Establishing Joint venture in China – A case of The Orind

About Orind Group:

Orissa industries Ltd., Orind in short was established in 1935. Today, an acknowledged leader in refractory manufacturing, Orind serves every core industry: be it steel, glass, cement, copper, fertilizers or chemicals. Orind also has a very strong global presence, its products finding wide acceptance in 47 countries around the world.

Orind produces 100,000 tons of refractory per year using state of the art manufacturing technology. It also accesses technological support from renowned refractory makers of Europe, Japan and the USA.

Research and Development have always been Orind’s forte because Orind believes that customers deserve the best. And customers need specific products for their specific needs.

Magnesia Carbon bricks were introduced by them in India long before they were perfected in Europe. The result was phenomenal. Steel output in the country rose by 2 million tons.

In the last few years, Orind has introduced 30 new refractory products for various industries; increasing furnace life and reducing cost of production.

Orind is the largest exporter of refractory from India, accounting for over 65 per cent of the country’s total refractory exports.

It is also the first Indian to export refractory technology to IREPCO, Iran, valued at half a million US dollars.

With the world shrinking, global markets becoming accessible, Orind started to look overseas to set up a joint venture primarily to get closer to major world markets.

Orind Exports Ltd:

Orind Exports Ltd is the international arm of the Group. It was set up as a part of our globalization strategy with the primary objective of getting a much sharper focus on international markets. And to go in for international joint ventures.

Why China?

Orind’s long business connection with China helped in our decision making. We had bee importing large quantities of raw materials from China. China has the world’s largest known deposits of purest grade magnesia and bauxite – critical ingredients for making high quality refractory. Our refractories are used mainly by the steel industry. Today, China is the second largest steel producer in the world. Its production being 5 times that of India. And by the turn of the century, China will be the largest steel producer in the world.

So it was a question of getting into the largest refractory market in the world: with the highest growth rate. And proximity to export markets like Japan and other ASEAN countries.

The other attraction was the relatively low manpower costs.

Negotiating the Joint venture:

The first task was identifying a Chinese partner and Orind’s business relations with China helped. The natural choice was Dalian Xiyang Trading Co., with which their relationship was many years old. They also engaged a prominent Hong Kong based Chinese law firm to help in negotiations.

To start with, the project was planned with a relatively low equity base of approx. US $ 1.7 million.

51 percent was Orind’s stake and 49 percent for Chinese partners.

Orind decided to manufacture very sophisticated basic refractories using own technology. The total production capacity is 40,000 tons per annum.

Orind started work on the project, including conceptualization about a year ago and the plant was expected to go on stream by mid-1995.

Orind’s negotiations before the signing of the final agreement took about 9 months. Several meetings took place and several MoUs were signed. At each meeting further fine tuning was done before Orind got to the final agreement. The agreement is valid for 30 years.

Orind found that mutual trust was the main basis of agreement specially since the Chinese do not like a lot of paper work. This had put us into a dilemma. But soon, Orind learnt to live with it. Their system is loose. Hence it was important to draw up fool proof documents and legal contracts. It was also essential to get over the language barrier. The Chinese language is complicated and full of nuances. For understanding and proper documentation right translations had to be done.

And this would have been impossible without the total dedication of their Hong Kong based law firm.