‘Trust can make or break a joint venture'

One of the few corporate presentations at the recent ‘India Strategy' conference in ISB, Hyderabad, was that of Mr Akhil Kumar, Managing Director and Chief Executive Officer, GS Caltex India Pvt Ltd, Mumbai (http://bit.ly/F4TAkhilK). As one with a vast experience in joint ventures, Mr Akhil emphasised the importance of trust. It is important to identify HR skills that are essential to operate the joint venture, he added, during a brief interaction with Business Line . “Develop and nurture the skills through appropriate training programmes and assignments. It is important to recognise such employees and develop them as joint venture specialists. They should not be seconded from either of the partners to avoid any conflicts but belong to and have their career record with the joint venture only.” Our conversation continues over e-mail. Excerpts from the interview.

First, an overview about the joint ventures globally and in India.

As per a study published in Harvard Business Review in 2002, joint ventures and alliances can deliver more shareholder value than Mergers and Acquisitions (M&A) can, but getting them off the ground can trip one up in unpredictable ways. Joint ventures are a popular business model around the globe. The primary reason for such as venture is that the partners bring together complementary skills and resources, such as technology, finance, management skills, familiarity with the local markets, or access to natural resources.

Joint ventures are particularly popular in oil exploration, where, in addition to all of the above factors, sharing risks is also very important. Indian companies have partnered successfully with foreign partners for setting up joint ventures in India and overseas. Some of the popular ones are Hero Honda, L&T Komatsu, Maruti Suzuki, etc.

Are there common reasons for the failure of joint ventures?

The reason why most fail is that, in the excitement of getting the venture started and expectation of rich rewards, the partners ignore some of the basics that make it sustainable.

As much as 47 per cent of joint ventures fail due to factors such as:

Wrong strategies: Partners may differ in their basic business strategies. A classic one is the preference for market-shares versus profitability;

Incompatible partners: The partners may have different objectives and business outlooks. For instance, one may want to extract high dividends while the other may be looking for ploughing it into the venture again;

Poor execution: Managing a joint venture requires special skills. The leadership needs to manage both the partners in an equitable and tactful manner while ensuring that they are fair and reasonable to both of them; and

Inadequate governance: Proper governance is absolutely essential for creating confidence amongst the partners. They should have adequate representation on important oversight committees and equal access to all relevant information. Governance should promote trust between the partners at all times.

Factors that make joint ventures successful.

The success depends on attention to detail in the planning and launch of the joint venture and the design of an effective governance system that provides confidence to both partners and builds mutual trust. While there are several factors such as governance, business strategy, skills of personnel managing the venture and so on, the most important factor that can make or break the venture is the mutual trust amongst partners. Breach of trust is like a cancer that slowly eats into the venture and affects all involved — the partners and the employees — and it is only a question of time before it falls apart.

How important is trust for a successful venture?

Trust is the single, most-important factor that determines the success of the joint venture. Most fall apart because of trust deficit. It takes special skills on behalf of the partners to develop a relationship to set up a joint venture and operate it successfully. The problem becomes even worse if the partners are unequal in size and resources. Individual egos and attitudes — real or perceived — can affect the relationship. A successful joint venture is like a marriage where the partners have to be accorded an equal status and treated by each other with a lot of respect and show trust in each other. Attempts to make any gains, at the expense of the other, will be a recipe for disaster.

Would you like to list a few ways to create trust?

There are several ways in which trust can be created and promoted.

Invest in relationship: Partners need to take time out to understand each other. For instance, cultural background is very important in international joint ventures.

Develop a strong sense of empathy and understanding of the partner's needs.

Design a governance structure that is practical (not too bureaucratic) and facilitates transparency among partners.

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