Many Indian entrepreneurs are quick to propose a joint venture (see technical article Why Indians always want one thing). Unfortunately, this also applies to those who perhaps only want to get their hands on your money or your technology without having to put in much work themselves. Freely according to the motto: You can give it a try - and maybe the German company will get involved...
However, for you as an entrepreneur from Germany and a sought-after joint venture partner, there is a very simple means to Seriousness and quality such requests without much effort be able to assessWhy not simply ask the Indian prospect to draw up a business plan containing concrete statements on the objectives, the planned distribution of tasks and the necessary investments for the coming years?
Believe us: You will never hear from at least a quarter of the Indian interested parties again. Another quarter at least point out that they can talk about all the details in due course. The next group disqualifies itself with absolutely unrealistic planning games or due to the poor quality of a so-called business plan actually delivered. Only the remaining quarter is usually worth the time spent on serious consideration.
Joint ventures in India: Yes, but fair, transparent and with an exit scenario
In our previous articles on the subject of joint ventures we have critically analyzed the reasons that speak for a joint venture. Please do not misunderstand us! We have absolutely nothing against the establishment of a joint venture, but it must "make sense". That means
- It must offer demonstrable added value compared to the alternative of going it alone.
- It must be fair. The respective services to be provided must therefore be clearly and unambiguously defined and evaluated.
The initial scenario of a joint venture is manageable and easy to describe. However, it becomes critical if you fail to make appropriate agreements for future situations as well. This concerns all essential aspects of a company, starting with investments and the corresponding capital procurement up to personnel decisions on management level.
It is also important to make binding agreements in case the joint venture is dissolved. This possibility should always be considered, because after all 80% of all German - Indian joint ventures fail within the first 5 years!
It all sounds absolutely trivial. And it is. But, as practice shows, hardly any company adheres to these basic principles - unfortunately! It's just a matter of applying the same criteria to your investment in a new business as you would in Germany or anywhere else in the world-why not in India, too?
Business plan, reporting & performance review
We have experienced more than once that in joint venture negotiations the initial scenario was agreed in great detail, but the future exposure - if any - was only considered very vaguely. What is often missing is a meaningful and reliable "business plan" that also addresses such "minor details" as future cash flow.
There is also usually a lack of clear agreements on subsequent reporting. From the point of view of the Indian joint venture partner, it will certainly be sufficient to provide you with the financial data listed in the Companies Act in a more or less meticulous manner. Unfortunately, however, this will not really help you to assess the extent to which the business objectives have been achieved at all. Nor does it tell you what steps to take in the future, what investments will be needed and why. That is why it is important to agree on the subsequent reporting standards and also the report contents right at the beginning.
The joint venture agreement should be at the end, not the beginning
We do not believe in shaping a joint venture through so-called "contract negotiations". In practice, however, we often experience that the Indian side presents huge draft contracts at the very beginning of the talks, in which hundreds of small and minute details are offered for discussion. The most important question, what the two partners want to achieve together and what goals they are pursuing, is usually not discussed at all or only in passing. This is how you quickly get lost in the side wars!
For us, however, a joint venture agreement should only be drawn up at the very end of the negotiations, as the quintessence of the results, so to speak, and not at the beginning as a "roadmap" for later. And very important! The joint venture agreement MUST also include exit scenarios.