Joint ventures in India: The right relationship

Joint ventures (JVs) are a popular market-entry route for UK companies. Irwin Mitchell India specialist Sandip Khroud tells Ian Halstead the pros and cons of such a strategy.

Joint ventures (JVs) are a popular market-entry route for UK companies. Irwin Mitchell India specialist Sandip Khroud tells Ian Halstead the pros and cons of such a strategy.

JVs are often the catalyst for a successful entry into the Indian market, but if things go wrong, they can also be the beginning of a very difficult journey.
Sandip is now a member of the Irwin Mitchell India Business Group, but previously spent time working for one of India’s largest corporate law firms, and has helped British companies expand into India.

“The most important point to make is that although JVs can work for UK companies of all sizes, and in all sectors, you must be patient when looking for a potential partner. You want the relationship to prosper for the long-term, so it’s always better to do too much research than too little,” he says.

“You need to ensure that your Indian partner has the same ambitions, vision and corporate culture as yourself. They don’t necessarily have to be in the same sector, but must have the things which you don’t such as an Indian network, distribution chain and extensive contacts.”

“It’s also important that you carry out due diligence, not just on the financial, legal and commercial aspects of their business, but also on their reputation as a business, which is very important in the Indian business community and to consumers.”

“Equally, it’s essential that when you’ve identified a preferred partner, you visit them in India, take time to become familiar with their business, and meet all the decision-makers who will be involved when the JV gets underway.”

Inevitably though, even the best-conceived JV might sometimes go awry, so it’s crucial that the UK partner includes a well-drafted dispute resolution procedure in its agreement.

Given the notorious log-jams in the Indian court system, it’s also best to include a clause that arbitration should take place in either the fast-growing dispute resolution centre of Singapore or London. The time to consider an exit strategy is also well before it might be required.

Sandip also counsels that UK corporates, whether SMEs or plcs, must be aware of making basic errors when setting up their JV.

“Intellectual Property (IP) issues are crucial. You can’t allow your Indian partner to use your IP without an appropriate licence, and you mustn’t give them control of the JV. You need to either appoint a representative in India, or send someone out regularly, to ensure that your interests are fully protected,” he warns.

“If you meet a potential partner who seems enthusiastic face-to-face, but then doesn’t respond to calls and e-mails when you’re back, don’t be put off. The relationship will take time to become established, and you also mustn’t underestimate the bureaucratic hurdles you will face at state and national level.”

“Funding issues are key. You mustn’t enter into a JV, if there’s a wide disparity between the resources of your business and your partner, as that can cause problems when the JV looks to expand. Finally, never give much weight to including non-compete clauses in the agreement, as they’re largely unenforceable in India.”
What next?

Sandip Khroud, India expert at Irwin Mitchell will be presenting a UKIBC webinar covering joint ventures on the 4th of November. You can find out more and details of how to register at https://attendee.gotowebinar.com/register/811761774253242624129