A joint venture (JV) with the US-based Tyson Foods for its poultry business, is the sole

survivor of Godrej’s dalliances with foreign companies.

GODREJ’S FAILED JVS

Joint venture Start year End year

Godrej-GE 1992 2001

Godrej-P&G 1993 1996

Godrej-Sara Lee 1995 2010

Godrej-Pillsbury 1996 2000

Godrej-SCA 2007 2009

Reported
Godrej-Hershey 2007 to have
ended
Godrej-IJM 2008 2011

Recently, four years after the Rs 11,700-crore Godrej Group and American chocolate
maker Hershey inked a 51:49 joint venture, came the news that all was not well between
them. Apparently cracks had begun to surface in their relationship and the two had
agreed to part ways following differences over running the JV.

Both group chairman Adi Godrej and key FMCG executive A Mahendran, who is also
the managing director of the Rs 3,643-crore Godrej Consumer Products Ltd (GCPL),
dismissed the reports as being speculative, but this doesn’t exactly stun the business
world considering the soap-to-cupboard maker's tenuous relationship with JV partners till
date.

Take the case of Godrej's high-profile JV with Procter & Gamble (P&G) in the area of
soaps in 1993, which fell apart in a span of a few years following differences over P&G's
treatment of Godrej’s brands, including its popular soap Cinthol. Godrej, according to
industry sources, had transferred the distribution of its soaps portfolio to the JV but
discovered that P&G wasn't really interested in soaps as a business. It was only a matter
of time before both parties decided to wash their hands off the whole business.

Then, in 2001, the Indian major snapped ties again, this time with GE in the appliances
arena. The issue once again pertained to a mismatch in expectations. While both GE
and Godrej both had a solid product line, sales offtake was a contentious issue that
broke the spine of the union. A year before that, Godrej terminated its alliance with
Pillsbury, which was formed to market wheat flour and other products.
There were still more break-ups to come such as the one with Swedish firm SCA
Hygiene Products in 2009 or the more recent one with IJM Plantations of Malaysia. In
the latter's case, IJM had lost interest in the union three years after the JV was signed,
which left Godrej with no choice but to buyout its majority stake in the venture, say
people in the know.

Some unions, of course, work better than others.For the Godrej group, its relationship
with Sara Lee was the longest in its history, five years longer than Taylor’s turbulent
marriage to Richard Burton, and one would hope, much less tempestuous.Godrej's
household insecticide portfolio was vested in the JV, while Sara Lee brought Brylcreem,
AmbiPur and Kiwi shoe polish to the table. Sara Lee eventually sold these brands
globally to different players in a bid to focus on its core foods business.

Persons in the know say it is this development that eventually led to the termination of
the JV and acquisition of the 51 per cent Sara Lee stake by GCPL last year. “Sara Lee
was moving out of non-core businesses. Plus the contribution of its brands in the JV was
not substantial,” says Hoshedar Press, a former Godrej Group executive, who retired as
vice-chairman of GCPL last year. "At some stage, a call had to be taken concerning the
future of the JV," he says.

Why do these corporate divorces happen in the first place? Seven out of eight misses is
an abysmal track record, indicative of inept strategy or a flawed corporate culture, you
would think.

Not so, says Arvind Singhal, chairman, Technopak Advisors who says this sort of stuff
tends to happen all the time because of different perceptions about the marriage. “Indian
partners think they understand the domestic market well and hence come across as
being aggressive and demanding. The foreign partner whilst realising the Indian market
is complex is quite often unwilling to change worldwide policies and strategies to suit
local conditions,” says Singhal. “This mismatch of priorities is what leads to tension and
eventual break-up of JVs. I think the scenario has been no different in the case of the
Godrej group and its partners,” he adds.

Nothing was as emblematic of this as the recent Godrej-Hershey divorce, according to

industry sources. The Godrej group was keen to see greater cooperation and
participation from Hershey’s in terms of product launches. Hershey’s, on the other hand,
was more calculated in its approach, launching only one product – Hershey’s Syrup – in
the Indian marketplace in the four years since the JV was signed.
This raised the hackles of the Godrej group, which had vested its chocolate and
confectionery portfolio Nutrine besides allied products in the JV. Hershey’s is now
reportedly looking to offload its 51 per cent stake in the JV to interested players but there
is also the possibility of Godrej buying back the stake.

“If you look at Godrej’s JVs closely you will find these differences of opinion in every
venture that failed. I don’t think there is a problem with the group per se. It is just that
there was a mismatch of priorities that led to the collapse,” says Arvind Mahajan,
executive director, advisory services, KPMG.

In the Dustin Hoffman starrer ‘Kramer versus Kramer’, a young husband and wife
divorce over irreconcilable differences, and then wage a protracted, bitter battle over the
custody of their young son. In the business world, your entire business empire can
crumble because of not being smart about anticipating a separation. “A smart company
is one that has the right type of clauses, especially exit clauses, when getting into a JV.
If you scrutinise Godrej’s JVs carefully you will find that there has been no heartburn
when the JVs went awry. It wasn’t acrimonious and bitter, which means that they have
laid out a set of priorities. If those are fulfiled well and good. If not, they have put in the
right clauses to opt out,” says KPMG’s Mahajan.

The flip side of entering into a series of ultimately failed marriages is that the institution
has probably taken a toll on your faculties. Instead, you may desire complete control of
all future relationships, even if it means buying your partner.

Subsequently, Godrej’s focus on acquisitions has grown. In the last six years, the group
through GCPL has made eight international purchases. This includes Keyline Brands in
the UK in ‘05, Rapidol and Kinky in South Africa in ‘06 and ‘08, Tura in Nigeria in March
‘10, then Megasari Makmur in Indonesia in April ‘10, followed by Issue and Argencos in
Latin America in May and June of ‘10. 2011 saw the group snap up the Darling Group in
Africa.

Adi Godrej’s new mantra is his firm's “three by three” strategy which emphasises making
“acquisitions in three continents —Asia, Africa and Latin America, across three
segments: hair care—especially hair colour, household products—especially
insecticides, and personal care.”

International revenues in the last financial year contributed about 35 per cent to the
firm's overall turnover. This year, according to company executives, the expectation is
that international revenues will contribute close to 40 per cent.
Yet, Godrej isn’t just enamoured of foreign suitors, but is also scouting for domestic ones
who strategically fit into the company’s portfolio. “We are well placed as far as the
categories we want to play in are concerned. We would rather focus on what we can add
to this with our acquisitions in the domestic market,” he had said.

The acquisition of the Swastik and Genteel brands underscores this strategy. GCPL
already has in-house brands Ezee liquid wool wash and Godrej Shikakai soap in its
portfolio. It has no presence in the neem soap category however. Ezee, according to
market experts, is the market leader in the Rs 200-crore liquid wool wash segment with
a 75 per cent share, while Genteel has a 12 per cent share largely in the south of the
country. “With the acquisition of Genteel, our share in the liquid wool wash segment will
be close to 90 per cent now,” Godrej had said at the time of the acquisition.

In the shikakai soap category worth Rs 500 crore, Godrej’s brand, a market leader
again, has a 40 per cent share. SwastikShikakai, on the other hand, has a 20 per cent
share. “So cumulatively our share in the shikakai segment will now go up to 60 per cent,”
Godrej had said.

Not bad for a company with a string of failed marriages.