ASSIGNMENT ON

FOREIGN TRADE POLICY

“A STUDY OF INDIAN JOINT

VENTURES ABROAD”

PRESENTED TO SUBMITTED BY PROF. S. RAMAKRISHNA NEHA HAFLONGBAR ROLL NO. 35

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MIB II SEMESTER

Acknowledgement

I would like to acknowledge the contribution of Professor S. Ramakrishna for providing support to me in this endeavor and for the affection, guidance and patience that he has extended to me. I would also like to acknowledge the contribution of Mr. Siddiqui Yaser Mobin, Mr. Simranjeet Singh Bedi, Ms. Kastoori Rai and Ms. Avantika Haflongbar for their time, patience and co-operation and giving me useful inputs on the subject at hand.

Thank-you!

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CONTENTS

Objective 4 Scope 4 Executive Summary 5 Methodology 7 Conclusion 7 Joint Ventures 9 Joint Ventures in India 19 Joint Ventures Examples 21 Advantages & Disadvantages 23 Arguments for Joint Ventures 25 Arguments against Joint Ventures 26 Indian Joint Ventures Abroad 28 Significance of IBV Abroad 33 List of Indian cos.entering J.V 40 Recommendations 43 Bibliography 44

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Objectives

The objective of this report is to gain an understanding about a subject that has gained relevance in an environment of free market economies and globalization. The subject is “Joint Ventures” and my objective is to unravel the truth behind the introduction of Joint Ventures, formation and formulation of Joint Ventures, Joint Ventures in India, Joint Ventures abroad, Indian Joint Ventures abroad and the methods of dissolution of Joint Ventures, if any.

Scope

As we will get to know in the pages that follow, we will find out that a Joint Venture is a legal entity formed between two or more parties to undertake an economic activity together. It covers both the routes of business ventures abroad, namely joint ventures & subsidiaries. Joint Ventures are being formed between parties with the following objectives :

Provide companies with the opportunity to gain new capacity and expertise;

Allow companies to enter related businesses or new geographic market or gain new technological knowledge;

Joint ventures of a creative way for companies to exit from non-core business.

The study is a descriptive one, based upon on secondary data, namely publications of Indian Investment Centre, related to India’s joint

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ventures and subsidiaries abroad as well as foreign collaborations in India.

Executive Summary

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 merge as a global player. There is a need to review the developments and take necessary corrective action. It is necessary because globalisation and integration with the world economy is a double-edged sword. If necessary care is not taken the country may become only a global market rather than emerging as a global player. The study 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. In the last three decades, advanced capitalist countries have experienced an expansion in the service economy. Yet it is those service activities that are said to be technological or knowledge-intensive which are claimed to bring the maximum benefits for economic growth, innovation and productivity. Examples include management consultancy services, software and computer services, legal

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and accountancy services, engineering services and research and development services. These high-tech business services are said to add value and specialized knowledge to the production processes in manufacturing firms and to improve the quality (and specification) of services delivery in the public and private service sectors. While many organizations have developed such activities in-house, recent years have witnessed a trend of externalization in which organizations have chosen to outsource to an external, specialist supplier. The prospects for, and implications of, high-tech business services thus require knowledge of the interactions and inter-linkages between the client organization, on the one hand, and the supplier of business services, on the other. The analysis reveals that 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

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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 seem to be leading to India fast becoming a global market rather than emerging as a global player. The study 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.

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METHODOLOGY-

Library- collected information from the books in library .

Government websites help in giving vital data.

Dept . of foreign trade affairs give latest information on the market issues.

Magazines of business time, economic times , etc .

The data and information on IJVs abroad is obtained mainly from the IndianInvestment Centre (IIC), the Ministry of Commerce, and Company Annual Reports.

CONCLUSION :-

This project 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

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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.

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JOINT VENTURES

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A joint venture is a legal entity formed between two or more parties to undertake an economic activity together. It is a company acting under Company Law of the respective country. The Chinese (PRC) have enacted the Joint Venture Law requires that one of the companies be a Chinese company incorporated in China, except the Wholly Foreign-Owned Enterprise (WFOE). The Joint Venture parties agree to create, for a finite time, a new entity and new assets by contributing equity. They then share in the revenues, expenses, and assets and the control of the enterprise.

The venture can be for one specific project only - when the JV is referred, more correctly as a consortium - or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or

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technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for ‘’one-time’’ contracts. The JV is dissolved when that goal is reached. The term JV refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, a limited liability enterprise, a partnership or other legal structure, depending on a number of considerations such as tax and tort liability. JVs can be in the travel space, banking, insurance, web-hosting, etc. though of greater concern here are the industrial JVs. Today, the JV applies to more occasions than freewill; for example, one normally cannot legally carry out business without finding a national partner to form a JV as in many Arab countries where it is mentioned that there are over 500 JVs in Saudi Arabia with Indians. Also, the JV may be an easier first-step to franchising, as McDonald's and other fast foods, found out in China in the early stage of development.Other reasons for forming a JV are:

· reducing 'entry' risks by using the local partner's assets

· inadequate knowledge of local institutional or legal environment

· access to local borrowing powers · perception that the goodwill of the local

partner is carried forward · in strategic sectors, the county's laws

may not permit foreign nationals to

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operate alone · access to local resources through

participation of national partner · access by one partner to foreign

technology or expertise, often a key consideration of local parties (or through government incentives for the mechanism)

· again, through government incentives, job and skill growth through foreign investment, and

· incoming foreign exchange and investment.

There may be strategic interests of one partner's alone:

· Build on company's strengths · Economies of (international) scale and

advantages of size · 'globalize' without size economies of

scale · Influencing structural evolution of the

industry · Pre-empting competition · Defensive response to blurring industry

boundaries · Speed to market · Market diversification · Pathways into R&D · Outsourcing

JVs are formed by the parties’ entering into an agreement that specifies their mutual responsibilities and goals. The JV partners can

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form the capital of the company through injections of cash alone or cash together with assets like technology or land and buildings. Subsequent to its formation the JV can raise debt for additional capital. A written contract is crucial for legal provisions. All JVs also involve certain rights and duties. Each partner to the JV has a fiduciary responsibility, even to act on someone’s behalf, subordinating one's personal interests to those of the other person or is the ‘sleeping partner’. Upon its incorporation, it becomes a company in most places or a corporation (in the US).Some of the downsides of a joint venture may be :

· Differing philosophies governing expectations and objectives of the JV partners

· An imbalance in the level of investment and expertise brought to the joint venture by the two parent organizations

· Inadequate identification, support, and compensation of senior leadership and management teams or

· Conflicting corporate cultures and operational styles of the JVe partners

A JV can terminate at a time specified in the contract, upon the death of an active member, or if a court so decides in a dispute taken to it.Joint ventures have existed for centuries in the US, from their usage in the railroad industry and even manufacturing and services. In the financial

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services industry JVs were widely employed for marketing products or services that one of the parties, which acting alone, would have been legally prohibited from doing so. Many such joint ventures were viewed by the courts that they were formed to apparently restrict competition. AntiTrust provisions have ended them.

Finding the JV Idea or Partners : In the era of the Internet, finding opportunities for exploiting an idea is sizeable together with remote, or advertised, communicating. There are also the blogging networks as well the social networking sites and search engines. There are also other venues to find a JV partner such as seminars, exhibitions, directories, websites like eBay and Amazon.com, Wikipedia, Youtube and the plain newspaper advertising of opportunities. Forming JVs with distributor and marketing agencies is possible in this flat world to market a product. Nonetheless, there are risk-takers- Venture capitalists, angel investors and venture managers - especially in the high-tech industries like IC chips or biotechnology. Although they typically exit once an idea or an opportunity proves itself, there are watchful funds and investors who could go in for a JV.

Formulating the JV : Formulating the JV is a series of steps, one which needs a lot of work and yet, at the same time, precision. One can here only

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underline the steps or information that will be needed by the JV candidate. They are

· the objectives, structure and projected form of the joint venture, including the amount of investment and financing arrangements and debt

· the JV(s) products , their technical description and usage

· alternate production technologies · estimated cost of equipment · estimated product price(s) · market analysis for the product, inside

and outside the ‘territory’ · analysis of competition · projected sales and methods of

distribution · details of offered site, including output

projections, transport and warehousing, testing and quality control, by-products and waste, supply, utility, and transport requirements;

· estimated technology transfer costs · foreign exchange projections ( where

applicable) · staff requirements and training · financial projections

A JV can be brought about in about in the following major ways :

· Foreign investor buying an interest in a local company

· Local firm acquiring an interest in an existing foreign firm

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· Both the foreign and local entrepreneurs jointly forming a new enterprise

· Together with public capital and/or bank debt

Selecting the Partner : While the following offers some insight to the process of joining up with a committed partner to form a JV, it is often difficult to determine whether the commitments come from a known and distinguishable party or an intermediary. This is particularly so when the language barrier exists and one if unfamiliar with local customs, especially in approaches to Government, often the deciding body for the formation of a JV or dispute settlement.The ideal process of selecting a JV partner emerges from:

· screening of prospective partners · short listing a set of prospective partners

and some sort of ranking · ‘due diligence’ - checking the credentials

of the other party · availability of appreciated or depreciated

property being contributed to the joint venture

· foreign investor buying an interest in a local company

· Local firm acquiring an interest in an existing foreign firm

· Both the foreign and local entrepreneurs jointly forming a new enterprise

· Together with public capital and/or bank

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debt Companies are also called JVs in cases where there are dominant partners together with participation of the public. There may also be cases where the public shareholding is substantial but the founding partners retain their identity. These companies may be 'public' or 'private' companies. It would be out of place to describe them.Further consideration relates to starting a new legal entity ground up. Such an enterprise is sometimes called 'an incorporated JV' is 'packaged' with technology contracts, technical services and assisted-supply arrangements. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, f or ‘’one-time’’ contracts, e.g., for construction projects. They dissolve the JV when that goal is reached.

Incorporation of the Company : In the U.K and India - and in many Common Law countries - a company (which may also be a joint-venture ) must file with the appropriate authority the Memorandum of Association. It is a statutory document which informs the outside public of its existence. Together with the Articles of Association, it forms the 'constitution' of a company in these countries. The Articles of Association regulate the

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interaction between shareholders and the Directors of a company and can be a lengthy document of 700 + pages. It deals with the powers relegated by the stockholders to the Directors and those withheld by them, requiring the passing of Ordinary resolutions, Special resolutions and the holding of Extra-Ordinary General Meetings.A Certificate of Incorporation or the Articles of Incorporation is a document required to form a corporation in the US ( in actuality, the State where it is incorporated) and in countries following the practice. In the US, the 'constitution' is a single document. The Articles of Incorporation is again a regulation of the Directors by the stock-holders in a company.By its formation the JV becomes a new entity with the implication:

· that it is officially separate from its Founders, who might otherwise be giant corporations, even amongst the emerging countries

· the JV can contract in its own name, acquire rights (such as the right to buy new companies), and

· it has a separate liability from that of its founders, except for invested capital

· it can sue (and be sued) in courts in defense or its pursuance of its objectives.

On the receipt of the Certificate of Incorporation a company can commence its business.

The Shareholders' Agreement :

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This is a legal area and is fraught with difficulty as the laws of countries differ, particularly on the enforceability of 'heads of' or shareholder agreements. For some legal reasons it is may be called a Memorandum of Understanding. It is parallel to other activities in forming a JV. Though dealt with briefly in shareholders ’ agreement , some issues must be dealt with here as a preamble to the discussion that follows. There are also many issues which are not in the Articles when a company starts up or never ever present. Also, a JV may elect to stay as a JV alone in a ‘quasi partnership’ to avoid any nonessential disclosure to the Government or the public.Some of the issues in a shareholders' agreement are:

· Valuation of intellectual rights, say,the valuations of the IPR of one partner and,say.the real estate of the other

· The appointments of directors - which shows whether a shareholder dominates or shares equality.

· directors meetings - the quorum and percentage of vote

· management decisions - whether the board manages or a founder

· transferability of shares - assignment rights of the founders or other members of the company

· special voting rights of a Chairman,and mode of election

· dividend policy - percentage of profits to

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be declared when there is profit · winding up - the conditions,notice to

members · confidentiality of know-how and founders'

agreement and penalties for disclosure · first right of refusal - purchase rights and

counter-bid by a founder. There are many features which have to be incorporated into the Shareholders Agreement which is quite private to the parties as they start off. Normally, it requires no submission to any authority. The other basic document which must be articulated is the Articles which is a published document and known to members. This subsequently defines the ‘’control’’ rights of a partner; fundamentally, the number of Directors each founder can appoint the Board of Directors. A clear majority is effective ‘control’, particularly if decisions are by ‘simple’ majority. Also, the discussions extend to whether certain decisions must be by a 60% or 75% majority, whether a partner will be the Managing Director or Chairperson (or CFO) of the firm or whether both elect a Board to manage the firm. Other discussions can extend to Chairperson, or the Vice-Chairperson, the deployment of funds of the firm, the extent of borrowed funds, and the proportion that can be declared as dividends, etc. Also significant is what will happen if the firm is dissolved or if one of the partner dies. Also, the ‘first right’ of refusal if the firm is sold, sometimes its ‘puts’ and ‘calls’. Often the most successful JVs

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are those with 50:50 partnerships with each party having the same number of Directors but rotating control over the firm, or rights to appoint the Chairperson and Vice-chair every year. Sometimes a party may give a separate trusted person to vote in its place proxy vote of the Founder at Board Meetings. It is not mandatory, except maybe in special Meetings, for all Directors to be present at every Meeting of the Board. Proxies may be present.

Dissolution :

The JV is not a permanent structure. It can be dissolved when:

· Aims of original venture met · Aims of original venture not met · Either or both parties develop new goals · Either or both parties no longer agree

with joint venture aims · Time agreed for joint venture has expired · Legal or financial issues · Evolving market conditions mean that

joint venture is no longer appropriate or relevant.

Joint Ventures in India A Joint Venture on a continuing basis is a contractual business undertaking between two or more parties. It is similar to a business partnership, with one key difference: a

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partnership generally involves an ongoing, long-term business relationship, whereas an equity-based JV comprises a single business activity. JVs are normally formed both inside one's own territory or it is between countries. Within one, JVs usually combine different strengths in a field or because of legal restrictions. JVs are also formed in a new territory, often a developing country, with different legal systems. They are so formed to minimize business, tax and political risks. The JV is an an alternative to the parent-subsidiary business partnership in developing countries, discouraged, on account of (a) ignoring national objectives;(b) slow-growth; (c) parental control of funds; and (d)disallowing competition.

One of such examples isThe Dharma Port Company Limited (A Joint Venture of L&T and Tata Steel

The Dhamra Port Company Limited (DPCL) is a 50:50 joint venture of L&T and Tata Steel. DPCL has been awarded a concession by Government of Orissa to build and operate a port north of the mouth of river Dhamra in Bhadrak district on BOOST (Build, Own, Operate, Share and Transfer) basis for a total period of 34 years including a period of 4 years for construction. The lease period may be renewed or extended for two additional periods of 10 years each on mutually

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agreed terms and conditions.

Situated between Haldia and Paradeep, the port at Dhamra will be the deepest port of India with a draught of 18 meters, which can accommodate super cape-size vessels up to 180,000 DWT. The master plan provides for 13 berths, capable of handling more than 83 million MT per annum of dry bulk, liquid bulk, break bulk and containerized cargo.

During Phase-I, DPCL is constructing two fully mechanized berths of 350 meters each along with backup facilities for handling imports of coking coal, limestone, steam/thermal coal and export of iron ore. The Company is also laying a 62 kilometers rail link from Dhamra to Bhadrak on the main Howrah-Chennai line. The estimated capacity of Phase-I is 25 million MT per annum.

The Company has achieved Financial Closure for Phase-I of the project in February’07 with signing of a loan agreement with the consortium of lenders led by Industrial Development Bank of India (IDBI). The construction of Phase-I has commenced in March’07 and port is expected to be ready for commercial operation by March'10.

The location of Dhamra in close proximity to the mineral belt of Orissa, Jharkhand and West Bengal and its deep draft suitable for large vessels is going to make Dhamra port the most cost-effective and efficient port on the Eastern coast of India.

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Joint Ventures Examples

Bharat Forge, one of India’s leading manufacturing firms, recently announced a joint venture with France’s Alstom to manufacture power plant equipment in India.

Mahindra Satyam, the new brand identity of Satyam Computer Services, has announced an expansion of its Global Solution Centre (GSC) operations in Malaysia. The company will move its global software development and delivery operations to its GSC, located at a 15-acre site in Cyberjaya, Malaysia’s prominent info-Comm Technology (ICT) corridor.

Wipro has launched a new global delivery centre in Chengdu, China, offering IT and BPO services. The centre is to focus on testing and enterprise application services for manufacturing, banking, financial services and insurance industries.

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Infosys BPO, the business process outsourcing arm of Infosys Technologies, is expected to buy the outstanding interests of Atlanta, Georgia-based McCamish Systems LLC, a business process solutions provider to the US insurance and financial services sector

TVS Logistics — a part of the TVS group, has acquired Multipart Holding, a leading after market logistics company in the UK. The company expects to invest over US$ 26.78 million in Multipart in the next 18 months in order to expand its operations in the UK and rest of Europe.

Shree Renuka Sugars Ltd (SRSL), one of the largest producers of sugar in the country, has acquired a foreign sugar and ethanol unit in Brazil. The company acquired Vale Do Ivaí SA Açúcar e Álcool (VDI) at a value of US$ 240 million.

Tata Steel Global Mineral Holdings, the subsidiary of Tata Steel Ltd, the world’s sixth largest steel manufacturer, has entered a joint venture (JV) with Canada’s New Millennium Capital (NML) and LabMag for developing a direct shipment ore (DSO) project in Canada. The company will invest US$ 285.8 million into the project.

Indian companies have sustained their investments in London in the financial year 2008-09. The data showed that 14 Indian companies have either set up or expanded their operations in London in the current

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fiscal. In recent years, major Indian companies including Haldiram, ICICI Bank and Kingfisher Airlines, have set up their offices in London. Also, Wipro and IL&FS have made London their European headquarters.

India Cements is set to acquire a coal mine in Indonesia for around US$ 20 million.

Zuri Group Global plans to invest about US$ 247.5 million for setting up five-star business hotels and luxury residential properties over the next three years.

Trade between the India and Africa rose from US$ 7 billion to US$ 51 billion between 1997 and 2007, an increase of over seven times as revealed by a CII-Exim Bank report released in March 2009. Some Indian companies like Marico, Luminous and Rasna have already made inroads into African countries.

City-based Elgi Rubber Company has formed a fully owned subsidiary company in Texas, US under the name of Elgi Rubber Company LLC.

Advantages & Disadvantage of a

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Joint Venture

  There are many good business and accounting reasons to participate in a Joint Venture (often shortened JV). Partnering with a business that has complementary abilities and resources, such as finance, distribution channels, or technology, makes good sense. These are just some of the reasons partnerships formed by joint venture are becoming increasingly popular.

A joint venture is a strategic alliance between two or more individuals or entities to engage in a specific project or undertaking. Partnerships and joint ventures can be similar but in fact can have significantly different implications for those involved. A partnership usually involves a continuing, long-term business relationship, whereas a joint venture is based on a single business project.

Parties enter Joint Ventures to gain individual benefits, usually a share of the project objective. This may be to develop a product or intellectual property rather than joint or collective profits, as is the case with a general or limited partnership.

A joint venture, like a general partnership is not a separate legal entity. Revenues, expenses and asset ownership usually flow through the joint venture to the participants,

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since the joint venture itself has no legal status. Once the Joint venture has met it’s goals the entity ceases to exist.

Arguments for Joint Ventures

Provide companies with the opportunity to gain new capacity and expertise;

Allow companies to enter related businesses or new geographic market or gain new technological knowledge;

Joint ventures of a creative way for companies to exit from non-core business;

Joint financial strength maybe a means of entry;

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Maybe a source of supply for the third party country;

Access to greater resources, including specialised staff and technology;

Sharing of risk with venture partners; In the era of divestiture and consolidation,

JV’s offer a creative way for companies to exit from non-core businesses;

Joint ventures can be flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting both your commitment and the business' exposure;

Companies can gradually separate a business from the rest of the organization, and eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a sale by one partner to the other.

Arguments against Joint 30

Ventures

Partners involved in a joint venture do not have full control of the management;

Disagreement on the third party market to serve;

Parties may have different views on expected benefit;

It takes time and effort to build the right relationship and partnering with another business can be challenged are likely to arrive if -

the objective of the venture are net 100 percent clear and communicated to everyone involved;

There is an imbalance in levels of expertise, investment or asset brought onto the venture by different partners-

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different culture n management styles result in poor integration and cooperation;

Different cultures and management styles result in poor integration and co-operation.

Success of a venture depends on thorough research and analysis of the objective;

The partners do not provide enough leadership and support in the do’s n dont’s early stage.

Indian Joint Ventures

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Abroad

India is being looked upon as the prime business destination for many global level chemical players, be it for Mergers & Acquisitions, Joint Ventures, Alliances, Outsourcing or any other activity. 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 thatIndia 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

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a global market, rather than emerging as a global player. 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. (1). 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. (2). 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. Since India’s Joint Ventures have served as an important instrument for export promotion, the government has provided a framework for Indian industry and business to access global networks. The gradual removal of all economic barriers has enabled domestic investors to tap the potentially lucrative international market through joint ventures abroad. The Union Government, therefore, recently eased guidelines for investment in joint ventures quite substantially by providing a transparent policy. Now Reserve Bank of India (RBI) will process all applications for grant of approval for setting up joint ventures, wholly owned subsidiaries, abroad.

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Under the category of fast track, the total value of Indian equity has been revised from $2 million to $4 million provided that the amount of investment is upto 25 per cent of annual average export earnings of the company in the preceding three years. Out of the overall limit of $4 million, an Indian company may opt for cash remittance of capitalisation of export proceeds or give loans or corporate guarantees. Earlier, the direct cash remittance was restricted to $ 0.5 million under this route. Under the second category are cases involving investments beyond $4 million, but not exceeding $15 million, or those not falling under the fast-track category. These are now processed by RBI through a special committee. Upto 50 per cent of global depository receipts (GDRs) resources raised may be invested as equity in overseas joint ventures, subject to obtaining specific permission for doing so. Investment proposals beyond $15 million without GDR resources are considered only in very exceptional circumstances where the company has strong fast record of exports. All cases involving investment beyond $15 million are to be received in RBI and transmitted, with the recommendations of the special committee, to the Ministry of Finance for examination, keeping in view the overall benefit. Areas in which Indian entrepreneurship has acquired certain degree of capability in the international technology market include light engineering, chemicals,

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pharmaceuticals, iron and steel, textiles and allied products, rubber goods, commercial vehicles, oil seeds crushing and palm oil refining, food products (including soft drinks), paper and pulp, glass and its manufactures as and marketing, apart from consultancy and engineering. Most of the joint ventures are in East Asia (60 per cent of the total), Europe, the USA, Africa, South Asia, West Asia and Oceania, while wholly owned subsidiaries are in the UK (15 per cent of the total), the USA, Singapore, Germany, Switzerland, Malaysia and Hong Kong. Of the total 432 joint ventures abroad, 170 are in operation at present and 160 of them are in the manufacturing sector, while 10 are engaged in non-manufacturing activities. However, there are only 52 wholly owned subsidiaries in operation while 112 are still under implementation. The joint ventures are dispersed over 62 countries in various regions. Most of the subsidiaries are engaged in various services and only a few of them are in manufacturing activities. The total Indian equity in the operational ventures is to the order of Rs. 152.8 Crores. As such, it is clear that the size and scale of operation of Indian ventures abroad are quite small. It is estimated that exports generated up to December 2000 amounted to no more than Rs. 842 Crores (cumulative earnings). Similarly, the dividends and other repatriations amount to only Rs. 107.25 Crores and Rs. 99.03 Crores respectively upto December 2001. Thus,

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expectations of substantial earnings have been belied because of the small size of a majority of these ventures, their high mortality rate and poor performance. Of late, however, there has been a welcome trend for setting up bigger projects while also laying more emphasis on their feasibility before they are commissioned. It is, therefore, felt that our joint ventures abroad should be permitted to raise resources for financing investment from equity participation. This would particularly enable India to set up strong bases in Europe so that the country continues to have an easy access to Europe in the wake of the European Economic Community (EEC) having already become a reality some years back. Keeping in view the need to conserve foreign exchange funds, RBI has pegged investment to export earnings of the promoter companies. Investment cannot exceed 25 per cent of the annual average export earnings. While this restriction will check outflow of foreign exchange, any increases in investments abroad will have to be balanced by a proportionate increase in exports. However, there is little sense in limiting such investments to $ 4 million. Companies will fail to enjoy the economies of scale due to the ceiling on investments. While the ceiling on investments needs to be raised to avoid Forex imbalances, it should always be pegged with the growth rate of exports.

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It is also felt that since the Government was anyway liberalising foreign direct investment, it should also encourage Indian joint ventures abroad. Besides, with increasing opportunities for the services sector and skills in India, it should be possible to encourage Indian investments of a less capital-intensive and more skill-intensive and more skill-intensive nature abroad. Both industry and Government need to identify and select industries in which India has the expertise to offer to host country. Such selection would have to keep in mind the advantage to the other party of specific technologies in terms of its own industrial development. However, since the rate of mortality or non-implementation of Indian joint venture schemes is very high, there is need for forming a consortium to undertake overseas ventures.

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

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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 earnedin such countries and they do not face the balance of payment problems, neither the government is under pressure to arrange foreign

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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 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. It 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

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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 aregular basis. Indian business ventures abroad had been at a very low key in the pre-liberalisation era i.e., before 1991. As per the records available Tata Sons undertook the first businessventure abroad in 1961 setting up a subsidiary. However, till 1991 there were only 75 WOS abroad approved (see table 1), confined primarily to two countries namely;U.S.A. (20), U.K. (18). The first joint venture was initiated in 1970. The number of JVs approved up to 1991, 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. The number of WOS, approved during 1992-99 period, increased from 28 in 1992 to peak at

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143 in 1996 and stabilised thereafter at around 120 subsidiaries per year, soaring again to 238 in 1999. Thus, the average number of WOS approved per year in postliberalisation era is twice of total number of WOS up to 1991 (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 1992-99, 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.

Table 1Indian Business Ventures Abroad Over the Years

(Up to 1999)

Wholly Owned Joint Ventures TOTAL

Subsidiaries(WOS) (JVs)

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Upto 1991 75 244 319 1992 28 72 100 93 79 104 183 94 122 92 214 95 119 82 201 96 143 116 259 97 122 101 223 98 154 101 255 99 233 103 336 TOTAL 1075 1015 2090

The total number of JVs in the post- liberalised era too recorded an increase, from 72 in 1992 to peak at 116 in 1996 and stabilised thereafter at around 100 per year. The quantum was however, less then 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 pre-liberalisation period. The concentration also spread from 12 to 19 countries, with Mauritius(24), Germany(22), Hongkong(21), S.Arabia(15), Bahrain (15),

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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. The WOS and JVs approved up to 1999 have been mainly confined to 21 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.

Monetary Value of Business Ventures Abroad

The monetary value (equity participation) of Indian ventures abroad approved as in 1998 stand at U.S.$ 2006.37 (see table 3, comprising US$ 1182.64 million in the form of WOS and US$ 823.7 million through JVs (for details see exhibit 2). The table does not give details of the investments up to 1991, and between 1991 and 1995, as the data was not available to give an idea of impact of liberalization. It will be noted that while the investment has increased between 1996-97, it has taperedthereafter. The sharp rise in 1999 noticed is on account of single huge investment made in one WOS and JV each, in British Virgin Island and Iran respectively, which does notrepresent a general trend. This could also be interpreted as Indian business has started taking

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bold initiatives, though it is too early to draw any conclusion.

Table 2Indian Business Ventures Abroad

(U.S.$ miilion) Wholly Owned Joint Ventures

TOTAL Subsidiaries(WOS) (JVs)

Upto 1995 158.65 177.55 336.20 96 135.60 90.02 225.62 97 153.73 351.37 505.10 98 85.39 62.19 147.58 99 649.26 142.61 791.87 TOTAL 1182.63 823.74 2006.37

Another interesting feature is that the focus of Indian business is on U.S.A. and U.K. Comparatively there is very little focus on Europe, Japan and other South -east Asian countries. For example, Germany, France, Italy, Belgium, Switzerland, Sweden, Denmark,

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Norway, Austria etc. have very little Indian ventures. These are the countries from whereIndia imports a lot and has very large number of technical collaborations. Is Indian business catering to Indians only, or is it on account of familiarity with those countries as a large number of Indians are settled there. If so, there is a need for major initiatives to support them in developing familiarity with these countries and there markets for Indian goods.

Indian Business Ventures Abroad and Foreign Collaborations in India

Table 11 gives a comparative picture of Indian Business Venture Abroad and Foreign Collaborations in India in the pre and post- liberalisation era (10). From the table it will be observed that the number of Foreign Collaboration (i.e.foreign business ventures in India) in the post liberalisation era have increased at much faster rate than in the pre-liberalization era. The total number of Foreign Collaborations approved during the 7- year period from 1992-99 (15836) is almost as many as the total number of foreign collaborations in the 40-year period between 1951-91. The number of foreign collaborations in the pre-liberalisation era, on the whole were approximately 53 times (16836/319) the number of Indian business ventures abroad.

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This ratio has reduced to 15 times (32672/2103) in the post liberalised era. However, it is still a long way to go. The gap is still very large in terms of number of business venture and is still widening, although at somewhat reduced rate. In a nutshell it can be said that though liberalisation and globalisation policies have given an impetus to the Indian business moving out to become a global player. However, the country has not benefited, at least so far. The opening of India economy has helped foreigners getting into India more than Indian business getting global in true sense.

Motorola joins two India joint ventures:

Motorola announced two new joint ventures in India that will develop telecom and IT applications and solutions.

The venture partners include Tech Mahrinda and WiPro Technologies.The hookup with Tech Mahindra will be called Canvas M and will focus on developing a variety of mobile IT solutions, including end-user applications, content services and frameworks for delivery and management.

The companies said in a release that Canvas M would be "a vehicle for delivering an evolving portfolio of content-based services."

The venture with the IT services arm of WiPro Ltd. will be known as WMNetServ and will provide

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outsourced telecom services to public and private network operators.

"Wipro has a proven track record in delivering managed services and complements Motorola's expertise in mobility," said Motorola Vice President Srikanth Kannankote. "The combined strength of Wipro and Motorola gives WMNetServ a significant competitive advantage in managed services.

List of Indian companies entering joint ventures:

Unison's 39 Joint Ventures

Joint Venture

Investor

1. The Great Wall Joint Venture of Beijing

2. Parker Hubei Seal Corporation

3. Beijing Jeep Corporation, Ltd.

4. UTEX International Corp. of Shanghai

5. Xerox of Shanghai Limited

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6. Tianjin Unison Enterprise, Inc.

7. Astro-UniHorn Computer Technology Co., Ltd.

8. Pan Abrasives (Shanghai) Limited

9. Shanghai T&C Ophthalmic Products Co., Ltd.

10. Beijing Warner Gear Company, Ltd.

11. Weihai Huabao Carpet Co., Ltd.

12. Shenzhen Chess Computer Company, Ltd.

13. Shanghai Unison Aluminum Products Ltd.

14. Shanghai Unison Building System Products Co., Ltd.

15. Sanjiang Renault Automotive Co., Ltd.

16. Communication Intelligence Computer Corp., Ltd.

17. Nantong UniStar Electro-Mechanical Industries., Ltd.

18. Guangzhou Huamei Communications Ltd.

19. Shanghai Unison ElectroDynamics, Ltd.

20. Shanghai Automotive Brake Systems

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Co., Ltd.

21. Chengde North Unison Instruments Co., Ltd.

22. UTA-DCAC Auto Electric Co., Ltd.

23. UTA-Xianfeng Auto Electric Co., Ltd.

24. Shanghai Unison International Consulting Co., Ltd.

25. Beijing Monroe Automotive Shock Absorber Co., Ltd.

26. Huazhong Warner Transmission Co., Ltd.

27. PDS Edison Power Systems Co., Ltd.

28. Wuxi Unison Electric Co., Ltd.

29. ITT Shanghai Automotive Electric Systems Co., Ltd.

30. XJ-Matco Electronics Co., Ltd.

31. Beijing Conductor Line Products Co., Ltd.

32. Lanzhou Lubrizol Lanlian Additive Co., Ltd.

33. Tianjin Lubrizol Lanlian Additive Co., Ltd.

34. Shunde Donnelly Zhen Hua Automotive Trim Co., Ltd.

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35. Beijing Johnson Controls Automotive Trim Co., Ltd.

36. Shanghai Eaton Engine Components Co., Ltd.

37. Shanghai Hyster Forklift Truck Co., Ltd

38. Dong Ying Unison Petroleum Equipment Co., Ltd.

39. Beijing Unitrade E-Commerce Co., Ltd.

Others are :

40. Unison Pacific Corp.

41. Parker Hannifin/Unison Intl.

42. Chrysler Corp./American Motors

43. Unison International

44. Xerox Corp.

45. Unison Pacific Invest./Unison Intl.

46. UniHorn, Inc.

47. Pan Abrasives/Unison Intl.

48. Thikao/Unison International

49. Borg Warner Automotive

50. Unison Pacific Investment

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Recommendations

Considering the fact that more than two-thirds of the 65 Indian joint ventures abroad have been operating for less than five years, it might be premature to attempt any rigorous economic analysis of these overseas investments, though some preliminary data on the overall economic returns from the successful ones could be indicated. However, enough time has elapsed and enough attempts have been made by Indian entrepreneurs to invest abroad, to warrant some interim stock-taking, at least to diagnose the patterns of our initial efforts and to learn possible lessons for the future. In this paper it is proposed to pursue two major strands of analyses: (1) a regional analysis of our efforts to invest abroad, and (2) an indurtry pattern of the products and technologies we have attempted to take to these countries. Interesting patterns are discernible from both these analyses and useful lessons could be drawn for the future.

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Bibliography

Books/Journals:

· Foreign trade policy of India 2009-2014· The Hindu· Ministry of Commerce and Industry, India· “Monthly Bulletins”, RBI· International Trade Administration· Trade & Industry Department· International Business· Indian Joint Ventures Abroad by K.V.Ranganathan· Foreign Collaborations in India by Krishna Kumar

Websites:

· www.wikipedia.org· www.infodriveindia.com· www.zeenews.com· www.1000ventures.com· www.businessweek.com· www.authorstream.com · www.clickbank.com

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