You ask an economist, trained anywhere in the world: what is the ideal percentage of ownership in a joint venture and the answer will be: of course, more than 50% to enjoy the extra rights and privileges.
We have come across a family business that would only enter into a joint venture (JV) in a 50:50 partnership. This offers an interesting corporate success story of using joint ventures strategically to go global sustainably.
Tolaram Group is a family business conglomerate, more than 60 years old, with a diversified portfolio in consumer goods, digital services, energy and infrastructure. They started their journey in 1948 in Indonesia from where they expanded to Singapore, Africa, Asia, and Europe. Unlike most family firms that are considered to be conservative regarding global expansion, Tolaram Group is always looking to expand globally in line with the views of their founding father whose advice was to “go global in order to avoid putting all the eggs in the same basket”, according to the Group Chairman, Mohan Vasvani. In 1988, Tolaram Group decided to venture into consumer goods and they convinced the biggest family business of Indonesia, Indofoods (owned by Salim Group) to export Indomie noodles to Nigeria. Today, Tolaram Group has successfully made Indomie noodles a staple food and a major brand in Nigeria with its automated production plant, supported by its vast logistics, distribution and retail channels. This JV was an equal partnership between Tolaram Group and Salim Group and has been successfully managed for more than 20 years. Initially, Indofoods wanted 51% but Tolaram Group insisted on an equal partnership as they strongly believed that the employees of both the organisations involved in the JV feel more responsible and accountable towards making the equal partnership work.
In 2015, Tolaram Group Africa Pvt. Ltd, a part of Tolaram Group, has signed two more JVs as 50:50 partnerships. First, with one of the largest dairy companies in the world, Arla Foods of Danish origin - to manufacture, distribute and market milk products catering to the needs of Nigerians. Second, with Kellogg Company of US origin - to develop and distribute breakfast foods and snacks to the West African market. This article is based on a series of interviews with the top management of Tolaram Group who belong to the second and the third generations of the family business to uncover the philosophy behind their 50:50 partnerships and the strategic advantage that it offers them in this competitive world.
When asked for the rationale behind always going for 50:50 partnerships in Africa, the group CEO of Tolaram, Sajen Aswani remarked, “50:50 partnerships are common for us. All our joint ventures have always been 50-50. No one party dominates. You both have to make it work. So one can’t say I am superior in any way. I didn’t even bother asking them for that extra 0.1%. Because it has to be that both parties have absolutely as much to lose and as much to gain from this venture. Then it works…..People on the ground are the ones who make it work. Their loyalty must only be to their professions. Not to one partner or the other.”
Tolaram Africa has maintained its relationship with Indofoods, Indonesia’s biggest conglomerate of Chinese descent over the last 25 years in an equal partnership and intends to always practise their 50: 50 rule in the African continent. They consider their family as insurgents in Africa and the institutional shareholders like Indonesia based Chinese family business Indofoods; European cooperative Arla; and the American multinational Kellogg as incumbents. “So we bring growth, we bring entrepreneurship and we bring acceleration of growth because we know how it is done in those emerging markets. What they are looking for is emerging market footprint and we have operational capacity within emerging markets. What they do have is R&D, what they do have is the brand, what they do have is the product. What we have is the terrain knowledge, what we have is the speed. So the combination of these, what they like and what I like, is what I hope will steer the business forward. So, it’s not one set of skills that is superior to the other. I consider them equally important” said Sajen.
Research has shown that almost half of JVs involving cross border partners end up in failure to meet strategic and financial expectations of at least one of the partners (Multiple Water Street Partners, 2008-2015). Establishing an equal partnership among organisations offers several advantages towards the success of the JV. Employees of each organisation feel equally empowered to do their job as none of the partners can claim superiority over the other in terms of their values, organisational culture and/ or business practices. There is a shared responsibility and accountability to perform well so that the JV can work efficiently and profitably. The CEOs of the partnering companies (in the case of non-family firms) may aim for short term gains for themselves and their organisations (favoring the neoclassical economist view of aspiring for majority shareholdings) but most employees are interested in the long term success of the JV and a secure future for themselves. This is where the 50:50 partnership helps to make sure that the success of the JV becomes an equal responsibility for both the parties involved. For the Tolaram Group, family values of treating every member of the organisation as equal, and stewardship of the organisation, are what dictate the decision behind choosing an equal partnership. The company aims to ensure that even if the head of the partnering company changes, an equal partnership will create an insulation for all the employees in the long term.
Tolaram Group’s practice of signing an equal partnership with the Salim Group gave them complete autonomy of operating as per the customer demands and market dynamics of Nigeria, thus overcoming a major factor responsible for the failure of any international JV of not evolving with the market (Kwicinsk, Ernst, and Bamford, 2016). They used every marketing tactic possible to make Indomie a household name in Nigeria so much so that most Nigerians today consider Indomie as synonymous with the word “noodles”. Haresh Aswani, managing director of Tolaram Nigeria, commented on his various 50:50 JVs, “The relationship is good, very good I must say and it’s been a give-and-take relationship where we learn from them and they learn from us. But operationally they don’t interfere. No interference at all in our operations on the ground.”
On reviewing the literature on family businesses, one can confidently state a few unique characteristics of family businesses. Key ones are long term orientation and stewardship in order to preserve their socioemotional wealth and ensure family sustainability. Tolaram Africa and their strategy towards expansion through equal partnerships offers an interesting interpretation of these characteristics while handling JVs with big business conglomerates of varied origins.
Since Tolaram Group has successfully established 50:50 JVs with organisations having different ownership models, ranging from a family business conglomerate of Indonesia to a European dairy cooperative to an American multinational, their motivation and strategies offer interesting and important lessons for managing JVs globally. The core learning for other organisations is to balance control among partnering companies that sends signals of independence and empowerment to the employees of all parties involved and thus foster long term commitment. It offers a good strategy for long term sustainability of any partnership, especially in light of the fact that more than 30% of JVs result in a failure in the first five years (Multiple Water Street Partners, 2008-2015).
About the authors
Prof. K. Ravi Kumar is the Director of Nanyang Business School’s Centre for Business of Culture, while Dr. Divya Bhutiani is a Postdoctoral Research Fellow at the Centre.
This commentary was published in Transfin on 24 April 2018.