Sanmar Group's secret formula for corporate marriages
By Venkatachari Jagannathan | 09 Jul 2001
Ever since India kicked off its economic reforms, divorce notices between foreign and domestic companies have been flying thick and fast. The main reason - the inability of the Indian partner to bring in additional cash, when required. Added to this was the desire of foreign partners to have their own 100 per cent subsidiary in the country to gain management control. Also, liberalisation obliterated the need for a local partner who knew the tricks of securing an industrial license.
But the Sanmar Group was not marred by any of the above though it has partnered with several Fortune 500 companies, that too as a majority/equal partner.
Some of the 15 marriages are more than two decades old. For instance Sanmar Engineering Corporation (SEC) - an amalgam of 13 independent companies involved in process engineering products and services - celebrated the silver jubilee of is first joint venture company Flowserve Sanmar Ltd.
Interestingly SEC constituents figure in 10 joint ventures while four are in the field of specialty chemicals and one in life insurance sector.
How is it that Sanmar Group is able to manage its partners so well even as some of them compete fiercely between themselves globally? Replies Mr. N. Kumar, vice chairman, Sanmar Group, "Trust and transparency are the two core values we practice with all our joint venture partners."
That apart the Chennai group believes in the principle that operational management should be with one of the partners who will be accountable to the other. Group chairman Mr. N.Sankar outlines in detail the success formula. According to him the joint venture should not be a vehicle by which either partner harvests profits for itself - by selling agency arrangements or preferential price supplies or by off-loading unrelated expenses by charging corporate overheads.
He also feels that if the partners are going to refer the do's and don't' frequently to decide who can do what then it means something is wrong in the partnership. Also important is the ability of the partners to service the growing need for capital as the business expands.
The other success formula is to recognise the importance of the overseas collaborator and not to show the majority stake power. All the joint venture companies sport first the name of their foreign partner in their name.
It is not that Sanmar group's joint ventures didn't face any rough weather at all. But all were sorted out sitting across the table. "Whether it is at the operational/middle/top management level, issues were ironed out in a smooth fashion at all levels," explains Mr. Kumar. Dialogue is what is important, he emphasises.
Vouching that is Mr. George A. Shedlarski, president, Flow Control Division/Flow Solutions Division of the $2.1 billion Flowserve Corporation, "Any business venture goes through different phases. Commitment on the part of both the partners is needed to make it a success."
His words carry more weight as it was with Michigan, US-based Durametallic Corporation, that SEC inked its first joint venture way back in 1976 to float Durametallic India Ltd to manufacture precision mechanical seals. Durametallic Corporation later became part of Flowserve Corporation due to change in ownership and consequently the Indian joint venture too changed its name.
Owing 40 per cent in Flowserve Sanmar, the US company was initially surprised to find its Indian partner having joint ventures with many of its competitors. But what saved the marriage was that none of the other joint ventures competed with Flowserve Sanmar's product portfolio.
Today Flowserve Sanmar manufacturers 14,000 varieties of seals - pusher seals, dry running and split seals to metal bellow seals and non contacting seals.
Interestingly Flowserve Corporation has other investments in India. It has facilities in Hubli and Bangalore manufacturing industrial valves. According to Mr. Shedlarski, Flowserve Corporation has invested around $10 million in India and have floated a similar joint venture in Singapore joining hands with Sanmar group. Today the US company sources from is Indian venture and meet its global demands.
So why didn't Flowserve Corporation think about buying out Sanmar group's stakes or float an 100 per cent subsidiary. Is it because of the small market for the products here?
Responds Mr. Shedlarski, "We haven't thought of increasing our stakes. Certainly it is not because the market size is small. Actually we are happy with the existing arrangement."
Concurring with him is Mr. Joseph M. Izoo, vice president, Systems/Administration, BS&B Safety Systems Inc – the second oldest joint venture partner in SEC group - "On the upside Mr. Sankar is creating an environment of trust. The global market is growing and we indeed are sourcing from India."
The venture he talks about is BS&B Safety System (India) Ltd a 50:50 partnership between the US company and Sanmar group. The sixty five year old BS&B group operates in more than 25 countries and manufactures bursting discs and other pressure relief devices.
Last year SEC clocked a turnover of Rs.218 crore and targets Rs. 297 crore this fiscal. On Rs. 182 crore capital employed SEC hopes to earn a before tax profit of Rs. 57.8 crore this year. The engineering group has drawn up an ambitious plan of reaching Rs. 665 crore turnover by 2005-06. Towards that end SEC is investing around Rs. 12 crore in the three-year old Sanmar Alloy Casting Ltd, one of the three companies that doesn't have an overseas partner.
With not much of new projects coming in India, SEC sees future growth potential mainly from exports. In fact the groups aims to achieve an export income of Rs. 100 crore this year up by Rs. 40 crore when compared to last year's figure.
The strategy that is planned is to position Sanmar Engineering Services on the front to do the marketing while the joint venture and casting unit figuring in the middle and rear respectively. SEC also benefits from the synergy that exists amongst the products of its constituents. The group specializes in high value added products and systems for critical applications in the process industries.
