If you’re looking to enter the Indian market, you could look to enter into a Joint Venture (JV) with an Indian company.
Here we explain some of the main dos and don'ts when it comes to joint ventures. We have advised a number of UK businesses on entering JVs with Indian companies.
What Do You Need?
It can take time to agree the terms of a JV and you should remember that your Indian partner may have other priorities. You should also be aware that you may need to make numerous visits to a notary here in the UK in order to set up a JV company.
2. Thorough research
You should take the time to research the market as much as possible and find the right partner for the JV. Interest in the JV could be high, so it’s important you find a partner with a well respected business reputation, a large network of contacts and ideally, a good distribution chain. You will also need to consider their overall financial and commercial reputation and go through an in-depth due diligence process.
3. Knowledge of your partner
Getting to know a potential partner is also crucial if you want to gain an understanding of their own business and how they operate. You should visit them and acquire a sound knowledge of their key promoters, ensuring that you’re dealing with the decision maker during all stages.
4. A clear dispute resolution provision
Your dispute resolution provision can cover things such as an international arbitration provision, so you should ensure that it is clear and well drafted. Disputes of this nature in the Indian courts can commonly take up to 10 years to resolve, so it is sensible to seek a resolution elsewhere.
5. Bank of India clearance
You will need clearance from the Reserve Bank of India when setting up the JV, as you will be a non-resident shareholder.
6. An exit strategy
You should have a clear and well thought out exit strategy in place for your JV, just in case things don’t work out, or you decide to go it alone in India.
What Should You Avoid?
1. Allowing a JV company to use your Intellectual Property
This includes the use of your patents and trademarks without an appropriate license. You can run the risk of losing your Intellectual Property if you fail to put the correct licensing in place before you set up a JV.
2. Being put off in the early stages
You shouldn’t be disheartened if you find that it takes you longer than anticipated to find a partner for your JV. Finding someone suitable, reliable and trustworthy is crucial, so don’t be put off in the early stages of the process.
3. Wide disparity when it comes to funding
You should acquire a sound understanding of the financial position of the Indian JV partner and their ability to provide additional funding to the JV if required. Failure to do so may cause problems as you look to expand in the future.
4. Underestimating the bureaucratic hurdles
You should ensure that your JV partner has established links in both the state and national levels of bureaucracy in India, as it’s not something you should be getting involved in.
5. Allowing your Indian partner full control of the JV
You should ensure that you visit the location of the JV on a regular basis and have someone ‘on the ground’ to guarantee that any decisions being made protect your best interests.
6. A non-compete clause in the JV agreement
You should avoid giving too much weight to these in a contract, as they are largely unenforceable in India.