How a successful joint venture became an economic disaster due to disagreements with the Indian partner about the strategic orientation and how the European company lost India as a market.
Joint venture failed due to its own success
It was a success story: a European world market leader dominated the Indian growth market for mechanical engineering with an Indian partner in a joint venture. 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.
However, the success soon led to different interests and disagreements between the partners, which quickly escalated. The Indian partner, for example, wanted to grow the company much more aggressively with the goal of taking his shares public within a few months. He promised himself "tens of millions". The German side, however, wanted - typical of a medium-sized company - to focus more 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 saw himself cheated out of his "millions" and subsequently began to let the German partner feel his frustration more and more. So after a short period of time, all reporting to the German partner stopped and intransparency emerged. And after another 12 months, during 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 resources were misused by the Indian partner in a new production company secretly founded by the Indian partner. This ultimately resulted in the final break-up of the partnership and years of legal disputes followed, which led through all instances.
JV "Partner" sidelined European technology supplier
Contrary to the initial expectations of the European shareholder, the legal disputes resulted for many years not in the Indian partner, but in the European company being temporarily unable to operate in the Indian market and completely losing control in India. So it took almost 10 years until the highest level of the Indian jurisdiction finally got its right - but in the meantime millions of Euros had been burned for the dispute, accompanied by a lasting loss of image of the German technology leader in the Indian market.
In this situation, Dr. Wamser + Batra GmbH was commissioned to analyse the market conditions and, within the framework of crisis management, to determine how a renewed market entry would appear possible under difficult conditions, such as the aggressive "litigation culture" of the former partner. For example, the Indian partner sued against really every step of the German company in India. The European company wanted to free itself from all old burdens in India and build up a new market access "again from scratch".
Successful crisis management project
Under the direction of Ralph Tobergtewho, at WB Turnaround Management® is used as an interim manager for particularly challenging restructuring projects, the following work has been successfully completed in recent years:
- Assumption of local responsibility for the direction of the restructuring, enabling a new market entry
- Development of a possible strategic reorientation (strategy development)
- Establishing contact and negotiations with former customers as well as business partners in order to re-establish the basis of trust
- Establishment of a new sales and service structure
- Planning for the establishment of a local personnel structure
- reconstruction of Compliance and risk management
- Discussions with business associations, ministries and authorities
After two years, all the conditions were in place for the company to be able to act and actively participate in India with a clear strategic orientation. This enabled one of the most extensive and complex crisis management projects of the WB Turnaround Management® successfully completed.
From dream partner to nightmare
The initial situation was really complicated and the capital already lost was enormous. There were several years of standstill and 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.
For years, the European company was busy defending itself with all the legal means at its disposal. Reviving its own market activities in India was out of the question in such an environment.
Lessons learned: Trust is good, local commitment is better!
Why did the joint venture in question break up with its partner and subsequently lead to the super-GAU...?
From our perspective, quite classic patterns were already taking place during the establishment of the business: The European shareholder leaves the complex and time-consuming bureaucratic processes exclusively to the Indian partner or the local Indian managing director. Not dealing with the matter leads to the European partner soon being overburdened and becoming dependent on the Indian partner or managing director (and sometimes even blackmailing him). Due to a lack of detailed knowledge, the processes in India can no longer be accompanied or actively controlled on the basis of facts. The (own) Indian company has largely become independent.
The goal in India must always be to prevent this drifting apart of trust, understanding and control - in all phases of cooperation. Only if one "invests" oneself professionally and operationally in India and takes care of the local organization including strategy and processes, can a company, be it a joint venture or one's own, function in India in the long term.