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Case: A JV Project Between Weltek, Antwerp and Fu-
sioneering, Jamspedpur
This case text is based on a real-world case, but the names of the two main
companies and their managers, as well as all dates and amounts, have all been
changed.Mr. Dondeyn is the General Manager of Weltek, a producer of welding electrodes
and equipment. Over the last years, he and his Assistant General Manager Ms
Dewulf have been negotiating a joint-venture with three Indian partners, aiming
at the local production of electrodes and possibly also the distribution of Weltek
products imported into India.
The core business of Weltek is in “special” welding electrodes for maintenance
and repair, not for plain-vanilla construction welding. Weltek belongs to the subtop
in the industry and would like to grow. Founded in Belgium in the 1960s, it has
subsidiaries in Italy, the Netherlands, theuk, Spain, theus, and South Africa. All
these are wholly-owned. Production is concentrated in Belgium and Spain; the other
subsidiaries are marketing and service companies.
Weltek has been interested in an Indian production unit for years. The internal
market is huge, not only because of the size of the population, but more importantly
also because repair is big business there. Like many developing countries, India is
short of capital to import new equipment, and in the late 1990s the still-highish
import tariffs make replacement very expensive; as a result, most equipment (in-
dustrial machinery, cars, appliances, etc.) is used much longer than in mostOECD
countries. This implies an important maintenance and repair market, which in its
turn induces a market for hand-welding fillers and equipment. India could also
be a stepping-stone for exports towards other countries in the area, includingCIS
countries.
Weltek had in mind a production joint venture, not a wholly owned subsidiary
nor a marketing joint venture. TheJVoption had to do not only with the local
regulations—the investment code limited foreign ownership to 40%—but also with
Weltek’s financial capacity and its lack of knowledge of the local market. There
was a transfer-risk issue too: in those days, there was free repatriation of capital
brought in for direct investments, but there still was a bureaucratic delay, and the
occasional nationalist noises by the then rulingBJPparty were not encouraging.
(Restrictions on portfolio investments were even more stringent, whether in- or
outward, in those days.) AJVmeant a smaller investment, so smaller transfer
risk. Local production, not just marketing of imported products, was preferred
because even after India’s liberalization of the 1990s its import tariffs are still high
by Western standards. Therefore, exports to India are viable only for selected
specialty products for which demand is too low to justify local production. A pure
license contract wouldn’t do either. One argument was control over the training
and marketing effort. “We have a very intensive and well-developed formal training
scheme for the sales force and for the engineers; an engineer, for instance, has to know