Culture Clash Or Pure Economics?

W13530

BONAZZI INDO JOINT VENTURE: CULTURE CLASH OR PURE

ECONOMICS?

Naresh Warrier and Associate Professor Gita Bajaj wrote this case solely to provide material for class discussion. The authors do

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“We must all hang together or assuredly we will all hang separately.” – Benjamin Franklin

As Nikhil Mehta stared listlessly out of the window of his plush office at Churchgate, Mumbai, he

suddenly appreciated the meaning of the phrase, “To be on the horns of a dilemma.” The irony of the

situation made him smile ever so slightly.

Mehta was the chief executive officer (CEO) and director of Bonazzi Indo Fasteners Limited (BIFL).

BIFL was a joint venture between two leading auto component manufacturers—Bonazzi Group, based out

of Turin, Italy, with a global presence, and the Indo Group (Indo), headquartered in Mumbai, catering to

the Indian and global passenger car market. The two companies had also formed a second joint venture,

Indo Bonazzi Fasteners Limited (IBFL), for servicing the Indian commercial vehicles market. Mehta had

just received the meeting minutes of the recent board meeting of BIFL.

This meeting, held on April 15, 2011, had been a stormy affair. Directors on the board representing both

joint venture partners had blamed each other for the company’s current position. Mehta did not approve

of the aggressive communication between the parties. Later, however, Shankar Menon, chief financial

officer of Indo, offered Mehta a cup of coffee, which Mehta had politely refused. “What is the point in

exchanging pleasantries if in reality Menon doesn’t support me,” Mehta wondered. Menon’s discontent

with Mehta was evident in the meetings and his offer of coffee after the meeting was a farce, Mehta

continued to believe.

Caught in the crossfire between the two groups, Mehta was finding it difficult to broker peace. Owing to

the large investments made in the plant and machinery, stakes were high. Although BIFL had a strong

presence in the Indian market and excellent customer equity, it had performed much below the projected

turnover of US$35 million.

1

While Indo wanted the projected numbers to be met, Bonazzi wanted to give

Mehta time and independence to deliver results. With such a deteriorating relationship, Mehta wondered

whether it was prudent to continue the joint venture or whether it was time to call it off.

1

All currencies are in US$ unless otherwise stated.

This document is authorized for use only in Prof. Meeta Dasgupta’s Strategic Alliances and Joint Ventures/ PGPM at Management Development Institute – Gurgaon from Nov 2020 to Feb

2021.

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THE INDIAN AUTOMOTIVE INDUSTRY

According to a recent KPMG report,2 the Indian economy had grown at an average rate of around 9 per

cent over the five years prior to the joint venture and was expected to continue that growth in the medium

term. KPMG had predicted that this would lead to an increase in the percentage of the Indian population

able to afford vehicles. India’s car per capita ratio (expressed in cars per 1,000 population) was among the

lowest in the world’s top 10 auto markets at the time.

The automotive industry was reported to be one of the key drivers of India’s economy, accounting for

around 4 percent of India’s GDPI and over 200,000 jobs. India’s automobile market had grown steadily

over the five to six years preceding the joint venture, with the exception of the two years where the effects

of the global downturn were felt, primarily in the sales of commercial vehicles. However, even during the

downturn, the two-wheeler and three-wheeler segments, which were until then experiencing low growth

or losing volumes, bucked the trend (see Exhibit 1). Automobile production increased from 10.8 million

units in 2007–2008 to 17.9 million units in 2010–2011 at a compound annual growth rate (CAGR) of 13

per cent.

According to the Automobile Component Manufacturer Association (ACMA), the main body

representing the components of India’s automotive manufacturing industry, the turnover of the

automotive component industry stood at Rs1,821 billion rupees ($39.9 billion) for the period April 2010

to March 2011, registering a growth of 34 percent (in rupees) over the previous year.3 These data

represent the total industry supply of automotive components to vehicle manufacturers and to the

aftermarket in India and abroad.