The business alliance of Honda Motor Company, the Japanese automaker, with Indian player is going through unwanted circumstances. The domestic partner has put an allegation of "inappropriate" corporate governance over the HMC with a brawl over investment to be made in future. The fight between both the partners has exposed the threat of working in a project, which runs out of gas for foreign auto manufacturers in the country’s booming auto industry.
Since the Indian maraket is offering brilliant returns, the global car makers are winding up their ventures and investing hefty amounts in their completely owned Indian subsidiaries. This decision of auto makers is further encouraged by the hands-off policy of Indian government, which provides great benefits to auto makers as compared to China’s.
Owing to the decision of holding absolute control over Indian sub-divisions by auto manufacturers, the rate of investment with production capacity in India is increasing. With these practices, the Indian economy, which is known as third largest economy in Asia, will soon challenge Thailand and China and will emerge as an export hub for automobiles.
Michael Boneham, President, Ford Motor Company (wholly owned Indian subsidiary), said, “The automotive industry requires significant investment, particularly at the initial stages, coupled with a lengthy product development cycle. Such capital intensiveness can be burdensome on partnerships, and the need for large investment and R&D can be difficult to maintain if it's not your core business.”
Similar to Honda, Ford also entered in Indian auto market through a business alliance with Mahindra & Mahindra in 1995. The venture was carried till a decade and within that period; the company registered overall sales of 120,000 units. When comparing to Ford’s individual presence, the company invested around $2 billion in India and reported sales figures of around 100,000 units during the last fiscal.
In contrast to auto makers looking for ventures and alliance in European as well as other developed markets to share technology and reduce the cost factor, eight out of the world's peak 10 auto makers are operating in the Indian market without resting upon a local partner.
Chandresh Ruparel, Managing Director, Rothschild (Indian unit), said, “Carmakers now want to do further value addition and bring in proprietary technology, and want to run it on their own ... So they determine the fortunes.” He also recommended Indian players on ventures with global auto makers.
In the case of HMC, the Japanese auto maker is keen to make a fresh investment of 32 billion rupees ($622 million). The foreign company needs to increase the production of diesel engines to remain parallel with surging demand. On the other hand, its local partner Usha International is in no mood to agree upon the proposal.
Krishna Shriram, Executive Chairman, Usha, said, “The relationship with (Honda India) has been weakened recently through inappropriate behaviour by Honda in the governance processes adopted by its board on significant decisions. We have heard through press interviews that Honda would like to merge their companies in India together for greater flexibility, partly because of difficulties with their Indian partners. We're quite hurt by these statements due to our belief we have been committed and true.”
Honda’s spokesman in Tokyo refused to state any comments upon the whole scenario that whether the Japanese auto maker is trying to strengthen its two-wheeler and business activities in India or not. Tomohiro Okada, said, “We are constantly in close contact with our partner.”
The company sources secretly mourned that Honda witnessed much problems in settling matters at Hero Honda in the joint venture with Hero Group. Since HMC left its alliance last year in settlement of $851 millions, its completely owned sub-division grabbed second place in motorcycle sales rankings of India.
