Problems faced by Indian Joint ventures

Out of the many joint ventures approved by the government about 40 per cent were abandoned, many of them halfway after considerable time and money were spent on them. Some of the reasons for failure of these projects were: inability to gauge the market prospects, failure to locate the right partners, subsequent backing out of the local partners and non-approval of the technology sought to be supplied by Indian partners. But the basic cause lies in the inability of the Indian companies to adjust themselves to a new marketing environment – absence of any sheltered market, which they are used to in India. Many units found it difficult to survive in the face of relentless price competition. Most of the problems could have been avoided if the entrepreneurs had done their homework properly. Of course there was information gap and the Indian entrepreneurs did not have adequate information about many countries. Fortunately, the rate of mortality came down; between 1976 and 1979, of the 149 proposals only 31 had failed to come off. This could be due to the greater care excised in the scrutiny of projects. In future, the government should insist on professional project feasibility reports before according its approval.

The picture is not very rosy even about the projects which have already been implemented. A study of 28 joint ventures conducted included that more than 80 percent of the joint ventures that have commenced production are unprofitable. Poor performance of Indian joint ventures has been primarily due to (1) poor projects management, (2) poor operations control and (3) a lack of commitment. The foreign exchange earning fixation of the government has been myopic and misplaced and has overlooked strategic commercial and managerial considerations. Poor project management has led to cost escalation in the range of 40 to 100 per cent. Poor production management has led quality, lack of cost consciousness and irregular deliveries. Some other problems pointed out are: (1) insistence on using scaled down duplicates of Indian plants back home in order to use Indian equipment ad little regards to scale factor, (2) the prohibition of cash remittances from India to joint ventures thus artificially restricting growth of some units: and (3) inability of Indian joint ventures to control any one of the variables critical for business success like prices, product leadership, distribution channels or manufacturing cost.

Key ingredients for a successful joint venture:

1. Both joint venture partners must accept that their gains will flow from the gains of the joint venture.
2. The transactions between the partners should be transparent.
3. The joint venture should be a commercially viable entity i.e. it should not be dependent on special pricing or other forms of subsidy from the partners.


The following steps would go a long way in making India’s joint ventures more successful:

1. An expert agency should be set up for dissemination of information about business opportunities in other countries.
2. The outgoing entrepreneurs should make accurate feasibility studies, undertake market surveys and prepare their own project reports and not merely depend upon other agencies for the information needed by them.
3. More flexibility must be affordable to the Indian entrepreneurs to specify appropriate equipment and scale of operation instead of rigidly insisting on Indian equipment. In fact, the insistence on Indian equipment aversely affects India’s image in as much as the host countries feel that the sole motive for setting up a joint venture is to find sales avenues for Indian capital goods and equipment. Indian entrepreneurs should be given greater flexibility to diversify their activities as also to form wholly owned subsidiaries to take advantage of tax benefits extended by host countries.
4. A consortium of Indian banks should be formed to ease the cash starvation problems of the joint ventures.
5. Indian industrialists should be prepared to enter into buy back arrangement from joint ventures in countries with limited home market like Sri Lanka.