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PROJECT REPORT

On

A STUDY ON INDIAN BUSINESS VENTURES ABROAD

Submitted in Partial fulfillment for the award of the degree of

Master of Management Studies (MMS)

(Under University of)

SUBMITTED BY:
STUDENT NAME
(Roll No. )

Under the Guidance of:

Year

Name of the Institute

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Acknowledgement

In this project, I have made an honest and dedicated attempt to make the Project Report so easy to
understand for a person who is willing to get knowledge about the “A Study on Indian Business
Ventures Abroad” I am deeply indebted to my lecturers & my faculties who gave me opportunity
of making project report. I am also thankful to my Project supervisor Mr. ……… for their kind
support & suggestion for making project report.

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Table of Content

Chapter 1 Introduction

Chapter 2 Data Analysis

Chapter 3 Conclusion and Suggestions

Bibliography

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Chapter 1
Introduction

India started opening its economy a decade ago to integrate with global economy. Several
economic reforms have been undertaken during this period with the hope that India will soon
emerge as a global player. There is a need to review the developments and take necessary
corrective action, because globalisation and integration with the world economy is a double-
edged sword. If due care is not taken, the country may become only a global market, rather
than emerging as a global player.

Introduction

The business ventures abroad is not a new phenomenon in the independent India. The initiatives
were taken way back in the 1960s with the first ventures of Birlas in Ethopia in the year 1964.
However, it has assumed specific significance after the Indian government started economic
reforms in the year 1991, making globalization of Indian business an integral part of economic
reforms. Since the economic reforms were initiated due to a serious foreign exchange crisis and
globalization was considered as a key element of reforms to mitigate the same, there is a need for
sustained research efforts to asses and monitor developments in this area. Unfortunately the
studies on this subject are few and far between and more or less in the pre-liberalisation era. This
study is a step in this direction.

Stages of Globalisation

Globalisation of a country’s business typically takes place in several stages. At the first stage, it
is in the form of export of the country’s products and commodities, either directly to the large/
high value customers or through some agents in the importer’s country. At the next stage, it
manifests in the form of presence of the firms in the foreign country for limited manufacturing
and sales, either independently or jointly with a partner in the host country. At the highest level

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of globalization of a firm, foreign business becomes an integral part of the firms’ growth strategy
as well as the sourcing of raw material, funds and human resources

Globalisation of a country is an outcome of combined efforts of the firms of a country. How


domestic players internationalise their business is thus an important parameter for measuring he
level of globalization of a country’s business.

Significance of Indian Business Ventures Abroad

International trade is considered to be imperative for economic development. Economic borders


of various countries have been opened on this premise under the aegis of world trade
organization. Protagonists of the view in the economically developed countries may be right in
this assertion on account of their perception of harsh realities there. In countries, whose economy
has moved from the level of necessity to comforts and luxuries levels, there are increasing
pressures for newer, better and superior products with consistent quality, high reliability and
attractive finish etc. Further, with the labour becoming increasingly costly, the firms have to go
for development of capital intensive technologies. The huge investments in new product and
technology development demands higher levels of production to ensure operations of the firms
above the breakeven point. The scale of operations required over a period of time reaches a level
that is well above the entire domestic demand in most of the developed countries, which
generally have small population. The firms thus face the problem of searching new markets and
cheaper sources of raw material, labour and other resources. Their growth and development,
thus, depends upon internationalization of the business. The large firms in the developed
countries, thus, globalize as much on account of these pressures, as due to their desire to
globalize. The foreign trade of all the developed countries (except U.S.A.) thus has a favourable
trade balance. Foreign exchange gets earned in such countries and they do not face the balance of
payment problems, neither the government is under pressure to arrange foreign exchange for
them as is the case with the developing countries.

The need for globalization in the case of developing countries like India is of a different kind.
They at times import goods, services and technology to meet the demands that are necessities not
comfort and luxuries and therefore, have to earn enough foreign exchange/ take loan in foreign

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exchange to pay the import bills. They are not under the pressures to look for foreign markets or
cheaper sources of inputs. They earn foreign exchange through export routes. But they are hardly
ever able to reach an export / import ratio of 100% or more and face perennial problem of
foreign exchange.

The movement to the next level of globalization i.e., physical presence in the other country is
becoming necessary for India to have a closer idea of the market that could be served, and the
product that could be developed with unique natural resource endowments of the home country
for serving the global markets. This can also help in reducing the exploitation by the host country
middlemen. Indeed, without moving out, the firms can not appreciate well and evaluate correctly
the worth of the home country natural resource endowments, a fact that has not been realised
well so far.

This study aims at understanding the level of Globalisation achieved by India, measured at the
second stage of globalization i.e., Indian Business Ventures Abroad. There are several authentic
studies being done regarding the first level of globalization (i.e., exports) by agencies like
Reserve Bank of India, Centre for Monitoring Indian Economy etc. and the relevant information
is easily available in public domain on a regular basis. However, there is a paucity of studies on
second level of Globalisation. This study is aimed to bridge this gap.

Nature and Scope of the Study

The study analyses all the business ventures of India abroad since independence up to the year
2017. It covers both the routes of business ventures abroad, namely joint ventures & subsidiaries.
The study analyses the business ventures up to 2017 and year wise patterns from 2010-2017 The
study examines the patterns of Indian Business Ventures Abroad, both in the form of wholly
owned subsidiaries (WOS) and the joint ventures (JV), over a period of 50 years since
independence. The study also examines the patterns of WOS and JVs by country. The analysis
has been done both in terms of the number of business ventures, as well as their value (in terms
of equity participation). The nature of activities undertaken by Indian Business Abroad by type
i.e., manufacturing, trading & services; have also been studied. Another significant issue
examined here is the level of implementation of the Indian Business Ventures Approved. The

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study then compares the magnitude of Indian Business Ventures Abroad and Foreign Business
Ventures in India and complements it further with the analysis of export / import performance of
India to draw conclusions on whether India is emerging as a global player or likely to become
global market only. It has been suggested that there is a need for strategic shift to strengthen
India’s business ventures abroad to help India emerge as a global player.

The study is a descriptive one, based upon on secondary data, namely publications of Indian
Investment Centre, related to India’s joint ventures and subsidiaries abroad as well as foreign
collaborations in India

The Third World in general comprises a group of countries which are at a far lower level of
economic activity than the industrially advanced societies. There are large disparities between
the developed and developing economies; and indications are that this gap is further widening.
The Third World is undoubtedly distinguished by a low level of industrialization but there do
exist substantial variations among the member nations. There are countries which have a long
history of civilisation, as also others which are young and/or of a near nomadic character. On the
one side there is India, a prominent member of the Third World, which stands fourth in the world
in terms of the size of the trained pool of manpower resources, and on the other there are many
African states wherein the number of persons studying beyond the graduate level can virtually be
just a few hundred.

Most of the Third World countries have had a colonial past. While most of them have achieved
political independence, their economies continue to depend for survival and change on the
erstwhile colonial masters or other advanced nations. Foreign private investments and the main
trading partners happen to be the richer nations. For a variety of factors the extent of dependence
is getting enhanced. It is in this background that a widely shared view has been emerging that the
Third World countries should co-operate among themselves for mutual benefit ('collective self-
reliance' in the words of J.K. Nyerere) as also to avoid exploitation by the developed countries
and the multinational corporations supported by them. The Third World countries, however,
have yet to fully operationalize the generally agreed principle of mutual cooperation. Many of
the Third World countries are yet not equipped with adequate expertise, knowledge and
information on global issues so as to fully appreciate the implications of mutual cooperation. On

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the other hand, the developed nations, have a mature system of interaction, information exchange
and a well-coordinated system of protecting their economic interests in the Third World.
Economic cooperation in the form of trade, between the rich and the individual poor countries
has a built in bias in favour of the rich. There is, of course, growing political awareness among
the Third World countries to promote mutual cooperation to enhance their bargaining capabilities
vis- a-vis the rich nations.

The thrust for the mutual cooperation among the Third World countries has found varying
expressions, namely: 'Technological Cooperation among Developing Countries'(TCDC);
'Economic Cooperation among Developing Countries'(ECDC); 'South-South Cooperation'; the
Colombo Plan for Co-operative Economic Development in South and South East Asia in (1950);
the Non-aligned Nations (NAM) meets since 1955; UNCTAD meetings since 1964; the 'South
Asian Association for Regional Cooperation' (SAARC) and so on. The sixth UN General
Assembly in 1974 adopted a 'Declaration of Programme of Action' for the establishment of a
'New International Economic Order' (NIEO), which envisaged more active economic
relationships among the developing countries.

India is committed to foster and enhance economic cooperation among the non-aligned and
developing countries. It has taken a prominent role at the UNCTAD as a member of the 'Group
of 77' and Non-aligned summits from time to time. A special emphasis was placed at the second
UNCTAD meet convened in 1968 in New Delhi for promoting international cooperation and
self-reliance among the developing countries. The Export Policy Resolution of 1970 of the
Government of India laid a special emphasis on the need towards strengthening the economic
links with other developing countries. India's commitment was once again re-affirmed at the
UNIDO Third General Conference in 1980 in New Delhi and the 1983 NAM summit. India's
approach to enlarged South-South cooperation, however, is not new. Its roots go back to the
country's struggle for political independence from the colonial rule. The Indian political
leadership has always stood for the struggling people against imperialism and exploitation.
Indian concern has, in particular, been repeatedly expressed with reference to countries of Africa.
The political leadership in India has been conscious of the need to extend their helping hand to
other nations which happen to be even less fortunate than India. The need for mutual cooperation
was included as an agenda in the Third Five Year Plan. It observed:

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Assistance from international agencies and from one country to another has a significance
no less for the economic progress of the less developed countries than for the building up
of a world community in which each country contributes to the development of others
according to its capacity. This is an obligation which India fully accepts and, as her own
economy develops, within the limits of her resources, she will endeavour to share her
experience with other developing nations.

The need for mutual cooperation among the Third World countries is well argued, understood
and accepted. The real question is with regard to the forms of cooperation. Should the
cooperation be in trade, technology sharing, experience and man-power pooling, collective
bargaining, joint production plans, information exchange and training or encouraging private
inter-country investments through establishment of joint ventures?

Each form of cooperation would have its own short and long term economic and political
implications. For instance, if a country from the South decides to affect a change in the source of
imports (from one advanced country to a constituent of the South) it would directly imply a cut
in implied patronage to manufacturers and suppliers in the former supplier country. Such a shift
may lead to snapping or curtailment of 'aid', 'assistance' and other bi-lateral agreements of the
two countries. One may also appreciate that substantial shifts in international trade are not easy
to achieve since the Third World imports are closely linked to sources of international finance
and non- financial infrastructural facilities. The present day international economic order is a
product of history and interplay of forces of in- equality. The relationships were determined
during the colonial era and in essence these have continued in spite of new political status. Even
in technology sharing, a question arises whether Third World country should settle for lower
level of technologies when there were well known and proven higher level technologies already
available. Whatever might be the macro and political considerations it would seem to be indeed a
hard choice to make? Even in matters of collective bargaining the power of pressure groups,
lobbies and capabilities of the well-entrenched vested interests cannot be wished away. One is
fully aware of the processes and difficulties faced by the leaders of the trade unions in achieving
collective bargaining. If employers can promote dissensions among the labour community the
few advanced nations (or TNCs) may be obliged to defend and promote their economic interests
by resort to all practices and resources at their command to divide the Third World. The

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difficulties involved in promoting South-South cooperation should also be viewed in terms of the
reality that Third World member countries do happen to have a wide variety of shades in the
character of the state and socio-political systems. The processes of decision making and the
importance of home elites and their motivations are not the same in all countries of the Third
World. One may also keep in mind that the significance and control of foreign private capital,
already in operation, varies from one country to another. Thus, while there may be a general
agreement among political leaders of the Third World to pursue the ideals of 'collective self-
reliance', the task of operationalisation of South-South cooperation is ridden with a host of
difficulties and many a contradiction.

The 'seventies saw a good deal of conscious international resolve to seek basic and structural
changes in the international economic order. The problem of the Third World's continuing and
deteriorating poverty was well known; but the adoption of the resolution on the New
International Economic Order (NIEO) by the United Nations in 1974 can be taken as a land
mark. The Lima Declaration (1975), ILO's Programme on Basic Needs Strategy (1976), Caracas
Programme of Action (1981) and constitution of the South-South Commission (1987) are all
aimed at translation of the ideals of collective self-reliance into reality. While the nature of the
NIEO is being actively debated it is necessary to critically examine and review different forms of
the South-South cooperation. This probably is the reason for many a scholar directing their
attention to the implied and un-avoidable consequence of direct private investments in the Third
World originating from within the Third World countries. The important studies in this regard
are: Kumar, Krishna and Maxwell G Mc Leod, (ed.), Multinationals from Developing Countries;
by Altaf Gauhar, (ed.), South-South Cooperation; Breda, Pelvic, et al (ed.), Challenges of South-
South Cooperation; Wells, L.T., 'Third World Multinationals', and Kushi M Khan, (ed.),
Multinationals of the South - New Actors in the International Economy. A wide variety of issues
have been raised in these studies. The characteristics of the South-South joint ventures
underlined are: (a) South-South cooperation is a philosophy of mutual help in the framework of
rich nations versus the poor ones; (b) The poor nations have more similarities between
themselves and therefore the technologies from another Third World country are more relevant,
this being particularly so in matter of labour intensity and product mix; (c) while investors from
rich nations would be TNCs, the investments from the Third World would not have the force of
imperialist powers and these would be joint ventures and not subsidiaries as was true of TNCs.

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On the other hand the shortcomings of the South-South cooperation in the form of joint ventures
would be: (a) lower level of technology transfer, (b) limited capabilities of the South-South joint
ventures to mobilise capital, and (c) incapability of joint ventures to assist exports since markets
in the industrialised countries are controlled by the TNCs originating in the North. Attention has
been paid to the motivations of the joint ventures, and pull and push factors have been identified
in empirical studies.

The focus of this paper is somewhat different than of the earlier studies. An effort is made to
classify Indian Joint Ventures (IJVs) according to business associations at home and view the
Indian joint venture companies from the viewpoint of implications at home.

India, is one of the largest sources of private investments in the Third World. The arguments in
favour of India's participation in industrialising fellow developing countries generally run along
the following lines. The managerial and business experience of India could be of direct relevance
to other developing countries. India can offer her experience and expertise in building the
infrastructural facilities right from the stage of planning and designing to installation and
operation. While India has been importing technologies from developed countries it has also
taken steps to adapt these to its needs. Having put them into use and gaining experience in
adapting them to its needs, in a way, India could be a potential source of technology which is
more suitable to the capital scarce and labour surplus developing countries. It was sometime in
the mid-sixties that a decision to permit Indian joint ventures in the Third World countries was
taken. The focus of attention at that time was the African continent. Since then the support to the
joint venture concept has continued, but there appears to have been a marked shift in the rational
and expectations from the Indian joint ventures abroad. At the time of the initial decision the
Indian government seems to have been aware of the fact that private investors could create
problems for India since national interests and private interests need not necessarily coincide. In
view of this it was clearly spelled out that IJV shall not be allowed to operate on terms which
India as a host country would not accept for foreign investors. The IJV were prohibited to
establish 100 per cent enterprises. The maximum Indian equity that a IJV could have was fixed
at 49 per cent. This basic policy decision was permitted to be ignored in practice. By 1967- 68
the IJVs were sought to be promoted as instruments of promoting Indian private interests abroad
in term of (i) acquiring larger assets in the host countries; (ii) export markets; and (iii) rich and

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high profit bearing investments. To help this process India instituted export subsidies, export
credit, finance, through bilateral agreements for IJV. The Indian Policy, obviously influenced by
the demands originating from the vocal and influential big houses, has tended to become very
similar to that of other advanced nations, who support home investors outside their national
boundaries.

The latest guidelines issued by Government of India regarding IJVs are given in

Annexure-1 of this paper. The applications for joint ventures are approved by the Inter-
ministerial Committee under the Ministry of Commerce. The overall regulation of IJVs is
covered by the Foreign Exchange Regulation Act, 1973 (FERA). To facilitate and encourage
IJVs, the Government of India has taken steps to collect and disseminate data by establishing
economic divisions in the Ministries of Commerce, External Affairs, Industry, and Indian
Embassies outside. Indian Investment Centre (IIC) is also expected to play an important role by
gathering data regarding the opportunities for overseas projects and for this IIC has set up offices
to collect business information.

The Federation of Indian Chamber of Commerce and Industry (FICCI), one of the largest private
sector association of business and industry has been active in promoting the idea of joint
ventures with other developing countries. The FICCI works out the details for overseas ventures
by sending its delegates to different countries and by setting up of Joint Business Councils with
other countries.

The present study confines itself to a review of the development of cooperation through
promotion of joint venture projects as set up by the Indian private and public sector undertakings
abroad. The main emphasis is obviously on investments in other developing countries. The study
also seeks to examine—

the main characteristics of the Indian investors abroad;


the nature of activities undertaken by them; and
How far IJVs are in conformity with the envisaged objectives.

We also examine the spatial/geographic spread of the IJVs. There are a wide variety of questions
relating to the contribution made by the joint ventures in host countries and the problem faced or

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created by them. How different are the experiences of the host countries in dealing with IJVs vis-
a-vis private corporations originating from the developed world? Are they materially different
from each other? To examine such issues one would need to have a multi-country project.

The data and information on IJVs abroad is obtained mainly from the Indian Investment Centre
(IIC), the Ministry of Commerce, and Company Annual Reports. The reference point for the
study is August, 1986. The IIC information is confined to:

name and address of the Indian Collaborator;


name and address of the Foreign Collaborator;
field of collaboration;
the amount of equity capital held by the Indian collaborator in Indian currency;
date of approval of project; and
The status of the project i.e. whether it is 'in operation' or 'under implementation. If it is in
operation, the month and year of commencement of production is also given.

The ownership character and association of the Indian partners involved in the IJVs has been
determined on the basis of the compilations available at the Corporate Studies Group, Indian
Institute of Public Administration, New Delhi. The official information on IJVs has been found
to be incomplete on many counts. The official sources do not cover all investments abroad by
Indian investors. Because of a technical reason, probably, "Wholly owned subsidiaries" and the
investments through "inter-corporate investments" by the Indian companies established outside
India do not find a place in the data compiled by the official agencies. One finds that some of the
subsidiaries of Indian companies have corporate investments abroad and have even floated new
companies abroad. This does not get reflected in the official data. There are also some cases in
which Indian companies and their subsidiaries or associates have invested outside India in
officially recognized joint ventures which were approved in the name of other companies. Such
investments are also not taken note of by the official agencies. It was explained by the Ministry
of Commerce that these investments are not treated as joint ventures.

Joint Ventures
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In the pre-independence era joint ventures were neither encouraged by the British rulers nor were
the (foreign) firms eager to form. After the independence of India in 1947 joint ventures in India
were encouraged by the government and were found to be of interest to foreign firms. The
government's philosophy of self-reliance gave further impetus to joint ventures in India. The
main focus of joint ventures farmed then was import-substitution.

The government's stress on industries to develop "appropriate technology" for Indian conditions
was by and large a failure. Beads manufactured in India were generally costly and of inferior
quality. Market based economy became popular almost all over the world leading to the
globalization of business. This compelled the Indian government also to liberalize the Indian
economy. This led to spurt in formation of joint ventures in India. The significance of joint
ventures has not lessened but rather increased m the post-liberalization era. The nature of joint
SL ventures, however, has changed significantly. Now the, joint ventures formed in India focus
to develop competitiveness of the Indian firms to face global competition more effectively; and
successfully and integrate the operations of the firms into the global economy.

What are the lessons Indian business managers can learn from the changed scenario concerning
joint ventures? What are the mechanisms through which, a joint venture partner exercises control
on joint venture? Is joint venture more difficult to manage? Why? Why joint ventures are formed
at all? What are the advantages and disadvantages attributed to joint ventures'? Why joint
ventures fall? What are the joint venture partner selection criteria for Indian firms as well as the
foreign firms? Why go for foreign collaboration? What are the important aspects concerning
foreign collaborations? What is the scope of Indian joint ventures abroad? What lessons Indian
managers can learn from successful as well as from unsuccessful joint ventures'? These are the
questions business managers are concerned about and this chapter aims to discuss the same and
provide a set of recommendations for the business managers to profit from joint ventures in the
changed scenario of globalication.

Definition

Joint venture as the name itself suggests is a venture jointly collaborated by two or more firms.
The Oxford English Reference Dictionary (Pearsall and Trumble, 1995) defines collaborate as to

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work jointly; or cooperate traitorously with an enemy. Enemy has further been defined as a
person or group actively apposing or hostile to another, or to a cause etc.; or an adversary or
opponent.

Collaboration may be defined as any arrangement between two or more firms that entails acts of
cooperation. This cooperation can take various forms (Hoghton, 1963). It may involve one firm
doing something for another as in a licensing agreement. It may be based on both the firms doing
something for each other as in a cross-1icensing agreement. It may consist in two or more firms
joining forces for a common purpose by financial participation, the formation of joint
subsidiaries or working together joint projects. The central focus of this chapter is on the joint
ventures where two or more firms join farces for a common purpose by financial participation
for working together in joint projects. The ratio of equity holding by joint venture partners may
be equal or unequal and may differ from venture to venture depending upon among other factors
bargaining power of each partner with respect to others. It is also possible that a partner control
the venture though having lower holding due to its expertise or other factors.

A joint venture may be formed between two or more firms belonging to one country or between
two or more firms belonging to different countries in a project in a country where either of the
joint venture partners is based or in a third country. A joint venture between two or more firms,
having operations in different countries is referred to as foreign collaboration. As a foreign
collaboration involves payment in foreign exchange in terms of management and/or technical
know-how fee, royalties, and dividend towards foreign equity, is subject to stringent controls
even though foreign collaborations may be encouraged by the government for improving the
competitiveness of industries of its country.

Joint Ventures Control

By definition a joint venture has two or more joint venture partners. They also become the
parents of the joint venture. They are attached with joint venture as they contribute towards its
formation various tangible and intangible assets and attributes and would like to parent the same
with varying degree of control. A study by Schaan revealed that joint venture partners use a

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much greater variety of mechanisms to influence the management of joint venture than has
generally been recognized.

These are as follows formal agreements, staffing and influence techniques.

Formal Agreements

There are a variety of legal documents which invariably accompany the creation of a joint
venture. These are nearly always closely connected to the issue of control. The articles of
incorporation, by-laws and shareholders; agreements, which are in a legal sense the cornerstone
of any venture, spell out such things as the scope of venture, the composition of board and
executive committee, the types of decisions which need to come to the board for approval and
the percentage of votes needed to approve various types of decisions. There is often protection
built in for the minority shareholder on certain issues. These documents deal directly with
control in its most direct form who can veto what?

In addition to these basic agreements, there is often a series of agreements between the joint
venture and the foreign partner. These could cover the supply of component parts, possibly the
marketing of the venture's products in countries beyond that in which it is located and the supply
of product design and production process technology. When such deals are struck, management's
attention is often focused on royalty fees and transfer price. However, in a more subtle way, each
of these agreements confers some degree of control to the foreign partner. If for instance, the
venture can obtain its technology from not other source, the foreign parent will effectively
control the product design, much of the economics of the production process, and the rate of
introduction of product modification. Similarly through the supply of component parts the
foreign parent will automatically be involved in question of production scheduling, modification
of the product for the local market, and whether or not to build products for inventory. A
marketing agreement will obviously give control over export volumes and involve the parent in
discussion of pricing, advertising, distribution and product features.

The more the parent is involved in such discussion on an ongoing basis, the greater its influence.

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Agreement with the local parent are less often for technology and more often for local services
such as legal work, accounting and data processing.

In addition, all of the venture's output may be sold to the local partner for resale where the local
parent explicitly control over day-to-day operations. Although such a contract often places the
recipient firmly m a position of dominance, this is not necessarily the case.

Staffing

Arrangement regarding a joint venture's staffing are generally not quite as formal as the
agreements discussed above. From a control point of view, however, they can be significantly
important. There are several immediate advantages to a parent interested in controlling a venture
in having its personnel in the venture. Communication between the venture and the parent
company is likely to be improved, simply because employees of the two firms will know each
other. More complete information offers the prospect of more complete control. Secondly, such
an employee is likely to act in ways which his parent would find acceptable, even when his
actions are not being overtly controlled. His values and attitudes will most probably have been
shaped by the parent company and will continue to guide him even in the joint venture.
However, in shared management ventures such activities prevent the venture from developing its
own identity, separate from that of the parents. This may hinder successful operation of the
venture.

Influence Techniques

Some parent companies are able to influence significantly-the thinking of joint venture
executives even in situation in which they have no formal means of control like requiring the
venture to use appropriation request forms which they have designed. By specifying the kind of
information and amount of details to be provided, these parent can influence the kind of projects
submitted by the joint venture and the kind of returns they would strive for. Some parents also
use 'strategy reviews' or progress reports with the same intent. Companies who loan staff
personnel to the venture to assist with planning and to do some in-house training can also mold
the operation of the joint venture.

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Why Joint Venture is Difficult to Manage?

The basic cause of the problem of the joint venture management is that joint venture has more
than one parent (Killing, 1983). These parents, unlike the shareholders of a widely held public
corporation, are visible and powerful and can and often disagree on strategic issues; how fast the
joint venture should grow, which products and markets it should encompass, haw it should be
organised and perhaps even what constitutes good or bad management, should the venture be
managed for short-term gain or long term market-share creation, and the degree of control to be
exercised by each joint venture partner.

There are two specific areas within a joint venture where the problems of multiple parents can
make themselves known. One is at the board level. The board of directors of a joint venture
contains representatives from each parent and it is here that differences in priorities, direction
and perhaps values may emerge. The result can be confusion, frustration, possible bitterness and
resulting slowness to take or implement decisions. Maruti Udyog Ltd is the case in point where
the joint venture partners the Government of India and Suzuki Motor Corporation of Japan are at
the loggerhead on the means of financing the Rs.2000 crore eispansion-cum-modernization plan
which has implications on the degree of control Suzuki may be able to exercise on the joint
venture Maruti Udyog Ltd in future.

The other aspect of joint venture operations which differentiates ventures from other, forms of
organization is their staffing. Many ventures use both general and functional managers drawn
from their parents. The rationale for this arrangement is expected to provide functional expertise
but as happens often is used to exercise a check and balance of controlling power of the .joint
venture partner due to a lack of trust in one's partner.

A joint venture is a type of strategic alliance and could be procompetitive, non-competitive,


competitive, or pre-campetitive (Yashina and Rangan, 1995). All these types pose different types
of problems to the joint venture partners to handle. The managers involved in strategic alliances
may attend to all the four objectives - (maintaining flexibility, protecting core competencies,
enhancing learning, and maximizing value; - recognizing that their relative priority or order of
importance tends to vary among the different types of alliances. The relative priority or

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descending order of importance for managers of precompetitive strategic alliances would be
flexibility, core protection, learning, and value adding. For competitive strategic alliances, they
would be core protection, learning, value adding, and flexibility.

For noncompetitive strategic alliances, they would be learning, value adding, flexibility, and core
protection. And for procompetitive strategic alliances, they would be value adding, flexibility,
core protection, and learning. These dimensions are not to be worried about in case a firm goes
on its own whereas they are significantly important in case of a joint venture. This makes a joint
venture more difficult to manage.

Why Joint Venture?

Most firms prefer to exploit the opportunities existing in the environment and tackle the
problems posed by threats on their own. As such doing this itself is not easy. Collaborating with
others not only obliges a firm to share rewards with others, but subjects itself to restricting own
freedom of way of exploiting opportunities or tackling problems posed by threats. Thus joint
venture is less preferable. But still so many firms go in for joint ventures, why?

The increased domestic as well as global competition has compelled the firms to keep on
introducing new products in market and to do so efficiently acquire necessary skills. This is
possible even when a firm goes on its own. But apart from other things there is a loss of time,
which is crucial in business. Hence, it has become imperative for firms to go in for collaborations
with other firms and at times even with competitors to stay ahead in the competition.

There are many reasons why firms enter into collaborations. Most of the reasons ultimately can
be linked to more and/or better products; and increased market. License and know-how
agreements are common for firms desiring to add more and/or better products to their product-
range. The licensing agreement is resorted to when a firm is prepared to pay for the right to
independently manufacture a product or use the process of another and gain through the sales of
such products. Know-how agreements are resorted to when high-level technology is involved for
manufacture of product and interaction and support of the other firm supplying know-how is
necessary. The major disadvantage of licensing or know-how agreements is that the firm offering

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rights basically is interested in earning the fees or royalties and is not interested in the growth or
improving profitabi1ity or improving the competitive position of the firm using such rights.

This disadvantage is reduced significantly in a joint venture agreement, A joint venture is formed
when two or more firms combine their strengths and resources and commit themselves to joint
venture in the form of taking up equal or unequal equity stake. A hew entity may be created or
equity stake of a management in a company may be divested m favor of another.

Other most common reasons for entering joint ventures are to gain access to raw materials,
finance, managerial experience and expertise, government insistence, and when only by
combining forces can the joint venture partners achieve satisfactory economies of scale in
research and development, production, or marketing.

An interesting facet of joint venture is that it is not only a discrete unit in itself but is a part of the
broader network of its parent firms' goals and objectives. This makes a joint venture often an
irrational entity, if considered in isolation from the relationships with its parent: firms. Any
independent firm would tend to be rational and maximize its profits. A joint venture instead is
subject to the profit maximization objectives of its parent firms influenced by the bargaining
power of the joint venture partners among other things. The primary condition precedent for a
joint ventures that for each partner the sum of profits from non-joint-venture operations (if any)
and its share of profits from joint venture operations must equal or exceed profits from the
alternate profit earning activity. This makes profits from joint venture and non-joint-venture
related. This relationship may produce positive or negative spillover effect. A positive spillover
occurs when know-how is gained from joint venture activities that can be applied profitably to
nan-joint-venture operations as well. A negative spillover occurs when joint venture competes
with non-joint-venture operations of the parent firm like in case of a geographical market overlap
or negative product substitution effect suffered by any parent firm on the products of the firm.

In 1977 the Coca-Cola Co. entered into joint venture operations where the stakes were
considerably higher than the profitability of the joint venture (Business Week, 1978). At that
time, Coca-Cola formed a $10 million joint venture with the Egyptian government to develop a
citrus plantation in the desert between Cairo and Ismali, This was done with the hope of ending
the Egyptian boycott of Coca-Cola products that had been in force since 1967, when that
company had awarded a Coca-Cola franchise in Israel. This strategy worked and a few weeks

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after Coca- Cola put down 25 per cent of its $5 million share in the venture, Anwar Sadat lifted
the boycott, allowing Coca-Cola the right to resume bottling in the highly lucrative Egyptian
market.

It is also possible that objectives of joint venture are totally independent of that of its parent
firms. Such a case is relatively much less complex. The complexity increases many fold if either
or both the .joint venture partners of a joint venture are widely networked corporations having
multiple joint ventures with different joint venture partners around the world. Consideration of
profit-maximization of joint venture partners taking into consideration non-joint-venture
operations as well as operations of all the joint ventures having different types of relationships -
neutral, positive, and negative is extremely complex and difficult to quantify. But considering the
globalization of business and increasing number of cross-border joint venture networks there is
no other go but to adapt to and master this calculation.

Advantages and Disadvantages of Joint Venture

Advantages

The major advantage of joint venture is that it makes it possible for a business to come
into existence at the right time which otherwise may not be possible considering the
limited resources and capabilities of the firms. It may be possible for both the joint
venture partners to generate sufficient resources and capabilities to go on their own later
but by that time the strategic window of opportunities might be closed or the business
might have saturated not worth considering to take it up.
A joint venture may help a firm diversify into unrelated areas of business with lower
degree of risk as a firm can bank upon the expertise and experience of another joint
venture partner.
A joint venture may offer a product, range of products or technology to manufacture
them to a firm lacking them and on the other hand the other joint venture partner can get
access to new market,
A joint venture may offer growth and higher profitability to both the joint venture
partners. There may be additional gains due to synergy.

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A firm may be able to increase utilisation of its underutilized plant capacity, if the joint
venture is able to use the existing plant with or without minor modifications. This also
help the other joint venture partner to go right into manufacturing instead of going for
setting up a plant from scratch. There is a significant gain in terms of saving time.
A firm through a joint venture in backward integration chain can gain easy and more
reliable access to the raw material of dependable quality. Whereas a firm through a joint
venture in forward integration chain can gain a captive market for its products. A joint
venture on the other hand may gain too correspondingly.
A firm may gain access to ready-made distribution or marketing network of another joint
venture partner and feed the new product swiftly and smoothly into the market. The other
firm on the other hand is able to reduce its sales/marketing overheads.
Two other major advantages of joint ventures are that managerial and technical staff
having experience of operating in given product-range or market may be readily
available; and that this also offers an opportunities to managerial and technical staff of
both the joint venture partners to learn from each other.
A firm controlling a joint venture gets an opportunity and gain experience of managing
an organization larger than what its resources permits. The other firm, on the other hand
saves the hassles and troubles of managing the venture and devote its time on managing
its own affairs and still benefit the gains from the joint venture.
A joint venture can help both the joint venture partners improve their respective
competitive positions. There may be positive spillover effect of joint venture activity.
Through a joint venture abroad a firm may gain certain additional intangible benefits due
to its association with the local joint venture partner. In most, including developed ones,
countries a foreigner is a foreigner and, hence, attracts some degree of jealousy often
resulting into hostility from the local government or local citizens or both. A joint venture
with local partner cuts the ice to a significant degree, even if the stake of the foreigner
joint venture partner is higher. A local partner can also be valu able because of its local
knowledge and connections. It may have better understanding of local needs and tastes,
familiarity with the laws and regulations, understanding of the most appropriate means of
marketing and advertising and capability to handle the local employees,

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A network of joint ventures in different countries exposes the management of a firm
competing other local firms as well as other multinational corporations leading the
management to develop international business attitude and outlook as well as develop the
managerial capability to run complex networked large organisations. These skills are of
immense value in the emerging globalisation of business.
Due to the local government's policy and laws for setting up wholly-owned subsidiary
may not be permitted at all. A joint venture only may offer the entry to a firm in such
country. With the change in the government's policy and laws it may become possible for
a foreign firm to increase its stake. Such firm would be at advantage compared to other
foreign firms that enter such country by then.
Political prejudices against one joint venture partner may be reduced, if not eliminated,
due to the respectability and connections of another joint venture partner.
A firm by entering into a joint venture may be able to establish profitable rapport not only
with its joint venture partner but also with joint venture partners of other joint ventures of
its joint venture partner whether in the same market/country or different
markets/countries. This, is likely to be crucial strength in the future when globalisation
would mature and only formidable competitors left would be the globally networked
corporations.

Disadvantages

No joint venture can be success without each partner trusting each other. Full trust and no
doubt may be counterproductive to the interest of individual partner. It becomes
imperative for each joint venture partner to have the relationship with other joint venture
partner with varying degree of trust and circumspection so as to make the joint venture
successful without jeopardizing own interest. This is difficult. Partners fault on keeping
the right balance often and either suffer own interest or damage the joint venture interest..
Both make it difficult for joint venture to survive for long. Not only this, interest of
individual partner may suffer more in terms loss of competitive advantage.
Political equations among countries keep on changing all the time. A foreign
collaboration joint venture may suffer if either of the countries of respective joint venture

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partners suffers relationship with the other on account of change in the political equation.
The significance of trade bans has also increased in the emerging globalization and a joint
venture may suffer due to none of its fault.
Radical changes in environmental factors in a country especially the governmental and
legal can negatively influence the interest of either joint venture partner. This may in turn
upset the joint venture if a joint venture partner turns hostile or uncooperative. Also as
happened in Uganda, Somalia and in some other countries the foreigners may simply be
driven out of the country empty-handed resulting into loss to all assets.
Bargaining power of a joint venture partners may suddenly change significantly and a
joint venture partner having more power may manipulate the other. This may jeopardize
the prospects of joint venture as well that of the other partner.
In addition to the terms of the joint venture agreement joint venture partners get
committed to keep pace with each other through proportional input financial or
otherwise. Excellent or worst performance of joint venture necessitates additional inputs.
A joint venture partner may not be prepared or capable for this and may suffer in due
course. Otherwise also prospects of joint venture may suffer.
A joint venture partner might have simply over-committed and may fail to perform the
role it is bound to perform or fail to contribute financial or -non-financial inputs which
damage the performance of .joint venture and, hence, that of the other joint venture
partners.
A joint venture partner selected by a firm may be found to be unsuitable later. By the
time this fact becomes manifested substantial resources, efforts and time might already
have been invested. This would amount to huge loss to a firm.
A joint venture may have negative spillover effect on the non-joint venture operations of
any of the joint venture partners. Even when a firm does not suffer such effect but its
joint venture partner suffers such effect on its profitability the interest of such joint
venture partner would be reduced in the further growth of the joint venture. If R&D or
export of joint venture causes sub maximization of the profit of the other joint venture
partner, it would narrow down if not suffocate the R&D or export activity of the joint
venture. This may not only be detrimental to the interest of the joint venture but also of
the other parent firm.

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The host government i.e. the government of the country where the joint venture project is
set up, may stipulate that investment in joint venture should include investment in export
activities, hiring of a substantial number of local workers, or R&D operations. These
stipulations may result counter-productive to a firm.

Reasons for Joint Venture Failure

A joint venture may be a failure for the reasons any other non-joint venture business would fail.
But there are certain joint venture specific reasons that lead to the failure of joint venture. A joint
venture is subject to different sets of environment. These are the relevant environment for each
of the joint venture partners in addition to the one relevant to the joint venture itself. Any change
in the environment concerning any of the joint venture partners may affect the concerned joint
venture partner significantly which in-turn may affect the prospects of the joint venture
negatively. In case of a joint venture through foreign collaboration legal and governmental
factors play more significant role on the performance of the joint venture. Another major reason
is that joint venture lasting a long period faces problems of changes in the objectives of joint
venture partners. These may not only be significantly at variance with the objectives of the joint
venture but many often be conflicting. Interest of the joint venture, partners independently
generally supersede that of the joint venture's, which may lead to insufficient/lack of support by
a joint venture partner or even action that may be detrimental to the survival of the joint venture.

Often the joint venture fails for no other reason but a crack in the relationship of mutual trust
between the joint venture partners. Even if there are reasonable chances of joint venture
performing well, it may be abandoned if the joint venture partners lose mutual trust. Often joint
venture partners disagree on various strategic issues which end in stalemates leading to the loss
of competitiveness of the joint venture leading to failure. Exercising control over the joint
venture too often leads to pull and push between the joint venture partners. If not resolved in
time may lead to pull-out by a partner endangering the existence of the joint venture.

Most of these reasons may be ascribed to failure m selection of a right partner. Hence, it
becomes important to devote sufficient amount of time and efforts in selecting a right partner. It

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is also important to learn the other's point of view as a most suitable joint venture partner may
not be willing. Mutual willingness is a must in any joint venture.

Joint Venture Partner Selection

Though so important, little research has been done on the joint venture partner selection criteria.
These criteria would help a firm selecting as well as getting selected as a joint venture oartner.
During 1967, Tomolinson (1970) interviewed executives from a non-random sample of 49
British firms, collecting information of a total of 71 joint ventures in India and Pakistan. One
objective of the study was to examine the criteria employed by the British firms in selecting joint
venture partners. Tomolinson examined six categories of selection criteria, which are listed
below. Of these categories, favorable past association was cited as being the single most
important reason for selecting a particular partner. Although less important than past association,
the four selection criteria of facilities, resources, partner status, and forced choice were listed as
being approximately equal in importance as primary selection criteria. Tomolinson's results
suggested that the final selection criteria category, local identity, was seldom a primary criterion
for selecting a joint venture partner.

Partner Selection Criteria Categories Measured by Tomlinson


Criterion Definition
Farced Cases in which the choice is effectively forced upon the foreign investor
whether because of explicit host government direction or indirectly
because the associate preempts an exclusive license.
Facilities Convenience to the foreign partner of local facilities under the control of
the associate. Among these would be a site or plant, marketing or
distributive facilities, or a strong market position cases m which the
associate was already in the same line of business as that of the proposed
joint venture.
Resources Convenience of local sources of managerial and technical personnel,
materials, components, or local capital which can be contributed by the
associate.

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Status Status and capability of the associate in dealing with local authorities and
public relations. This subset would also include status defined in berms of
general financial and business soundness and standing.
Past Favorable past association with the associate when the latter had been an
agent, licensee, major customer, or partner in a previous joint venture.
Identity Cases in which a partner would be chosen chiefly to obtain local identity,
often through association with a potential "sleeping partner”.
Sources Tomlinson, James WC, the Joint Venture Process in International Business; India and
Pakistan. (Cambridge, Mass.s MIT Press, 197CV, pp.47-48.

In addition to examining the relative importance of potential selection criteria, Tomolinson


investigated the possibility of identifying a set of variables which might help predict the selection
criteria used for particular joint ventures, specifically for joint ventures in India and Pakistan.
Eight groups of variables were examined for possible relationships to partner selection criteria,
including;

1. Size and profitabi1ity of British parent firms


2. The nature of the business involved
3. British parent firms' attitudes towards control
4. Variables describing various features of the background
5. Motivations for forming a joint venture
6. Reasons for selecting a specific partner
7. Structural characteristics of the joint ventures
8. Internal and external evaluation criteria used

Of these variables, Tomolinson found that parent size, nature of the business (categorized as oil,
chemicals, engineering, electrical, vehicles, metals, or tobacco/food), and stated motivation for
forming the joint venture exhibited the strongest relationship to the partner selection criteria that
were subsequently employed for particular joint ventures.

Another research conducted by Tomolinson and Thompson (1977) examined Canadian firms'
joint venture experiences in Mexico. Drawing from interview data, they listed five traits that

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Canadian firms should seek in Mexican joint venture partners; financial status, business
compatibility, common goals, ability to negotiate with the government, and compatible ethics. In
addition, seven traits sought by Mexican firms in foreign partners were identified: financial
resources, technology and experience in its application, international visibility and reputation,
commitment to the Mexican joint venture, international experience, management depth, and the
ability to communicate with Mexicans.

A study based on information collected by Geringer (1988) in personal interviews with 101
executives who had been involved m the operation of more than 300 ventures over the past 40
years focuses on joint venture partner selection criteria. The partner selection criteria categories
in the descending order of importance are found as follows:

1. Has a strong commitment to the joint venture


2. Top management of both firms is compatible
3. Permits faster entry into the target market
4. Can supply technically skilled personnel to joint venture
5. Has knowledge of target market's economy & customs
6. Has valuable trademark or reputation
7. Will provide financing/capital to the joint venture
8. Improves access for respondent company's products
9. Can supply general managers to the joint venture
10. Possesses needed licenses, patents, know-how, etc.
11. Has access to marketing or distribution systems
12. Enhances perceived local/national identity of joint venture
13. Possesses needed manufacturing or R&D facilities
14. Will enable the joint venture to produce at the lowest cost
15. Can enhance the joint venture's export opportunities
16. Has similar national or corporate culture
17. Is similar in size or corporate structure
18. Had satisfactory prior association with respondent firm
19. Has related products, helps fill joint venture's product line
20. Helps comply with government requirements/pressure

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21. 23. Has access to raw materials or components
22. Controls favorable location e.g., for manufacturing)
23. Has access to post-sales service network
24. Enhances joint venture's ability to make sales to government
25. Is close to respondent firm, geographically
26. Enables joint venture to qualify for subsidies or credits
27. Can provide low cost labor to the joint venture
28. task-related partner selection criteria category
29. partner-related partner selection criteria category

Seringer suggests that effective cooperation will be enhanced if:

 the partners are of similar size


 the partners share similar objectives for the venture
 the partners have compatible operating policies
 there are minimum communication barriers between the firms
 the partners have compatible management teams
 there is a modest level of mutual dependence between partners
 the partners develop a degree of trust and commitment

The scope of the study by Seringer covered joint venture partner selection strategies in the
developed countries which provides some useful insight into the joint venture partner selection
criteria of the companies in the developed countries. The criteria may be at variance with that of
in relation to the selection of a joint venture partner from a developing country like India.
However, the same may help managers of Indian firms to stress on important characteristics of
their firms that may be found to be of interest to a prospective joint venture partner from the
developed country especially the US for getting selected as a joint venture partner.

Overseas Business Opportunities

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Overseas business by a company refers to undertaking and expanding its commercial activities
across the national borders. It encompasses diverse nature of activities like trading (exporting
and importing its goods and services); manufacturing and marketing as well as outsourcing for
production and marketing. The main reason for making such overseas investments is to explore
business opportunities abroad and take advantage of such opportunities. Foreign markets in both
developed and developing countries provide enormous growth opportunities. For example, a
number of Indian pharmaceuticals firms have achieved a much faster growth of their overseas
business. The various other reasons for investing abroad are:-

 Competition is the main driving force behind internationalism. Until liberalisation in


1991, the Indian economy was a highly protected market. Not only that the domestic
producers were protected from foreign competition, but also domestic competition was
restricted by several policy induced entry barriers. The economic liberalisation and
globalisation has ushered in increased competition both domestically and internationally.

 Government policies and regulations also motivate internationalism. Many Governments


offer a number of incentives and other positive support in order to encourage foreign
investments. Restrictive domestic Government policies which limit the scope of business
expansion in domestic country and undermines their competitiveness is also an important
factor for entering overseas markets.

 Domestic demand constraints drive many companies to expand their markets beyond the
national borders. If the domestic market potential is fully tapped, the market for such
products tends to be saturated. Another type of domestic market constraint arises from the
scale-economies. The technological advances has increased the size of optimal scale of
operations in many industries, thus making it necessary to have foreign markets in
addition to domestic ones. Domestic recession often provokes the companies to explore
foreign markets.

 It may also help the company to improve its domestic business, increase its market share
and help establish the image of the company.

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Business strategy relating to overseas investment differs from that of domestic investment due to
the differences in business environment:-

 The political environment includes the characteristics and policies of the political parties,
nature of the constitution and the governmental system. These factors vary considerably
between different nations.

 The legal system that exists in different countries across the world may be classified into
common law, civil law or code law and theocratic law. Common law is based on
tradition, past practices and legal precedents set by the courts through interpretation of
statutes, legal legislations and past rulings. Code law, on the other hand, is based on an
all-inclusive system of written rules of law. While the theocratic law is based on religious
precepts. These differences in the legal framework play a very important role in overseas
investment strategy.

 Cultural differences are one of the most important factors influencing international
investments. The cultural or social environment of any country encompasses language,
religion, customs, traditions and beliefs, tastes and preferences, social stratification,
social institutions,etc.

 Economic environment also varies from country to country. It broadly includes the nature
and level of development of the economy, economic resources, size of the economy,
economic systems and economic policies, economic conditions,trends in various
economic indicators like national income, per capita income, foreign trade, inflation rate,
industry production, etc.

However, a firm which plans to invest abroad has to make a series of strategic decisions:-

 The first decision a company has to make is whether to expand its business abroad or not.
This decision is based on consideration of number of important factors like:-

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 Present and future opportunities

 Present and future market opportunities

 The resources of the company like skill,experience, financial support, production


and marketing capabilities,etc.

 Company's objectives.

 Once the company has decided to invest abroad, the next important decision is the
selection of the most appropriate market. For this, a thorough analysis of the potentials of
the various overseas markets and their respective marketing environment is essential.

 The next important decision relates to determining the appropriate modes of entering
those foreign markets. The important foreign market entry strategies are:-

 Exporting: is the most traditional mode of entering a foreign market. It is an


appropriate strategy when any of the following conditions prevail:- (i) the volume
of foreign business is not large enough to justify production in the foreign market;
(ii) cost of production in the foreign market is high; (iii) the foreign market is
characterised by production bottlenecks like infrastructural problems, problems
with materials supplies, etc; (iv) there are political or other risks of investment in
the foreign country; (v) the company has no permanent interest in the foreign
market concerned or that there is no guarantee of the market available for a long
period; (vi) foreign investment is not favoured by the foreign country concerned;
(vii) licensing or contract manufacturing is not a better alternative.

 Licensing and Franchising: - are easy ways of entering the foreign markets.
Under international licensing, a firm in one country (the licensor) permits a firm
in another country (the licensee) to use its intellectual property (such as patents,
trademarks, copyrights, technology, technical know-how, marketing skill or some
other specific skill). The monetary benefit to the licensor is the royalty or fees
which the licensee pays.

Franchising is a form of licensing in which a parent company (the franchiser)

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grants another independent entity (the franchisee) the right to do business in a
prescribed manner. This right can take the form of selling the franchiser's
products, using its name, production and marketing techniques, or general
business approach. One of the common forms of franchising involves the
franchiser supplying an important ingredient for the finished product, like the
Coca Cola supplying the syrup to the bottlers.

 Management Contracting: - is one in which the supplier brings together a


package of skills that will provide an integrated service to the client without
incurring the risk and benefit of ownership. It enables a firm to commercialise
existing know-how that has been built up with significant investments and
frequently the impact of fluctuations in business volumes can be reduced by
making use of experienced personnel who otherwise would have to be laid off.
Under it the firm providing the management know-how may not have any equity
stake in the enterprise being managed.

 Turnkey Contracts: - are common in international business in the supply,


erection and commissioning of plants like in the case of oil refineries, steel mills,
cement and fertilizer plants, etc. A turnkey operation is an agreement by the seller
to supply a buyer with a facility fully equipped and ready to be operated by the
buyer's personnel, who will be trained by the seller.

 Fully Owned Manufacturing Facilities: - Companies with long term and


substantial interest in the foreign market normally establish wholly owned
manufacturing facilities there. It provides the firm with complete control over
production and quality. It does not have the risk of developing potential
competitors as in the case of licensing and contract manufacturing.

 Assembly Operations: - A manufacturer who wants to take advantages that are


associated with overseas manufacturing facilities and yet does not want to go that
far may establish overseas assembly facilities in selected markets. It represents a
cross between exporting and overseas manufacturing. It is an ideal strategy when
there are economies of scale in the manufacture of parts and components and

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when assembly operations are labor-intensive and labour is cheap in the foreign
country.

 Joint ventures: - is a very common strategy of entering the foreign market. It


represents a combination of subsets of assets contributed by two (or more)
business entities for a specific business purpose and a limited duration. It
generally has the following characteristics:- (i) contribution by partners of money,
property, effort, knowledge, skill or other assets to the common undertaking; (ii)
joint property interest in the subject matter of the venture; (iii) right of mutual
control or management of the enterprise; (iv) right to share in the property.

 Mergers and Acquisitions: - have been a very important market entry strategy as
well as expansion strategy for maximisation of a company's growth by enhancing
its production and marketing operations. They are being used in a wide array of
fields such as information technology, telecommunications, and business process
outsourcing as well as in traditional businesses in order to gain strength, expand
the customer base, cut competition or enter into a new market or product segment.

 Strategic Alliance: - has been becoming more and more popular in international
business. This strategy seeks to enhance the long term competitive advantage of
the firm by forming alliance with its competitors, existing or potential in critical
areas, instead of competing with each other. It helps a company to leverage
critical capabilities, increase the flow of innovation and increase flexibility in
responding to market and technological changes.

 Countertrade: - has been successfully used by a number of companies as an


entry strategy. It is a form of international trade in which certain export and
import transactions are directly linked with each other and in which import of
goods are paid for by export of goods, instead of money payments. Its main
attraction is that it can give a firm a way to finance an export deal when other

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means are not available. For example, Pepsico gained entry to the USSR by
employing this strategy.

 Decision regarding the nature of the organisational structure of the company


internationally. This will depend on number of factors like: - Company's international
orientation; nature of business; size of business; its future plans, etc.

 Designing a suitable marketing mix- production, promotion, price and physical


distribution, so as to adopt to the characteristics of overseas markets.

Hence, a firm typically passes through different stages in its transition from local firm to a
transnational firm. That is, a firm which is entirely domestic in its activities normally passes
through different stages of internationalisation before it becomes a truly global one. A firm may
start exporting its products on an experimental basis and if the results are satisfying, it would
enlarge its international operations and in due course it would establishes its offices, branches or
subsidiaries or joint ventures abroad. This expansionary process may also be characterised by
increasing the product mix and the number of market segments and the number of countries of
operation. Thus, the company becomes multinational or global. In other words, for many firms
overseas business initially starts with a low degree of commitment and involvement, and
gradually develops into a global business organisation.

Literature Review

Block Z. And Macmillan Ian C. (1994) conducted a research on market entry strategies for new
corporate ventures. For this study they discussed a number of variables that should affect the
choice of a market entry strategy used to launch a new product or venture, and then linked the
variables to entry strategy options. According to them, in addition to the usual components of
strategy, the elements of strategic aggressiveness and focus must be added in light of their
significance to the outcome of new product and new venture entries. The primary consideration
in the character of the market, specifically its munificence and hostility dimensions, but the
ability and willingness of the firm to execute any chosen strategy is a result of its risk attitudes
resources culture and know how.

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Douglas S.P and Craig C.S. (1995) suggested an approach to developing international market
entry strategies for firms from emerging market economies. According to them, the nature of
firms is competence and the ease with which this can be leveraged internationally is a key factor
influencing market entry strategies. Upstream competencies such as R&D or production skills as
well as strategies grounded in these competencies are more readily leverageable across
international markets. Competencies in downstream activities such as marketing or services
which are typically more localised and require sensitivity, awareness of local market conditions
may be less ready levergeable in international markets. Firms relying on downstream
competencies may thus be more likely to enter markets more slowly, targeting a relatively
limited number of markets with similar demand characteristics. A number of alternate strategy
options are available. In initially entering into international markets, firms from emerging market
economies often adopt a low cost commodity positioning. Another strategy is to focus on
entering markets where infrastructure conditions and user technology are similar to that of
domestic market. Other alternatives include producing for private label, targeting a specialised
market niche, entering into joint ventures or strategic alliance forming reverse strategic alliances.
Strategic alliances may also be established between two domestic competitors in order to
broaden their geographic market coverage and exploit international market opportunities. The
strategy should be consistent with the firm's goals and objectives and market opportunities which
present themselves.

Contractor F.J. and Kundu S.K. (1998) conducted a study to find out what determines an
organizational mode. They combined the concepts from transaction costs theory .agency theory,
corporate knowledge and organizational capabilities theories and found out that the choice of
entry mode is determined by both country or environmental variables as well as firm specific
variables. Higher country political and economic risk is negatively associated with equity
investments. Non-equity modes are preferred in high income nations. International experience
and geographical reach of the global firm strongly distinguish the equity investment mode from
the franchising mode. Organizational mode was influence more towards equity ownership in
firms whose executives place a higher importance in control over daily management and quality.
The importance of size as a strategic factor was not necessarily correlated to the propensity to
use higher ownership modes.

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Sun H. (1999) conducted a study of the entry modes of MNC's into China from socioeconomic
perspectives. It examined the impact of socio-cultural difference, the technology intensity of
investment projects and regional factors on MNC's entry mode choice. The study revealed that
closer the cultural backgrounds of investors to that of China, the higher the equity share is held
by foreign investors in Foreign Invested Enterprises (FIE's). The socio-cultural distance between
the home countries of the host countries discourage MNC's to invest in wholly owned
subsidiaries. Second, high technology positively related to the foreign equity share in FIE's.
Third, economic environment and Government policy is the most important determinant for the
entry mode (i.e. the ownership of FIE's) of MNC's.

Arora A. and Fosfuri A. (2000) conducted a research to find out the determinants of the choice
between wholly owned subsidiary and technology licensing as a strategy for expansion abroad.
They conducted the study on chemical industry to analyze what determines the choice between
wholly owned subsidiary and technology licensing. They found that both cultural distance and
the presence of other potential licensors favor the use of licensing as a market entry strategy
abroad. Economic, financial and political risks and barriers on capital investments and
intermediate goods increase the probability of licensing. The total turnover of the firm (size)
does not have a significant effect and neither does the international experience of the investor.
However, firms learn from previous experience and this learning contributes to reduce the cost of
a wholly owned project in a foreign country. Thus prior experience favors the choice of a wholly
owned subsidiary.

Davis P.S., Desai A.B. and Francis J.D. (2000) conducted a study to determine market entry
modes using an institutional theory framework. The study was conducted on U.S. based firms
competing in the pulp and paper industry. They investigated the impact of external host country
factors as well as internal isomorphic pressures placed on a SBU by its parent organization on
entry mode choice. They tested the relationship between these factors and entry mode decisions
ranging from wholly owned subsidiaries to exporting and licensing. They found that entry mode
was dependent on two primary forces- the internal (parent) and external (host country)
institutional pressures. The results confirm that parental and external institutional norms are
strong contributors to patterns of international entry. Their results indicated that SBUs using
wholly owned entry modes demonstrated high levels of internal isomorphism; those using

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exporting, joint ventures or licensing agreements demonstrated external isomorphism and those
using multiple or mixed entry mode demonstrated low levels of isomorphic pressures.

Wood V.R. and Robertson K.R. (2000) conducted a study of experienced exporters and their
perceived importance of various types of foreign market information relevant to target market
selection. In general, findings indicate that information related to market potential is most highly
valued. More specifically, information concerning a given export markets demand for and ability
to purchase an imported product, the cost of adopting one's product or service in such a market
and the nature and degree of internal and external competition. Next, information related to legal
considerations, specifically tariff and non-tariff barriers and other related aspects such as laws
affecting agents, intellectual property protection and travel requirements was considered most
important. Politics surrounding an export market, specifically, political stability, diplomatic
relations and internal political policies are important considerations. Information related to
export markets infrastructure, that is, the nature and extent of physical distribution and
communication infrastructure had great relevance to export decisions. Broad economic
indicators, including growth in GNP, consumption trends, level of reserve currency, education,
use of modem technologies and natural resources wealth were also important criteria.
Similarities and differences of a market's culture relative to one's home market, knowledge
regarding various cultural groupings regarding their lifestyles was also found relevant.

Osland G.E., Taylor C.R. and Zou S. (2001) conducted a study to examine what institutional
arrangements are preferred and what factors affect the choice of foreign market entry mode of
Japanese and U.S. firms. They found out that target market factors that are important to Japanese
managers are political risk, investment risk, host government local content requirements and
qualifications of local partners. Americans show more concern for internal company
considerations when making mode of entry decisions. Host Government alternatives and host
Government expectations for local managers are important target market factors, while company
factors which are important include international experience, need for local knowledge,
synergies among global operations, competitive position and need to protect technology.
Americans choose licensing due to pressures from host Government while Japanese prefer it
when there is low political risk.

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Koch A.J. (2001) conducted a study to examine the great variety of influences on the market
entry mode selection (MEMS) process outcomes. Factors can be categorized as internal, external
and mixed. Among the internal factors are company size/resources, management locus of
control, experience in using MEMS, management risk attitudes, market share targets, calculation
methods applied and profit targets. Another important factor is the competencies, capabilities
skills required or available for each entry mode. Company size limits the choice of entry method,
loci of control affects manager's perceptions which in turn determine entry mode decision.
Companies that have gathered a considerable knowledge of a region prefer to invest resources
into business ventures in that region. The external factors include characteristics of the overseas
country business environment, market barriers, industry feasibility, and popularity of individual
MEMS in overseas market, market growth rate, image support requirements and global
management efficiency requirements.

MC Nareghton R.B. (2001) conducted a study to examine the export mode decisions of
Canadian software firms. The results show that the majority of Export mode decisions in the
sector are made by an intuitive process and without the benefit of formal studies or wide
consultation with outside experts. The characteristics of the decision process have no statistically
significant association with the channel performance. Mode change decisions have a tendency to
take a bit longer and a greater proportion use a mix of intuitive and formal structured approaches.

Koch A.J. (2001) conducted a study to examine whether market selection and market entry
mode selection were two different decisions or two aspects of one decision process. The author
suggests that they are not two separate decisions, but are essentially two aspects of one decision
process. He proposed that an exhaustive list of factors that can influence the outcome of such an
integrated process can be developed and an inclusive spectrum of analysis would be able to
accommodate all business contexts and most relevant business practice. Categories of factors
that influence the selection comprise product market factors, firm specific factors and home
market factors. However the new Market and Market Entry Selections (MEMS) model process
which is proposed by the author is influenced by a variety of external and internal environmental
factors.

Eramilli M.K, Agarwal S and Dev C.S. (2002) conducted a study which focused on the choice
between different types of non-equity modes that service firms employ. They developed a

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theoretical framework based on the organisational capability perspective to explain the choice
between two non-equity modes, franchising and management service contracts. According to
them, the choice between different types of non-equity modes is rooted in the effectiveness of
capability transfer, not just concern for control. Firms will be primarily driven by the transfer
characteristics of their advantage generating capabilities when making modal decisions. When
these capabilities are imperfectly inevitable, they not only shun franchising but also become
stronger advocates for MSC in developed markets. According to them, although foreign entrants
seem to generally prefer franchising as the host business environment becomes more developed
they switch to MSC when organisational competence, an imperfectly imitable capability makes
an increasingly greater contribution to their competitive advantage. Organisational competence
and quality competence have been identified as the imperfectly imitable capabilities. The
likelihood of MSC increases as the contribution of the firm's competitive advantage from these
two capabilities increases. Customer competence, Entry competence and physical competence
which are imitable capabilities do not have any impact on the choice between franchising and
MSC, Franchising is preferred as the level of development of the host country business
environment is greater while the likelihood of choosing MSC relative to franchising increases as
managerial talent becomes scarer and investment collaborators become more abundant in the
host country. Thus while external support capabilities are important, modal choice appears to be
primarily driven by internal capability considerations.

Brouthers K.D. (2002) conducted a study to examine foreign market entry mode choice and
firm performance for a sample of European Union firms. He proposed a model of international
entry mode selection that balances the forces of cost minimization and value enhancement.
According to him, an extended transaction cost model of mode selection does a good job of
predicting entry mode choice. Mode selection is driven by a combination of general transaction
cost characteristics, institutional context (legal restrictions) and cultural context (investment risk)
variables. According to them, firms that perceive higher levels of transaction costs tended to use
wholly owned modes of entry. Firms entering markets characterized by high legal restrictions
tended to use joint venture modes of entry. Also firms that perceived high levels of investment
risk tended to use joint venture modes of entry. Of the three control variables, firm size,
international experience and industry type, only industry type was significant with manufacturing
firms using wholly owned modes. Thus, firms which select their mode of entry based on

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transaction cost, institutional context and cultural context variables achieve greater mode
performance than firms that select mode of entry that do not take these factors into consideration.
Thus, to achieve better both financial and non-financial mode performance, firms should use the
extended transaction cost model to choose market entry strategy.

Pan Y. (2002) conducted a study to examine the impact of source country factors on the equity
ownership in international joint ventures. Based on a sample of equity joint ventures in China,
his study showed that equity ownership tends to be higher for parent firms from a source country
with strong currency, low cost of borrowing, strong export capability and high uncertainty
avoidance. These macro level variables are found to affect the firm's micro level decisions on
equity ownership.

Chen Shih-Yen S and Francois H.J. (2002) conducted a study to analyse how market barriers
and firm capabilities affect multinationals choice of joint ventures versus wholly owned
subsidiaries abroad. In the study, they compiled a vector of variables that distinguish between
industry specific capabilities to analyse Japanese investor's ownership decisions in the US. They
found that Japanese investors facing high market barriers in the target industry are more likely to
choose joint ventures, while those possessing strong competitive capabilities are more likely to
set up wholly owned subsidiaries. Specific marketing variables are more influential than
technological factors in determining the choice of partial versus full ownership.

Mellahi K., Gueimat C, Frynas G. and Al Bortamani H (2003) conducted a study to examine
the factors that influence foreign investors to engage in FDI. The study was conducted in one of
the GCC countries, Oman. On investigating the incentives for engaging in FDI in Oman, they
found that political stability and economic stability are the two most important motives for
investing in Oman. Recent changes such as allowing foreign investors to repatriate their profit,
providing them with several investment incentives and offering more legal protection are playing
a key role in the investment decision. The study revealed that the highly publicized purchasing
power of customers was not seen as a key motivator for engaging in FDI in Oman.

Tahir R. and Larimo J. (2004) conducted a study to investigate how the ownership specific
variables, location specific variables and strategic motives have influenced the ownership
structure choices by Finnish manufacturing firms in ten south and South Eastern countries. The
research results indicate that large international experience, low cultural distance, large market

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size and high levels of economic welfare in the target country increases the probability of
choosing the wholly owned subsidiary in order to undertake market seeking and efficiency
seeking FDIs. Similarly, it has also been found that low levels of risks in the target country
increases the probability to choose wholly owned subsidiary in order to undertake risk reduction
seeking FDIs.

Ekeledo I. and Sivakumar K. (2004) conducted a research with two major purposes;
developing and testing a resource based framework for entry mode choice and ascertaining the
extent to which the determinants of foreign market entry mode choice in the manufacturing
sector apply to foreign market entry mode choice in the non-separable service sector. The
findings of this study demonstrate that managers make entry mode choices based on
considerations of firm specific resources that afford their firm competitive advantage in the
target foreign market as well as for enhancing their resources. Thus, firm specific resources and
nature of product appear to be good predictors of entry mode choice. Thus proprietary
technology, experience, specialized asset, firm size, organizational culture and positive
reputation increases the odds of selecting a full control mode.

Whitelack J. And Jobber D. (2004) conducted a study which examined the international market
entry decision and the external factors that have an impact on this decision. The objective was to
identify a set of factors which discriminate between the decision to enter or not to enter a new
non domestic market. The evidence supported a marketing strategy based theory of market entry.
The study suggested that key macro environmental variables are geo cultural/political similarity,
developed economy and governmental attitude. Major micro environmental variables are market
effectiveness and access to good market information. However, not all potential dimensions are
equally important. Other micro environmental factors(cultural unity and common language)and
micro environmental criteria ( stable competitive environment and lack of experience of
marketing overseas) appear to be relatively unimportant as dimensions that key decision makers
use when making entry/non entry decisions.

Bamford J., Ernst D. and Fubini D.G. (2004) conducted a research to understand the
challenges of a JV launch. They studied the launch of 25 JV's across the globe in a range of
industries. According to the authors, launching of a world class JV is complex and demanding.
Research shows that it can be more resource intensive than post-merger integration or internal

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business startup. Best in class companies manage to do it well sometimes, over and over again.
They execute the classic launch tasks (organization building and project management) well.
They also maintain an intense focus on issues like strategy, deal economics and governance that
most companies assume have been discussed and resolved upfront. Besides managing the parent
goals and expectations, the launch team needs to be focus on building up effective governance
system for the JV or alliance. When executives understand the unique demand of JV and invest
in early planning, then rewards can be enormous. To overcome the challenges companies need to
assign dedicated project management teams at every stage of the JV's development and launch.

Khanna T., Palepu K.G. and Sinha J. (2005) conducted a study on strategies that fit emerging
markets. Many multinational corporations are struggling to develop successful strategies in
emerging markets. According to the authors, a part of the problem is the absence of specialized
intermediaries, regulatory systems, and contract enforcing mechanisms in emerging market,
implementation of globalization strategies. The quality of the market infrastructure varies widely
from country to country. In general, advanced economies have large pools of seasoned market
intermediaries and effective contract enforcing mechanisms, whereas less developed economies
have unskilled intermediaries and less effective legal systems. Because the services provided by
the intermediaries either are not available in emerging markets, or are not very sophisticated,
corporations can't smoothly transfer the strategies they employ in their home countries to those
emerging markets. According to the authors, when choosing strategies, executives need to
consider how product, labor and capital markets work in their target countries. In addition, each
country's social and political atmosphere need to be considered. When they applied these factors
to emerging markets in four countries, i.e. Brazil, Russia, India and China, the differences among
them became apparent. Multinationals face different kinds of competition in each of those
nations. Companies have to tailor strategies to each country's context, so that they can capitalize
on the strengths of particular locations. However, they must consider the benefits and additional
coordination costs they will incur. Companies have three choices. They can adapt their business
model to countries while keeping their core value propositions constant, they can try to change
the contexts, or they can stay out of countries where adapting strategies may be uneconomical or
impractical.

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Blamstermo A, Sharma D.D. and Sallis J. (2006) conducted a study to examine the
relationship between foreign market entry modes and hard and soft service firms. The study
investigates which foreign market entry modes service firms opt for, and if this influenced by
systematic difference s between types of service industries. A secondary purpose was to test the
generalizability of the research findings from manufacturing sector to service sector firms. The
authors found that soft service firms are much more likely than hard services firms to choose a
high control entry mode over a low control entry mode. Furthermore, as cultural distance
increases, the likelihood of this choice increases even more.

Doherthy A.M. (2007) conducted a study to examine the factors that motivate international
retail companies to choose franchising as a method for entering international markets. Key major
UK based international fashion retailers formed the empirical basis for the work. The study
revealed that motivating influences area combination of both organizational and environmental
factors. International retailing experiences, availability of financial resources, presence of a
franchisee retail brand, company restructuring and influence of key managers emerge as the
organizational factors. The environmental factors that favored franchising were opportunistic
approaches, local market complexities, domestic competitive pressures and availability of
potential franchise partners.

Pinho J.C. (2007) conducted a study to analyze the drivers and inhibitors of an entry mode
decision. Results from the study revealed the importance of the firm's international experience,
its ability to innovate, the market potential for growth and market specific knowledge as the key
predictors for SME's for choosing equity entry modes. Firm size did not act as a potential
prediction of entry mode choice. Low perceived risk associated with the host country, low
operating costs associated with performing marketing activities and low distance in terms of
culture and business practices were not strong predictors of entry mode choice. Managerial
characteristics such as decision maker's age, level of education attainment, and the decision
maker orientation for risk were not strong predictors of SME entry mode choice.

Zhang Y., Zhang Z. and Liu Z. (2007) conducted a study to examine the entry mode choice of
MNC's in an emerging market such as China from a dynamic investment perspective. Taking
into consideration the dynamic choice of entry modes, it studies sequential FDI in emerging
economies, which throws light on a theoretical analysis of sequential FDI in China, and which

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has practical implication for foreign firms planning to enter China's markets. The authors found
that the choice of entry mode in sequential FDI in emerging economies is consistent with the
capability developing theory of the firm, but is consistent with the international process model.
This study provided four practical implications. First, managers intending to invest abroad need
to consider the cost and the return of a specific entry mode. Second, knowledge about host
market has a more important effect on entry mode choice in emerging markets than MNC's
internal organizational capabilities. Third, MNC's adopt sequential investment in emerging
economies. Fourth, experiential learning, which consists of learning about host country markets
and local partner skills, is emphasized in sequentially entering emerging markets.

Cheng Y. M. (2008) conducted a study which relies on an extensive field analysis that focuses
on a representative sample of international investment undertaken by Taiwanese SME's that
invested in China, ASEAN, Japan, NAFTA and EU. He found out that larger the size of the
SME's foreign affiliate relative to the parent firm, the more likely its foreign affiliate will be
constrained in its ability to acquire the supports from the parent firm and reduce uncertainty and
risk. Hence, equity joint ventures may be the favored ownership based entry mode. The study
provides strong support for applying the Transaction Cost theory to the choice of entry mode
strategy. With greater specific assets investments, WFOE is the chosen entry mode.
Experimental knowledge derived from other earlier foreign entries leads to high controlled entry
mode. Host Government intervention is also an important factor for entry mode choice.

Forlani D., Parthasarthy M. and Keavenej S.M. (2008) conducted a study to investigate how
opportunity for control and firm capability interact to moderate the amount of risk that managers
associate with various international entry mode strategies. A secondary goal was to investigate
how managers perceive the need to retain control over three core fractional areas (marketing,
production and R&D) when making entry mode decisions. The authors found that ownership
provided control interacts with capability to influence managerial risk perceptions. Managers in
owner capability firms see the least risk in the non-ownership entry mode. While those in the
higher capability firms see the least risk in the equal partnership entry mode. Managers believe
that for a new venture in foreign market to be successful, control should be retained over the
R&D function regardless of entry mode.

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Kaya H. and Erden D. (2008) conducted a study to investigate the capabilities and
characteristics of Turkish manufacturing firms that engage in outward FDI activity. The study
aims to explore how these firms capabilities vary with the sample characteristics including
subsidiary age, size, sectors, host country location, ownership pattern and market entry mode.
Findings show that sample firms had strong firm specific capabilities when they started to
expand their business activities through FDI. While the capabilities of the sample firms varied to
a moderate extent with their age and size and to a limited extent with market entry mode, no
significant differences were noted with respect to the industry, host country location and
ownership pattern. Thus, a review of the literature shows that though several studies have been
conducted to analyze different market entry strategies of firms in different international markets,
yet no study has been conducted to devise market entry strategies for Indian firms in GCC
countries. No study has been conducted to analyse both non-equity and equity modes of market
entry in GCC markets for Indian firms in manufactured goods and services sector. Hence, a
study of past research undertaken by different scholars clearly indicates a research gap which
needs to be fulfilled.

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CHAPTER 2

DATA ANALYSIS

The Overall Scenario

Indian business ventures abroad had been at a very low key in the pre-liberalisation era i.e.,
before 2009. As per the records available Tata Sons undertook the first business venture abroad
in 1961 setting up a subsidiary. However, till 2009 there were only 75 WOS abroad approved
(see table 2.1), confined primarily to two countries namely; U.S.A. (20), U.K. (18). The country-
wise details of wholly owned subsidiaries in different years have been shown in exhibit 1.

The first joint venture was initiated in 1970. The number of JVs approved up to 2009, however,
was substantially higher, at 244. The joint ventures were concentrated, besides the above 2
countries, in Malaysia (22), Thailand (17), Srilanka (15), Nigeria (14), Singapore (14), Indonesia
(13), Russia (13), Nepal (13), UAE (11), Kenya (10) also. The number of joint ventures in
U.S.A. and U.K. having concentration of WOS as mentioned above, were 13 and 19
respectively.

The scenario changed dramatically in the post liberalisation era (see table 2). The number of
WOS, approved during 2010-17 period, increased from 28 in 2011 to peak at 143 in 2014 and
stabilised thereafter at around 120 subsidiaries per year, soaring again to 238 in 2017. Thus, the
average number of WOS approved per year in post liberalisation era is twice of total number
of WOS up to 2009 (the pre-liberalisaton era). The concentration of WOS (i.e., countries having
10 or more WOS) also spread from 2 countries to 14, with Singapore (114), Mauritius (81),
Hongkong (36), Germany (33), UAE (27), Netherlands (24), Srilanka (20), Russia (18), Nepal
(17), Switzerland (16), Malayesia (12), and Belgium (11) joining the favoured destinations of
Indian business. The number of WOS approved during the period 2010-17, in the two major
countries, which were significant in pre-liberalised era, also increased, with USA (293) and UK
(156) having much larger number of WOS.

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Table 2.1
Indian Business Ventures Abroad Over the Years (Up to 2017)

Upto 10 11 12 13 14 15 16 17 TOTAL
2009

Wholly Owned 75 28 79 122 119 143 122 154 233 1075


Subsidiaries (WOS)

Joint Ventures (JVs) 244 72 104 92 82 116 101 101 103 1015

Total 319 100 183 214 201 259 223 255 336 2090

The total number of JVs in the post- liberalised era too recorded an increase, from 72 in 2010 to
peak at 116 in 2014 and stabilised thereafter at around 100 per year. The quantum was however,
less than WOS. The number of JVs approved per year in the post- liberalised is almost half of
the total number of JVs before in the entire preliberalisation period. The concentration also
spread from 12 to 19 countries, with Mauritius (24), Germany (22), Hongkong (21), S.
Arabia(15)Bahrain (15), Netherlands (13), Australia (12) also getting more than 10 JVs.
U.S.A.(119), U.K. (89), U.A.E. (79), Srilanka (69), Singapore (55), Malaysia (54), Nepal (53),
Russia (36), Thailand (34), Indonesia ((21), Nigeria (19) and Kenya (14) also had increased
numbers of JVs. (15), The WOS and JVs approved up to 1999 have been mainly confined to 21
(see table 2) out of 103 countries, where India has business venture. Approximately 86%
(926/1080) of the WOS and 77% (781/1015) of JVs approved have been concentrated in these
countries.

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Geographical Distribution:

One finds, (See Table-2.2) that in numbers the IJVs are concentrated in the South East Asian
countries. Out of the 147 IJVs in operation, 61 are located in this region alone (41%). In other
regions, the number of operating IJVs are more or less evenly distributed. For America and
Oceania the percentage share was 4 and 3, respectively.

Even if one goes by the number of projects that are being implemented, approximately 20
percent each of the total are located in the South East Asia, Africa, South Asia and Europe
regions.

If one goes by the size of the equity capital, instead of the number, one finds that the degree of
concentration of IJVs in the South East Asia is more pronounced, i.e. more than half of the
overall investments under the IJVs are accounted for by South East Asia alone (Column 3,
Table-2.2). Similarly, Africa claims nearly 37 per cent of investments with only 16 per cent of
the IJVs. The combined share of the two regions, in the operating IJVs, is nearly nine-tenths of
the capital investments. One finds a slightly better dispersal of equity in the projects that are still
under implementation. In the case of these IJVs, South East Asia, Africa and South Asia put
together account for 80 percent of the total equity.

The projects under implementation account for nearly one-fifth of the total Indian equity. Even if
one looks at the total, South-East Asia and Africa account for nearly 85 per cent of the total
Indian equity.

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Table – 2.2
Regional Distribution of Indian Joint Ventures Abroad

S. Region In Operation Under Implementation Total


No
No. PUC No. PUC No. PUC

(1) (2) (3) (4) (5) (6) (7)

A: Developing Countries
1 South East Asia 61 4864.33 9 501.42 70 5365.75
(41.50) (53.83) (20.93) (25.99) (36.84) (48.93)

2 Africa 23 3359.62 8 563.06 31 3922.68


(15.65) (37.18) (18.60) (29.18) (16.32) (35.77)

3 South Asia 21 213.53 9 448.76 30 662.29


(14.29) ( 2.36) (20.93) (23.26) (15.79) ( 6.04)

4 West Asia 17 237.62 4 66.47 21 304.09


(11.56) (2.63) ( 9.30) ( 3.44) (11.05) ( 2.77)

5 Oceania 3 23.22 1 52.90 4 76.12


( 2.04) ( 0.26) ( 2.33) ( 2.74) ( 2.11) ( 0.70)

6 Total of 1 to 5 125 8698.32 31 1632.61 156 10330.93


(85.03) (96.26) (72.09) (84.60) (82.11) (94.21)

B: Developed Countries

7 Europe 16 316.26 8 151.62 24 467.88


(10.88) ( 3.50) (18.61) ( 7.86) (12.63) ( 4.27)

8 America 6 21.26 4 145.36 10 166.62


( 4.08) ( 0.24) ( 9.30) ( 7.53) ( 5.26) ( 1.52)

9 Total of 7 and 8 22 337.52 12 296.98 34 634.50


(14.97) ( 3.74) (27.91) (15.40) (17.89) ( 5.79)

10 Total of 6 and 9 147 9035.84 43 1929.59 190 10965.43


(100.00) (100.00) (100.00) (100.00) (100.00) (100.00)

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In all, India's joint ventures are spread over 35 countries, both developing and developed. Table-
3 shows the countrywise break-up of IJVs. Number-wise Malaysia, Srilanka, Singapore, Nigeria,
and U.K. occupy the top five positions respectively, i.e., two countries from South East Asia, and
one each from South Asia, Africa, and Europe. The five countries account for nearly 50 per cent
of the total number of IJVs. In terms of equity participation Thailand, Indonesia, Malaysia,
Senegal, and Kenya occupy the top five portions. Nearly 65 per cent of the total Indian equity is
shared by the five countries.

Equity Participation in IJVs:

According to the official Guidelines regarding IJVs it has been a declared policy that the nature
of Indian participation should be of minority and the maximum level of shareholding was fixed
at 49. The host country collaborator, banks, financial institutions, as per the Guidelines should
generally be given preference to participate in the equity. It is also envisaged that equity
participation from India should be in the name of the company registered under the Companies
Act 1956. We find that there are IJVs promoted by individuals though participation in joint
ventures by individuals is not permitted.

According to another expectation, Indian equity participation should be preferably in the form of
export of capital goods, equipment etc and/or by way of capitalisation of technical know-how
fees, consultancy fees, royalties etc. we do, however, find a clause under which the general rule
can be set aside and cash remittances permitted, based "on the merit of the case"

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Table – 2.3
Country-wise Distribution of Indian Joint Ventures Abroad

No. Equity No. Equity No. Equity

(1) (2) (3) (4) (5) (6) (7)

1 Thailand 9 1488.68 2 89.30 11 1577.98


( 6.12) (16.48) (4.65) (4.63) (5.79) (14.39)
2 Indonesia 11 1452.75 0 0.00 11 1452.75
( 7.48) (16.08) (0.00) (0.00) (5.79) (13.25)
3 Malaysia 23 1389.34 3 44.83 26 1434.17
(15.65) (15.38) (6.98) (2.32) (13.68) (13.08)
4 Senegal 1 1421.80 0 0.00 1 1421.80
( 0.68) (15.74) (0.00) (0.00) (0.53) (12.97)
5 Kenya 6 1120.68 2 34.90 8 1155.58
( 4.08) (12.40) (4.65) (1.81) (4.21) (10.54)
6 Singapore 15 485.65 3 366.33 18 851.98
(10.20) ( 5.37) (6.98) (18.98) (9.47) ( 7.77)
7 Nigeria 12 755.81 3 76.18 15 831.99
( 8.16) ( 8.36) (6.98) (3.95) (7.89) ( 7.59)
8 Nepal 5 111.05 5 307.59 10 418.64
( 3.40) ( 1.23) (11.63) (15.94) (5.26) ( 3.82)
9 Seychelles 0 0.00 1 307.63 1 307.63
( 0.00) ( 0.00) (2.33) (15.94) (0.53) ( 2.81)
10 Sri Lanka 16 102.49 4 141.18 20 243.67
(10.88) ( 1.13) (9.30) (7.32) (10.53) ( 2.22)
11 Yugoslavia 1 238.00 0 0.00 1 238.00
( 0.68) ( 2.63) (0.00) (0.00) (0.53) ( 2.17)
12 USA 6 21.26 4 145.36 10 166.62
( 4.08) ( 0.24) (9.30) (7.53) (5.26) ( 1.52)
13 Egypt 1 17.44 1 117.60 2 135.04
( 0.68) ( 0.19) (2.33) (6.09) (1.05) ( 1.23)
14 UK 10 34.57 4 96.76 14 131.33
( 6.80) ( 0.38) (9.30) (5.01) (7.37) ( 1.20)
15 UAE 9 131.24 0 0.00 9 131.24
( 6.12) ( 1.45) (0.00) (0.00) (4.74) ( 1.20)
16 Saudi Arabia 4 72.47 2 41.96 6 114.43
( 2.72) ( 0.80) (4.65) (2.17) (3.16) ( 1.04)
17 Solamon Islands 0 0.00 1 52.89 1 52.89
( 0.00) ( 0.00) (2.33) (2.74) (0.53) ( 0.48)
(Contd...
)

52 | P a g e
(1) (2) (3) (4) (5) (6) (7)

18 Mauritius 2 15.82 1 26.75 3 42.57


( 1.36) ( 0.18) (2.33) (1.39) (1.58) ( 0.39)

19 West germany 2 40.39 0 0.00 2 40.39

( 1.36) ( 0.45) (0.00) (0.00) (1.05) ( 0.37)


20 Philippines 1 39.95 0 0.00 1 39.95
( 0.68) ( 0.44) (0.00) (0.00) (0.53) ( 0.36)
21 Cyprus 0 0.00 1 29.26 1 29.26
( 0.00) ( 0.00) (2.33) (1.52) (0.53) ( 0.27)
22 Uganda 1 28.06 0 0.00 1 28.06
( 0.68) ( 0.31) (0.00) (0.00) (0.53) ( 0.26)
23 Oman 1 8.20 1 19.11 2 27.31
( 0.68) ( 0.09) (2.33) (0.99) (1.05) ( 0.25)
24 Greece 0 0.00 1 25.22 1 25.22
( 0.00) ( 0.00) (2.33) (1.31) (0.53) ( 0.23)
25 Kuwait 1 22.05 0 0.00 1 22.05
( 0.68) ( 0.24) (0.00) (0.00) (0.53) ( 0.20)
26 Fiji 1 14.03 0 0.00 1 14.03
( 0.68) ( 0.16) (0.00) (0.00) (0.53) ( 0.13)
27 Hong Kong 2 7.96 1 0.96 3 8.92
( 1.36) ( 0.09) (2.33) (0.05) (1.58) ( 0.08)
28 Australia 1 7.20 0 0.00 1 7.20
( 0.68) ( 0.08) (0.00) (0.00) (0.53) ( 0.07)
29 North Yemen 0 0.00 1 5.40 1 5.40
( 0.00) ( 0.00) (2.33) (0.28) (0.53) ( 0.05)
30 Bahrain 2 3.66 0 0.00 2 3.66
( 1.36) ( 0.04) (0.00) (0.00) (1.05) ( 0.03)
31 Switzerland 1 1.63 1 0.38 2 2.01
( 0.68) ( 0.02) (2.33) (0.02) (1.05) ( 0.02)
32 Tonga 1 1.99 0 0.00 1 1.99
( 0.68) ( 0.02) (0.00) (0.00) (0.53) ( 0.02)
33 Netherlands 1 0.86 0 0.00 1 0.86
( 0.68) ( 0.01) (0.00) (0.00) (0.53) ( 0.01)
34 Gibraltar 1 0.81 0 0.00 1 0.81
( 0.68) ( 0.01) (0.00) (0.00) (0.53) ( 0.01)
35 Hungry 0 0.00 1 0.00 1 0.00
( 0.00) ( 0.00) (2.33) (0.00) (0.53) ( 0.00)
Total 147 9035.84 43 1929.59 190 10965.4
3
(100.00) (100.00) (100.00) (100.00) (100.00) (100.00)

53 | P a g e
Table-2.4 shows the distribution of joint ventures in different equity ranges. Out of 190 IJVs for
two companies the pattern of equity participation is not available. For purpose of the analysis the
extent of the Indian equity participation is divided into six ranges. A significant number of the
total projects in operation and those under implementation fall under the range 40-<50 per cent
of equity participation i.e. 62 out of 190 (32 per cent). This is followed by the 25-<40 per cent
range with 41 joint ventures (21 per cent). More than 50 per cent of the IJVs fall in the range of
25-<50 per cent of Indian Equity participation. There are 39 (20 per cent) cases with 50-<75 per
cent equity range and 8 (4 per cent) with 75 per cent and above equity participation. Indian
equity participation in the 0-<25 range, was limited to 20 per cent of the total number of IJVs.
The highest level of Indian equity participation (i.e., 90 per cent) was by M/s. United Builders
Co. (I) Pvt. Ltd, which established a real estate investment and development project in the USA.
Both the IJVs in operation and those under implementation exhibit more or less a similar
behaviour in respect of equity share. The above distribution has to be seen in the background of
the decision of the government of India to permit generally not more than 49 per cent equity
participation.
A related issue to support IJVs, as a part of the South-South cooperation, has been that Indian
investors would always have host country partners who would be involved in management as
also trained in the spirit of cooperation. This was to be a distinguishing feature of the joint
ventures from the South. With the limited information one is not able to assess the extent to
which this objective has been pursued. If, however, the claim of the Federation of Indian
Chambers of Commerce is of any significance there seems to be no special desire to manage
joint ventures jointly. The FICCI observes: "Notwithstanding low capital base and small
shareholding", Indian partners in most of joint venture projects have been given the
responsibility of managing the units and some of them have undoubtedly made a mark.

54 | P a g e
Table – 2.4
Showing Distribution of IJVs according to the Share of Indian Equity

S. Equity Range In Operation Under Implementation Total


No
No. Amount No. Amount No. Amount

(1) (2) (3) (4) (5) (6) (7)

1 0 - <10 8 120.97 3 116.85 11 237.82


( 5.44) ( 1.34) ( 6.98) ( 6.06) ( 5.79) ( 2.17)

2 10 - <25 27 2895.16 2 86.04 29 2981.20


(18.37) (32.05) ( 4.65) ( 4.46) (15.26) (27.18)
3 25 - <40 27 1879.83 14 569.56 41 2449.39
(18.37) (20.80) (32.56) (29.52) (21.58) (22.34)

4 40 - <50 49 2695.73 13 444.73 62 3140.46


(33.33) (29.83) (30.23) (23.05) (32.63) (28.64)

5 50 - <75 30 1218.21 9 304.57 39 1522.78


(20.41) (13.48) (20.93) (15.78) (20.53) (13.89)

6 75 and above 6 225.94 2 407.85 8 633.79


( 4.08) ( 2.50) ( 4.65) (21.13) ( 4.21) ( 5.78)

7 TOTAL 147 9035.84 43 1929.60 190 10965.44


(100.00) (100.00) (100.00) (100.00) (100.00 (100.00)
)

Area of Operation:
An important assumption in promoting joint ventures under the South-South cooperation has
been that the joint ventures originating from the South would transfer technologies which have
been adapted to Third World environment -- more appropriate product mix, the relevant industry
experience, adoption of the labour intensive technology and fast transfer of production
technologies. In view of these assumptions one needs to examine the nature of the industrial
activities undertaken by the IJVs. We have classified IJVs according to their nature of activities

55 | P a g e
under seven heads. These are: Manufacturing, Trading, Construction, Consultancy, Hotels, and
Financial services. The remaining are clubbed under the miscellaneous category. Table-5 shows
sector-wise distribution of the IJVs.

Table – 2.5
Distribution of IJVs according to the Field of Operation and the Status of the Project

(Rs. '000)

Field of Operation Indian Equity Participation

In Operation Under Implementation Total

No. Amount No. Amount No.


Amount

(1) (2) (3) (4) (5) (6) (7)

Manufacturing 92 8510.71 21 1044.43 113 9555.14


(62.59) (94.19) (48.84) (54.13) (59.47) (87.14)

Hotel 15 78.93 6 558.72 21 637.65


(10.20) ( 0.87) (13.95) (28.96) (11.05) ( 5.81)

Trading 16 72.13 7 135.55 23 207.68


(10.88) ( 0.80) (16.28) ( 7.02) (12.11) ( 1.89)

Construction 8 134.97 4 44.92 12 179.89


( 5.44) ( 1.49) ( 9.30) ( 2.33) ( 6.32) ( 1.64)

Conslutancy 2 63.13 3 32.93 11 96.06


( 5.44) ( 0.70) ( 6.98) ( 1.70) ( 5.79) ( 0.88)

Miscellaneous 2 8.48 2 113.04 4 121.52


( 1.36) ( 0.09) ( 4.65) ( 5.86) ( 2.10) ( 1.11)

Financial 6 167.49 - - 6 167.49


( 4.09) ( 1.86) ( - ) ( -) ( 3.16) ( 1.53)

Total 147 9035.84 43 1929.59 190 10965.43


(100.00) (100.00) (100.00) (100.00) (100.00) (100.00)

56 | P a g e
In terms of numbers, manufacturing sector occupies a predominant position with 113 out of 190
IJVs. The hotels and trading jointly account for 23 per cent of the total number of IJVs. And the
other four sectors, consultancy; construction; financial; and miscellaneous, combined accounted
for 17 per cent. Manufacturing sector covers a wide variety of items such as engineering, textiles,
chemicals, drugs & pharmaceuticals, palm oil extraction, automobiles, paper, glass etc. Most of
these manufacturing IJVs are in production i.e., 92 out of 113 (81 percent). As expected, the
manufacturing sector accounts for a much larger share of the Indian equity compared to its share
in the number of ventures. Nearly 90 per cent of the total equity invested abroad is in this sector
alone. The concentration of equity capital in manufacturing sector may also be as a result of the
capitalisation of machinery, equipment etc., supplied and the other sectors which hardly need any
of the above. Surprisingly, in Malaysia there are six IJVs for palm oil refining and fractionation
and related activity. Three projects are of Birlas, and one each by Tatas, Thapars and Godrej. All
the four groups are registered under the MRTP Act in India. Out of the three projects by the Birla
House, two are by the Birla Eastern Ltd., and the other one by the Century Spg. & Mfg. Co. Ltd.
In this area of activity, i.e., palm oil refining and fractionation, one wonders if any one of the
Houses (the Birlas, Tatas or Godrej) has what could be considered as 'adapted technology'. None
of the three Houses is known to have been involved in a big way even in the vegetable oil
business. One should also notice that IJVs by the Birlas are through the Birla Eastern Ltd., and
not directly from the companies having the relevant experience or expertise. If at all the IJVs
represent investments and managerial capabilities and not what is claimed to be a reason for
establishment of joint ventures under the South-South cooperation.
Table-2.6 shows the number of IJVs in different regions and the field of operations. Fifty per
cent of the total manufacturing IJVs are in South East Asian countries and 75 per cent of
construction activities are in West Asian countries alone. A large number of IJVs in
manufacturing sector are concentrated in developing countries. In contrast, slightly more than 50
per cent each of trading and hotel enterprises are in the developed countries.

Joint Ventures and Indian Industrial Houses:


Ownership character of the Indian companies going abroad should be of interest to examine. It
may be of use in checking some hypotheses like whether entrepreneurs are establishing joint
ventures abroad because of lack of opportunities in India, or because of restrictions imposed

57 | P a g e
through government policies, such as Industries (Development & Regulation) Act, Monopolies
and Restrictive Trade Practices Act, Foreign Exchange Regulation Act. Are the IJVs a means to
establish 'international personality' by the Indian monopoly Houses or it is in pursuance of the
South-South cooperation? The exercise may also help in assessing if TNCs from the North are
utilising the South-South cooperation for back door entry into the other Third World countries
and India was used only as a platform.

Table – 2.6
Distribution of IJVs according to the Region and Field of Operation

(Rs. '000)

Region/Field Manufact Trading Consulta Constructi Hotel Financial Miscellan-


uring ncy on
of Operation eous

(1) (2) (3) (4) (5) (6) (7) (8) (9)

South East Asia 57 8 2 1 - 1 1 70


(50.45) (34.78) (18.18) ( 8.33) - (16.67) (25.00) (36.84)
Africa 21 2 3 1 3 1 - 31
(18.58) ( 8.70) (27.27) ( 8.33) (14.29) (16.67) - (16.32)
West Asia 8 1 2 9 1 - - 21
( 7.08) ( 4.35) (18.18) (75.00) ( 4.76) - - (11.05)
South Asia 20 - 1 - 6 2 1 30
(17.70) - ( 9.09) - (28.57) (33.33) (25.00) (15.79)
Europe 3 8 3 1 6 1 2 24
( 2.65) (34.78) (27.28) ( 8.34) (28.57) (16.66) (50.00) (12.63)
America 1 4 - - 4 1 - 10
( 0.88) (17.39) - - (19.05) (16.67) - ( 5.26)
Oceania 3 - - - 1 - - 4
(2.66) - - - (4.76) - - (2.11)

TOTAL 113 23 11 12 21 6 4 190

(100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00)

Table-2.7 shows the distribution of IJVs according to their business associations in India. A very
interesting feature of the IJVs is that there are only a few monopoly Houses only which have
established multiple joint ventures. And, curiously enough, these are the very industrial Houses
which have grown at a phenomenal rate. The Birlas and the Tatas have established themselves as
the Top two business Houses of India. The rate of expansion has been more marked since the

58 | P a g e
beginning of eighties. Similarly, the Thapar, J K Singhania, Mafatlal, Godrej and Kirloskar have
made notable expansion. In the light of their high expansion rate at home it would appear to be
difficult to sustain the hypothesis that growing number of IJVs abroad was suggestive of the
restrictions on expansion at home. Infact, it has also been established empirically that these very
Houses have the largest number of unutilized industrial licenses. Nine industrial houses, each
having an equity investment of more than Rs. 10.00 million each, explain for more than half of
the total Indian investment abroad. The nine are registered under the MRTP Act. There are also
IJVs belonging to other industrial houses covered under the MRTP Act. The two categories are
classified separately. IJVs of the Indian government have been shown under the category Public
Sector. IJVs promoted by foreign controlled companies (FCCs) form a category of their own.
There is one IJV promoted by the Indian Fertilizers and Farmers Cooperative Ltd. This is shown
as a 'Co- Operative' enterprise. The 'All Others' category includes IJVs promoted by individual
companies or individuals not classified under any one of the above category.

The public sector is also one of the investors abroad. It has promoted IJVs. The activity of the
public sector as reflected in this exercise, is underestimation as it implements a large number of
turnkey projects abroad which are not taken for analysis here. The oldest IJV in operation is the
one promoted by Jay Engineering Works Ltd., belong to the Shriram House, which was
established in 1961.

Foreign Controlled Companies account for Rs. 10.33 millions. Though the Co-operative Sector,
Indian Farmers Fertiliser Co-operative Ltd., (IFFCO), has floated only one project, it has a very
large share in equity i.e. 13.36 per cent (Rs. 142.18 millions).

Table – 2.7
Showing the Ownership Character of IJVs

59 | P a g e
(Rs. Lakhs) S.No.

House In Operation Under Implementation Total

No. Amount No. Amount No.

Amount (1)

(2) (3) (4) (5) (6) (7)

Large Industrial Houses

1. Birla 20 1909.28 5 86.32 25 1995.60


(13.61) (21.13) (11.64) ( 4.47) (13.16) (18.20)

2. Thapar 6 1099.61 1 307.63 7 1407.24


( 4.08) (12.17) ( 2.32) (15.94) ( 3.68) (12.83)

3. Tata 7 1031.83 2 61.06 9 1092.89


( 4.76) (11.42) ( 4.65) ( 3.17) ( 4.73) ( 9.97)

4. J K Singhania 2 457.20 - - 2 457.20


( 1.36) ( 5.06) - - ( 1.05) ( 4.17)

5. Mafatlal 4 364.68 1 0.96 5 365.64


( 2.72) ( 4.04) ( 2.32) ( 0.05) ( 2.63) ( 3.33)

6. Godrej 4 204.57 - - 4 204.57


( 2.72) ( 2.25) - - ( 2.10) ( 1.87)

7. Kirloskar 7 111.31 1 80.64 8 191.95


( 4.76) ( 1.23) ( 2.32) ( 4.18) ( 4.21) ( 1.75)

8. Nowrosjee Wadia 1 159.45 - - 1 159.45


( 0.68) ( 1.76) - - ( 0.53) ( 1.46)

9. Shri Ambica 1 117.70 - - 1 117.70


( 0.68) ( 1.30) - - ( 0.53) ( 1.07)

10. Total of 1 to 9 52 5455.63 10 536.61 62 5992.24


(35.37) ( 60.37) (23.25) (27.81) (32.62) (54.65)

11. Foreign Controlled Companies 6 509.31 2 184.11 8 693.42


( 4.08) ( 5.64) ( 4.65) ( 9.54) ( 4.21) ( 6.32)

12. Other Houses 36 1044.71 13 822.60 49 1867.31

(24.49) (11.56) (30.24) (42.63) (25.79) (17.03)

13. Public Sector 5 266.71 4 155.79 9 422.50


( 3.40) ( 2.95) ( 9.30) ( 8.07) ( 4.74) ( 3.85)

14. Co-Operative 1 1421.80 - - 1 1421.80


( 0.68) (15.74) - - ( 0.53) (12.97)

15. Others 47 337.67 14 230.49 61 568.16


(31.98) ( 3.74) (32.56) (11.95) (32.11) ( 5.18)

16. Total(10 to 15) 147 9035.83 43 1929.60 190 10965.43


(100.00) (100.00) (100.00) (100.00) (100.00) (100.00)

60 | P a g e
CHAPTER 3

CONCLUSION AND SUGGESTIONS


The findings of the study raise certain important issues for consideration for the policy makers,
researchers and industry professional. The analysis here indicates that the total number of Indian
business ventures abroad approved is growing. At the same time the data indicates that
enormous delay in implementation or mortality rate may be high. Up to 1995 only about 24%
of the ventures approved were implemented. An analysis is required for the subsequent period,
which could not be done due to paucity of data.

The patterns might have changed somewhat between 1995 and 1999, but it cannot be said on the
basis of data available that any radical change in situation would have taken place. It is,
therefore, necessary to study the reasons for the delays in implementation: what are the
problems, difficulties, roadblocks that are being faced by the Indian business, to come out with
concrete policy and strategic interventions.

It has also been observed that Indian business, both WOS and JVs modes are heavily
concentrated in USA and U.K. What could be reasons for it? Will it be desirable to
concentrate only on these countries and ignore others, especially the European and ASEAN
countries? There is also a need for a study on the issues of "preferred destinations", whether it
is happening by default or by design and what policy and strategic interventions are needed to
effect necessary modifications for aligning Indian Business Ventures Abroad with the significant
developments in the world trade.

The study also indicates that there is wide difference between the Indian Business Ventures
Abroad and Foreign Business Ventures in India. The analysis is limited to the number of
ventures only. There is a need to cover monetary value also in due course. However, it is not
difficult to see that there is a serious imbalance between the Indian Business Ventures Abroad
and Foreign Business Ventures in India. There is need to critically reexamine the policies of
globalisation. If the purpose of globalisation was to see India emerging as a global player, the
data indicates that things are shaping up in reverse way. It is necessary that the objectives of

61 | P a g e
globalisation be made emphatic and clear, and suitable mechanism for monitoring the
progress on globalisation is developed. Such an exercise is imperative instead of allowing a
laissez-faire attitude to prevail, if India has to derive the benefits of globalisation.

Industry and policy makers need scholarly support in terms of extensive and in-depth studies
to understand what else holds Indian business to go global and be a key player. In the last one
decade, the government has introduced many policy reforms like liberal policies on investment
and movement of natural persons etc. to encourage firms to go for foreign venture. But the
activity has not picked up as much as expected, is limited to few sectors and not commensurate
with the levels foreign ventures in India.

What can be done to push the globalization agenda and efforts? What are the problems,
difficulties and roadblocks still being experienced? Is there any lack of competitive skills? If so,
what are they? Or, there are more fundamental issues of lack of desire or mindsets of remaining a
domestic player? These are some critical issues that need closer examination for offering
remedial measures.

Another issue that needs immediate examination is whether the strategies of globalization of
Indian business have to be different from those of MNCs from the developed countries, in the
face of high costs of international operations and adverse foreign exchange ratios vis-à-vis
developed countries. India looks that perhaps has to proceed through strategic alliances
among the domestic players to share the costs and information about the foreign markets. This
difference in strategic approaches must be appreciated to make any headway. The efficacy of
such strategies needs to be closely examined and the modalities for operationalising the strategy
have to be thought through. Following the approaches of MNCs from the developed countries
may not work and may indeed prove to be counterproductive.

It is also necessary to accept and realize that opening of economy without developing necessary
competencies to have two-way, balanced trade at equal pedestal is not sustainable in the long
term without compromising on national sovereignty. This mutuality aspect is not being fully
realized at the micro and macro levels. Nor it is being appreciated by the developed countries,
although the WTO has this underlying principle of negotiations.

62 | P a g e
Conclusions

This paper examines the patterns of India Business Ventures Abroad, both in the form of
subsidiaries and joint ventures over a period of 50 years since independence. The analysis
reveals that although there has been a significant increase in the activity. The ventures,
however, have been concentrated to only a few, about a dozen, countries. The study also shows
that there is a noticeable preference towards subsidiary mode of operation. Further, there are
country-wise patterns of preferences towards use of joint ventures and subsidiary modes. The
study also reveals that there is a significant shift in the mix of activities, tilting from high risk
manufacturing to low risk trading and software development. It is also observed that there is a
wide gap between the number of ventures approved and actually implemented. A comparison
has also been drawn between Indian Business Ventures Abroad and the Foreign Business
Ventures in India during the pre and the post-liberalisation era. This is complemented with the
patterns of export/ import ratio in the respective periods. The two together indicate that the
reforms in economic policies undertaken so far seems to be leading to India fast becoming a
global market rather than emerging as a global player. The paper then suggests that there is a
need for intensive studies for developing policy and strategic interventions to strengthen India’s
business ventures abroad and to help India emerge as a global player.

63 | P a g e
References

Ranganathan, K.V. “Indian Joint Ventures Abroad”, New Delhi (1986) Institute for Studies in
Industrial Development (http://.isidev.delhi.nic.in)

Competing Globally, New Delhi (1994) Allied Publishers

Morris, Sebastian, Foreign Direct Investment from India 1964-83, Fellow Programme
Dissertation, Calcutta (1988), Indian Institute of Management

Morris, Sebastian, Study of Indian Joint Ventures Abroad, Hyderabad (1990), Institute of
Public Enterprises

Ranganathan, K.V. op.cit.

Innovative Leaders in Globalisation, (1999) World Economic Forum, Geneva

Goyal Arun & Noor Mohammed; WTO in the New Millenium (New Delhi) Academy of
Business Studies, (4th Ed.) January 2000

Goyal Arun & Noor Mohammed; WTO in the New Millenium (New Delhi) Academy of
Business Studies, (4th Ed.) January 2000 pp. XXVIII- XXIX.

Reserve Bank of India, “Monthly Bulletins”; Centre for Monitoring India Economy, Monthly
Reviews.

Kumar, Krishna; “Foreign Collaborations in India”, WP No. 2002/ 14, Indian Institute of
Management, Lucknow

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