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The Foreign Investment Promotion Board's (FIPB's) decision in the Denso-Kirloskar joint-venture case may have serious implications for foreign investments in the country. New ventures promoted by foreign companies, including new joint ventures now may not be permitted if their products compete with the items of any existing joint venture the foreign company may already have. There is some concern about the fate of the foreign companies which have been incorporated in this country. It has been noticed, for instance, that foreign companies often prefer to introduce new products through their 100 per cent subsidiaries rather than through the company incorporated in India. This results in an erosion of shareholder value in the Indian firm. There is, thus, a case for refusing 100 per cent subsidiaries to set up shop here if they have an existing Indian firm.
This is unlikely to stem the flow of new products, given the intense competition. The government needs to tread carefully on the way it draws up the rules.For starters, if foreign firms having technical collaboration with Indian ones are prevented from setting up their own companies, it may lead to an increase in the cost of technical collaboration. Foreign firms will be reluctant to part with their technology, preferring, instead, to set up shop themselves. If the rules prevent foreign companies with existing joint ventures from setting up new firms, this will penalise those foreign firms which have already established themselves in the country. Late-comers will thus be rewarded. The definition of competing products needs to be considered carefully. For instance, will a firm making toilet soaps be allowed to set up a separate venture for detergents? The Indian market will continue to attract foreign firms, and policies must be designed to extract maximum mileage from out of this. The Foreign Investment Promotion Board's (FIPB's) decision in the Denso-Kirloskar joint-venture case may have serious implications for foreign investments in the country. New ventures promoted by foreign companies, including new joint ventures now may not be permitted if their products compete with the items of any existing joint venture the foreign company may already have. There is some concern about the fate of the foreign companies which have been incorporated in this country. It has been noticed, for instance, that foreign companies often prefer to introduce new products through their 100 per cent subsidiaries rather than through the company incorporated in India. This results in an erosion of shareholder value in the Indian firm. There is, thus, a case for refusing 100 per cent subsidiaries to set up shop here if they have an existing Indian firm.
This is unlikely to stem the flow of new products, given the intense competition. The government needs to tread carefully on the way it draws up the rules.For starters, if foreign firms having technical collaboration with Indian ones are prevented from setting up their own companies, it may lead to an increase in the cost of technical collaboration. Foreign firms will be reluctant to part with their technology, preferring, instead, to set up shop themselves. If the rules prevent foreign companies with existing joint ventures from setting up new firms, this will penalise those foreign firms which have already established themselves in the country. Late-comers will thus be rewarded. The definition of competing products needs to be considered carefully. For instance, will a firm making toilet soaps be allowed to set up a separate venture for detergents? The Indian market will continue to attract foreign firms, and policies must be designed to extract maximum mileage from out of this.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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