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Profiteering from an India-China JV

January 12, 2011

For an Indian company operating in China, it isn’t just vital to understand your particular market segment and set up shop near suppliers, its also important to understand how to conduct an efficient business in the Mainland, think through your future potential goals and hire the right advisory team. The difference could be between you selling out to your Chinese partner like Indian pharma company Aurobindo Pharma or reaping the benefits of your first profitable year in the worlds largest economy like Indian auto components maker Bharat Forge.

Unable to cut decent profits, realizing a strategic shift in strategy post incorporation and a poor choice of location in China meant that Hyderabad-based Aurobindo Pharma,  had to sign a definitive agreement to divest 51 percent stake in its Chinese joint venture with China National Pharmaceutical Group Corp (Sinopharm). While the joint venture has been diffused on amicable grounds, it doesn’t detract from the fact that Aurobindo could have prospered had it struck the right chords with its partner.

While India-China relations remain sweet and sour, few joint ventures between the two countries have done well. After four years of experimenting, learning and adapting, Bharat Forge has finally managed to come out of the red in China.   India’s biggest automotive forgings maker has a Joint venture with FAW, one of China’s four largest auto makers. The joint venture based in Changchun, is 52 percent owned by the Indian company and although it posted a loss of Rs 315 million (US$7 million) in 2009, the JV expects to be profitable this year.

“The China operations will make a profit for the full year,” Bharat Forge spokesman, S. Rajhagopalan told Bloomberg Businessweek. “This is due to increase in capacity utilization, restructuring and improvement in efficiency parameters.”  In China car sales are expected to climb by as much as 15 percent in 2011, according to estimates by General Motors Co. and Volkswagen AG. Next year, sales in the world’s largest automobile market may reach 20 million vehicles, according to Booz & Co. and Nomura Holdings Inc. analysts.

While India and China share many operating and business similarities, the two nations also differ significantly from each other in the manner in which business is conducted. As a result, it is vital for any foreign company to understand not only the corporate synergies, laws and customs of China but also be culturally complaint inorder to book maximum benefits. As as 360 degree consultancy,  employing experts with extensive, on the ground knowledge of India and China, Inchin Closer aids clients not only to understand China’s tax and legal dynamics, but also her cultural diplomacy. To know more please do contact us at contact@inchincloser.com.

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