Why do Japanese companies go for joint ventures in India?
Senior business analyst at the POSCO Research Institute
hen it comes to technology, capital, management expertise, and global business experience, Japanese companies do not lag behind Korean ones. Still, they often seek partnerships with local firms when entering
the Indian market. Why? The president of Wipro, one of India’s largest information technology service companies, said, “If you want to make it in India, what you need is a
local partner.” It is difficult for a foreign company to take care of everything on its own, from market research, land purchase and logistics to market The consensus among Japanese firms is that a joint venture with an Indian partner is a must for a foreign business, given the difficulty of negotiating with an Indian government riddled with bureaucracy and corruption, pioneering a local market, and getting payment from Indian
Spring 2011� POSRI Chindia Quarterly
clients. It has also been observed that spotting a good partner through thorough research is a shortcut to success since forging partnerships with local conglomerates is absolutely vital in India. ○●
Risk aversion is the national character
Japanese companies’ preference for joint ventures stems from their tendency to avoid risk. Geert Hofstede’s uncertainty avoidance index for Japan is 92, much higher than Korea’s 85 and the US’ 46. Most Japanese companies chose to form joint ventures when they went to Southeast Asia and the US in the 1970s and 1980s. Japanese industries with strong general trading companies have done their research on the Indian market but have been waiting for an improvement in market conditions and business environment. Japanese firms have maintained high efficiency and cost competitiveness based on well-built transportation infrastructure and power grids, and trusted relationships with partners capable of delivering products just-in-time in other markets. Thus, they thought it was too early for them to enter into the Indian market. Poor infrastructure, corruption, and a dense Indian bureaucracy as well as the political instability and social unrest prevalent until the end of the 1990s presented many risks to Japanese firms.
All set to get into the new market
Japanese companies make thorough and careful preparations before getting into a new market because they are well aware of the risks. One of the reasons Suzuki won the bid for India’s national car project (even though it was a latecomer) was that it was able to convince people that small cars with better gas mileage at lower prices were the best choice for India. Suzuki stands in stark contrast to France’s Renault, which made its business proposal without having done the market research. Maruti Suzuki (a subsidiary of Suzuki in India) is the nation’s unmatched premier automobile
POSRI Chindia Quarterly� Spring 2011
:: Secret to success of Indian partnership
manufacturer, with about 50% of the current market share. Toyota failed when, amid the poor Indian market environment of the 1980s, it entered into a joint venture to manufacture commercial trucks. Partner selection, abrupt changes in institutional environment, sluggish sales, poor distribution channels, and a failed localization of products (the road infrastructure was unfit for high quality products) were all blamed. For its second shot at the end of the 1990s, Toyota spent one and a half years selecting its partner for its joint venture. It chose a manufacturing-based Indian conglomerate that could understand Toyota’s business philosophy and strongest asset, monozukuri (doing its best to make the best product). It also engaged in thorough research before settling on a location (Bangalore instead of Delhi) and production line (SUVs for big families). ○●
Most Japaneses companies understand the downside of forming a...