Warehousing Charges

Written by The Financial Express | Updated: Oct 11 2013, 10:32am hrs
Though both the Bharti and Hero joint ventures with Walmart and Honda ended in a divorce, there can be little doubt they brought tremendous value to the table. Neither of the local companies had particular strengths in retailing or motorcycles, respectively, but they brought knowledge of local markets and top-notch distribution networksin the case of Bharti, the complete outsourcing of the management of its network also showed tremendous out-of-box thinking. The same, however, cant be said of all joint ventures of foreigners with local firmsmany were signed with the local partners functions restricted to lubricating the necessary wheelsso it is hardly surprising that many have perished along the way, as MNCs learnt how to navigate the Indian bureaucracy. To this was added a third category of joint ventures, those created by arbitrary action by the government. In the case of telecom, for instance, since the law mandated a 26% shareholding had to be Indian, this meant MNCs like Vodafone had no option but to look for Indian partners. With the funding and technology all from Vodafone as well as the distribution network, what was the Indian partner supposed to provide We can only speculate, but presumably the idea was to prevent Vodafone from doing something not koshersince a 26% shareholder can stop a special resolution, the belief was that an Indian shareholder would not allow anything not strictly above board from happening. Really And what is that the law cant stop a 100%-Vodafone-owned firm from doing

Now that the law allows 100% foreign ownership, Vodafone is said to be readying to buy out the Indian partners for around $2 billion. Once this happens, Vodafone will carry on functioning exactly as earlier, the only difference will be that the Indian partners will have pocketed a hefty amount for having become Vodafones partners when the law mandated thisin some cases, the shares were bought with money borrowed against Hutch/Vodafone guarantees. For a deal that amounted to mere warehousing of shares, thats a lot of money.