Why a Swiss multinational opted for a joint venture in India (unlike anywhere else)
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The Swiss family business Ammann is the world leader in construction and road construction machinery. “In almost all 100 countries where we operate, we started and became successful entirely on our own,” says Rolf Jenny, director of Ammann in India. “Except in India. There we quickly came to the conclusion that we would never make it without local knowledge and support.”
“Ammann’s first steps in Asia were taken in China. In the late 1990s, the Chinese government was extremely interested in our technology, because they wanted to improve their entire road network in a short period of time. We were warmly welcomed with attractive tax rates and special support programs,” says Jenny. “We only had to make a few adjustments to our product in China to become successful, just a small reduction in price. That was easily solved with a local production location and we were up and running in no time.”
With this smooth experience in mind, the Swiss multinational set off in high spirits to the other major market in Asia: India. They soon realized that India is quite different form China. Jenny: “The Indians were not interested in our advanced products and certainly not at the price we offered them,” says Jenny. “What worked fantastically in China did not work at all in India. In India we could not get away with just minor adjustments to our products, so we said to each other: ‘We are not going to manage this ourselves, we need a partner who understands the Indian way of thinking.”
Know what you have to offer an Indian partner
Ammann started out with extensive market research in the hope of finding a company that they could buy, but instead comes across the Indian company Apollo. Apollo is the leading producer of road construction materials in India at the time. “And that was exactly the reason why they were interested in our technologies, but immediately said no to the idea of a possible partnership,” says Jenny. “They said that they had been operating at the top of the Indian market for 50 years and therefore had no advantage in entering into a joint venture with an inexperienced European company. With this hard rejection they wiped our possibility of a successful start in India off the table in one go.”
But the Swiss company is lucky. Two years later Apollo contacts them again and this time the Indian producer is open to a joint venture. “That was the start of tough negotiations, because we did not agree easily on the terms of a partnership,” says the Swiss CEO. “Ammann is normally always a 100% shareholder in the companies we set up abroad, so for us it was out of the question to have less than 70 percent of the joint venture. Apollo, on the other hand, wanted the shareholding to be divided 50-50. We also wanted to focus only on India with the joint venture, while Apollo wanted to start exporting to neighboring countries.”
Bridging differences
In order to bridge the differences during the negotiations, Jenny initially focuses on the similarities between the two parties. “We are both family businesses, which immediately created a bond. We decided to invite Apollo to Switzerland to get to know our company even better and to gain more insight into how we could complement each other,” the director explains. “We are the world leader in high-tech products, Apollo in low-tech, low-cost versions. Together we could therefore deliver a high-quality product at a mid-range price. By building trust and proving that we really saw them as an equal partner, we were able to convince them of the benefits that a joint venture would bring to them. Of course without compromising on our own terms.”
According to Jenny, a successful joint venture is based on a number of basic principles. “You have to be able to trust each other completely and treat each other as equal partners, also in our case where we owned 70 percent of the company. All decisions within the joint venture were always made in agreement. We also had it laid down at the start what would happen if one of us wanted to leave the joint venture. A joint venture should always be equally beneficial for both parties. It is therefore extremely important to not only think about what the happy marriage will look like, but also about an amicable separation if one of the two wants to continue alone.”
Ending the joint venture
After running a successful joint venture together for eight years, Ammann and Apollo decided to end their cooperation last year. “We have learned a great deal from each other in those years and have always worked together pleasantly without disagreement. But Apollo was ready to stand on its own two feet again,” says Jenny. “Because of the 70-30 ratio, they became more the investors, than the entrepreneurs behind the company and something started to itch, they wanted to get back to work themselves.” Apollo sold the remaining 30 percent to Ammann for almost 27 million. “They not only made a very good deal with this sale, but have also been able to profit in recent years honoring the prosperity that the company has experienced. Together we have not only increased the value of the company enormously, but also tripled the turnover. Despite the separation, the joint venture has always been a success for both parties. We are therefore parting as friends and will continue to have a good relationship.”
Jenny therefore recommends an Indian partner to every global company that wants to start in India. “In India, you can only become successful if you understand the wishes of the customer and adapt your product and price to these wishes. To achieve this, you have to produce in India, the product has to breathe India. If you are sure that you can do that on your own, go for it. In our case, we knew that our products did not fit the market, but we needed the local knowledge to understand how we could improve that. If you start working alone, you have to have a long breath and take into account that it will be a process of trial and error. We wanted a quick market entry without too many setbacks and we could not have done that without our great partner. So do your research and determine your strategy based on that, but be aware that local aid makes a lot easier in India.”
Opportunities in infrastructure and construction
Ammann is looking forward to the future in India. “Construction and infrastructure are two sectors that will grow considerably in India in the coming years. More infrastructure needs to be built in the country if it wants to maintain the same high economic growth in the long term,” says the Ammann chairman. “But despite the fact that these sectors will offer interesting opportunities, it is important that foreign companies realize that India does not offer a quick fix. I have seen many international companies come and go, hoping to get a piece of the pie from the investments in the road network. But if your product does not meet Indian needs and the Indians do not trust you, then you have a choice: either invest for the long term or pack your bags.”
