wants to be in the business or exit the business.
It depends from person-to-person, or company to company, or even industry-to-industry.
Look at Toyota when they came in. They initially had a JV with Kirloskar. Once they set in, Kirloskar has now become a minority. The company that we’re in a JV with, we’ve had a 50-50 partnership since 30 years, so it largely varies across a lot of factors.
Moving my focus to challenges, especially with regards to the communication gap which prevails between and Indian and foreign company (not just in terms of language, but business processes as well), what are your thoughts on these?
It depends on your transparency towards your partner. Your partner will most certainly look at your books and if you have a well-defined ERP system, and if it is compliant and has a proper governance, so the partner has access to that information.
He can see these things, day in, day out.
Most of the communication between the partner is about the operations, therefore it must be clarified. So, it again depends on the type of company you’re working with. If the said company has good governance, a good ERP system, compliance, policy and structural framework, etc., generally no problem arises in that case in terms of communication.
If the said company doesn’t have that, then the idea of mistrust can be propagated because there can be a discord between what you say vs what your figures say. You need to fully understand what you’re getting into; what the partner is good or bad at, and if they’re bad at something, how it can be improved.
And is the partner open and willing to adapt to an alternate system to make the JV happen and work?
See, in a country like India, when we’re calling somebody to come here, we’re looking at someone who’s better than you in terms of technology, in terms of systems/procedures, etc. but never below our own company. We’ve partnered the same way and as a group, we tend to learn from them and adapt accordingly.
We’ve always looked at companies which are state-of-the-art with regards to systems and technology so that even we can learn from them,
It depends on who you’re getting into a business with. The idea of trust is exemplified when your systems and procedures are in place. Nobody has a “liar” or “truthful” tag written across their face; it depends upon what you do and how open/transparent you are.
Today, all my JV partners have access to my ERP systems; that’s the level of transparency and openness we’re working with, so the trust automatically builds up.
We’re not hiding any data or figures, and we’ve even got independent auditors selected by both the partners. You have to make something worthy to bring in trust; it can’t happen with solely your face or word.
I’m sure these changes are not blindly taken by partners. Could you elaborate on the safeguards that one takes for oneself before getting into a joint venture?
If we’re looking at a company better than us, we also have to look out that tomorrow once they’re established, we’re no more in the business because they have the muscle to take over. Therefore, we try to protect our interests from day one, when we make agreements and negotiations so that we ultimately see to this business on a long-term basis.
And the second aspect is, after doing so many joint ventures now, clearly defining roles and responsibilities is extremely important.
Especially given your invaluable experience in the automotive manufacturing sector (be it India or overseas), what is the one advice you’d give to an Indian company getting into a joint venture with a foreign company?
I’d say that apart from looking at the numbers, the balance sheets, figures, etc., and doing due diligence, background checks, you must also bring in the interested party as well and check them as well. This must be with regards to the management, professionalism, policy, procedures, systems, etc. that they have in place and do a viability study on them, as per their market position.
Facts and figures could be different from the behavioral or the operational/procedural methods; so that’d be advice because these certain challenges could be the ones to give rise to issues regarding trust and transparency.