The Foreign Investment Promotion Board has done it again -- given an Indian business group the right to decide on its partner's future. This time it has rejected Nippon Ltd's application to form a new joint venture with the Machino group to make automotive and other cables. The reason: Madhusudan group, Nippon's partner in Madhusudan Nippon Ltd, objected to what you'd think could be a bigamous relationship.
Some weeks ago, Bajaj Auto chairman Rahul Bajaj, known in recent years for his multinational-averse stance, surprised industry by asserting that the provision for no-objection certificates from existing partners should be scrapped. But who is listening to Mr Bajaj?
When companies sign joint venture agreements with other companies, they need to take care of certain things. Product, technology, technology transfer, production know-how, marketing arrangements, and so on are obviously important. Equally important are the terms on which the collaboration is created.
In the past many companies did not bother about these things, because they were protected by the privileges bestowed upon them by licensing. In many cases their poor bargaining positions didn't allow them to utter a peep when the foreign collaborator dictated the terms of the agreement. But they benefited from the technology and funds brought in by their foreign collaborators. And, who can blame them - they want this cosy situation to last forever.
Unfortunately, that's not how business operates in the rest of the world. Some foreign companies with Indian joint ventures are now trying to build their own 100 per cent owned subsidiaries to do things that are similar to what the earlier joint ventures were supposed to do. Others are creating new ventures with other partners. Older partners feel they are being left high and dry. So they want the power to veto the creation of other ventures by their foreign partners.
Now look at an opposite case. In 1994, Mahindra & Mahindra decided to abandon its decades-long alliance with Chrysler Corp. of the US. The reason: to form a joint venture with that American auto maker's rival, Ford Motor Company, to make cars in India. Chrysler had no option but to march off in a huff. There was no provision in the FIPB rules for Chrysler to veto M&M's signing up with another multinational to make "the same products".
That's how it should be. But, since some businessmen talk of a level playing field, why should Nippon's estranged partner, the Madhusudan group, get privileges that Chrysler did not have? Or no other foreign company has today? For that matter, no Indian company has when it ties up with another Indian company (which is rare anyway).
When companies decide to collaborate, they do not enter into a marital union. The idea is to combine their individual strengths and overcome their individual weaknesses in order to perform better in the marketplace. Unfortunately, when Indian partners, who have relatively less to bring to the table, turn out to be more like sleeping partners than active ones, they lose out.
The world's successful companies create partnerships and break them, off and on. Sometimes, they acquire their partners. Sometimes they revert to adversarial roles. Collaboration is never seen as a static thing. It is a dynamic relationship in which each partner strives to learn more and gain more than the other, in order to improve its bargaining position in the relationship.
This is entirely an issue to be sorted out between partners, Indian or foreign. If an Indian company has the sense or bargaining power, it should be able to legally bind its collaborator to an exclusive arrangement, and prevent it from setting up other ventures.
There is no reason for the government to shape policies to protect companies that are inherently weak, or are sloppy and careless.