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The below article written by Ravinder Nath was recently published in the Wall Street Journal.
Living Happily Ever After in Corporate India
By RAVI NATH
Astrologers do good business in the great Indian marriage bazaar. Anxious parents place greater reliance on their recommendations than on other due diligence. If things point negatively, other viable choices will come along, sooner or later.
For a foreign company, finding a potential business partner in India who ticks all boxes is infinitely more difficult. Here are a few pointers on how to ensure a happy corporate marriage.
Since the opening of the economy in 1991, Indian business has adapted well to the requirements for quality in the international marketplace. It has understood the economics of scale and quickly learned modern management methods. A successful Indian business house at such a point may be in want of a foreign collaborator who can give it access to cutting edge technology and better brand value. Such a potential partner usually has a good marketing chain and the ability to work the system. The outlook and attitude of the owner and the senior management would of course need to be carefully assessed. Chambers of commerce, lawyers, bankers and other consultants also can provide insight into a party's business, outlook, attitude, experience, reputation and resources.
The regulatory environment in India has changed dramatically in the past 18 years and, barring certain sectors such as insurance, retail, and civil aviation, it is not necessary for foreign investors to have resident Indian equity holders. But there may be commercial imperatives for a partnership -- perhaps to nullify a worthy competitor or use an existing distribution network. Experienced mid to senior executives are readily available in India who, if engaged early on, can help avoid pitfalls and costly mistakes.
A joint venture contract must be explicit as to who will be in the driver's seat. Anything else is a recipe for disaster. In most cases, Indian law leaves parties to choose their terms and select the governing law and jurisdiction. Where the exit door is clearly defined and marked, there is usually less use for it. It is useful to add a clause which gives freedom to enter into other ventures in India.
“The first few years of a new venture, like those of marital life, are crucial.”
But what makes the relationship last? It is none of the above. It is only a real and perceived need for each other on a continued basis. Take that away and the relationship becomes wobbly.
The first few years of a new venture, like those of marital life, are crucial. In most cases, the life of an Indian couple moves along a narrow, well-defined social path which includes a number of religious functions at which the extended family and close friends participate. Joint venture relationships can be similarly cemented by senior executives and frequent meetings. A sense of religiosity may pervade and there may be invocations to God on important occasions and auspicious dates and times may be carefully plotted.
A foreign partner must remain sensitive to the local customs and beliefs and ensure that there is no loss of face for either party. If he is wined and dined and displayed like a trophy wife, as may happen with first time collaborators, he should enjoy the ride without any hint of condescension. An Indian partner, no matter who he is, must always be treated as an equal. It pays to remember what King Porus said to Alexander the Great when he was brought before him in defeat. In reply to the victorious Alexander's question as to how he should be treated, the Indian King replied "the same way as one king would treat another."
Ravi Nath is a corporate lawyer, advocate on record of the Supreme Court of India, and a partner at Rajinder Narain & Co. in New Delhi.
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