From millions in profit to total market loss
How a successful joint venture in India escalated due to different growth strategies and excluded a European company from the market for years.
Failure to succeed: IPO or sustainable growth? It was a success story: a European global market leader dominated the Indian growth market for mechanical engineering with an Indian partner in a joint venture. With innovative technology “Made in Germany” and with the help of the local partner, they gained aggressive market shares together, so that turnover and profits quickly flowed into the millions. However, this success soon led to diverging interests and differences of opinion between the partners, which quickly escalated.
The Indian partner wanted to grow the company even more aggressively with the aim of floating its shares on the stock market within a few months. He promised himself “tens of millions”. The German side focused on sustainable growth, typical of medium-sized companies, and rejected an IPO. As a family business, the shareholder structure was to remain as originally agreed.
The Indian partner felt cheated out of his millions and let the German partner feel his frustration. After a short time, all reporting stopped and a dangerous lack of transparency developed. After a further twelve months, during which the German partner brazenly continued to show no interest in an IPO from the Indian partner’s point of view, the Indian partner misused technical drawings and production resources in a secretly founded new production company.
It came to a final break with years of legal disputes that led through all instances.
10 years of litigation – complete loss of market value
Contrary to the European partner’s initial expectations, the legal disputes meant that for many years it was not the Indian shareholder but the European company that was no longer able to operate in the Indian market and thus completely lost control in India. It took almost 10 years to finally get justice at the highest level of Indian jurisdiction – in the meantime, the company had burned through several million euros and suffered a lasting loss of image in the Indian market.
At this point, we were commissioned. We took over the analysis of the market conditions and, as part of a crisis management process, determined how a new market entry could be successfully achieved under these conditions.
The aggressive “litigation culture” of the former partner, who took legal action against every step taken by the German side, made all processes more difficult. He also actively used his excellent network against the European side and did not shy away from drastic steps, such as spreading false suspicions and massive threats in the market.
The way back: successful crisis management
Our complex crisis management has successfully implemented the following measures:
- Assumption of local responsibility for the direction of the restructuring, enabling a new market entry
- Development of a possible strategic realignment (strategy development)
- Establishing contact and negotiating with former customers and business partners to re-establish a basis of trust
- Development of a new sales and service structure
- Planning to establish a local personnel structure
- Reorganization of compliance and risk management
- Discussions with business associations, ministries and authorities
After two years, all the conditions were in place: The company was capable of acting and could once again actively participate in India with a clear strategic focus.
Lessons learned: Trust is good, local commitment is better.
Why did the joint venture in question break up with the partner and subsequently lead to a super-GAU?
From our perspective, classic patterns were already in place when the business was set up: the European shareholder left the complex and time-consuming bureaucratic processes exclusively to the local Indian managing director. The lack of involvement with the subject matter meant that the European shareholder was soon overwhelmed and became dependent on the Indian partner or managing director (and sometimes even susceptible to blackmail). Without detailed knowledge, the processes in India could no longer be supported and actively managed on the basis of facts. The Indian company became independent.
Your goal in India must always be to prevent this drifting apart of trust, understanding and control in all phases of cooperation. Your company, whether a joint venture or your own, can only function in India in the long term if you invest in India both professionally and operationally and take care of the local organization, including strategy and processes. You can also read our case study “Structure, control and transparency – actively counteracting compliance issues”.
Are you planning a joint venture in India or are you already in difficulties? Let’s talk about your situation in a no-obligation meeting. We will show you how to avoid typical pitfalls and secure your market position in India. Arrange your meeting now.