Roca is the world's largest sanitaryware manufacturer and Parryware is the leading player in the Indian sanitaryware market.

The case describes the origins and growth of Roca and Parryware leading up to the joint venture which was to operate primarily in India. It explains in detail the skills that the partners bring to the JV. The case ends with a discussion on the challenges and future prospects for the joint venture, especially when the fast growing Indian market was attracting several foreign players. In September 2006, Parryware Roca Pvt. Ltd. (PR), a 50:50 joint venture between EID Parry (India) Ltd. (EID Parry), a major Indian business house, and Spanish sanitaryware company, Roca

Corporacion Empresarial, S.A (Roca), announced plans to start selling Roca products in India, using a shop-in-shop retail format. PR would import Roca products and retail them at 25 of the joint venture's big showrooms across India. By the end of 2007, PR would be franchising 20 new exclusive PR stores in eight cities. Roca was established in 1917 in Barcelona, Spain, as a manufacturer of cast-iron radiators. Later, the company entered the bathroom accessories market with the launch of sanitary fixtures and tapware3. In the 1980s, the company started manufacturing and marketing bathroom tiles. Over the years, Roca established subsidiaries and factories in countries around the world. In 1999, Roca acquired Keramik Holding AG Laufen (Laufen)4 of Switzerland for US$ 272 million. With this acquisition, Roca became the world's second largest bathroom products group. Parryware was originally a division of EID Parry, which in turn was a part of the Murugappa group5. In the 1980s, the company started manufacturing and marketing bathroom tiles. Over the years, Roca established subsidiaries and factories in countries around the world. In 1999, Roca acquired Keramik Holding AG Laufen (Laufen)4 of Switzerland for US$ 272 million. With this acquisition, Roca became the world's second largest bathroom products group. Parryware was originally a division of EID Parry, which in turn was a part of the Murugappa group5. Through the JV, Roca expected to gain access to the growing Indian sanitaryware market. PR was expected to benefit significantly through Roca's superior technology, improved manufacturing practices, better product offerings, and international presence. While Roca was set to gain market share in India, it also had plans to use the JV's plants to manufacture products for export to other countries. However, the JV was expected to face strong competition from foreign as well as domestic competitors.

Background Note
ROCA

In 1917, Compaa Roca Radiadores, S.A. (Roca Radiadores) was founded by four brothers of the Roca family. The company, headquartered at Barcelona, Spain, initially manufactured castiron radiators and went on to dominate this market. Soon, it diversified and expanded its product range. In 1925, Roca Radiadores entered the bathroom accessories market with the manufacture and sale of cast-iron bathtubs. It launched a range of sanitary fixtures in 1936, and tapware in 1954. It pioneered the development of products that reduced water usage. In 1963, Roca Radiadores entered the air conditioning market through a subsidiary, after obtaining a manufacturing license from York International Corp6.
The subsidiary, called Clima Roca York, manufactured residential and commercial air conditioning products in Spain and marketed them throughout Western Europe. Roca Radiadores was later renamed Roca Corporacion Empresarial, S.A (Roca). With the

introduction of a range of wall and floor ceramic tiles in 1980 (through a subsidiary, Roca Cermica) Roca became a supplier of the full range of bathroom products. The products offered by Roca varied from sophisticated water massage systems to the simplest accessories like shower trays and shower screens. Roca established factories and subsidiaries in Portugal, Latin America, the UK, Morocco, and Turkey. In 1994, York International Corp. acquired a 50% stake in Clima Roca York. In 1999, Roca acquired Keramik Holding AG Laufen (Laufen) of Switzerland for US$ 272 million. Laufen was a US$ 700 million manufacturer of sanitaryware and ceramic tiles, and was also the holding company for Laufen USA7. Laufen also had a presence in Europe and Brazil. Roca now had operations in 16 countries and became the world's second largest bathroom products group, behind American Standard8.

Parryware and the Indian Sanitaryware Industry

The Indian sanitaryware industry could be divided into the organized and the unorganized sectors. The organized sector had three major players, who marketed their products nationally. They used high quality raw materials and advanced technologies. The unorganized sanitaryware manufacturers were small scale units that were exempt from excise duty and sales tax . They also used old technology, and priced their products 40-50% lower than the organized players. Though their products carried brand names, these were not recognized nationally. Parryware started production in the 1950s and grew steadily. In the initial years, there were not many competitors and the demand was also quite low...

The Parryware-Roca Joint Venture

In March 2006, EID Parry created a subsidiary - Parryware Glamourooms Pvt. Ltd. The Parryware business was transferred from EID Parry to PGPL. Around the same time, the EID Parry board announced that Roca had expressed interest in acquiring a stake in PGPL. In April 2006, Roca bought a 50% stake in PGPL from EID Parry for 50 million (around Rs. 2.75 billion). The agreements were set to become effective on receipt of Foreign Investment Promotion Board (FIPB) approval after which a name change, to depict the new equity holding pattern, was to be considered...

Outlook
In June 2006, Roca acquired a Malaysian company, Johnson Suisse Holdings AG, for US$ 27.8 million. In August 2006, it acquired Eagle Brand Holdings Limited (Eagle) of China for RMB 255 million. Eagle was a leading sanitaryware company in China and operated through its three Chinabased subsidiaries. Commenting on these acquisitions Jose Miguel said, "Our aim is to grow into a more global company."

EID Parry and Roca also announced their intention to invest further in the sanitaryware business. They also had plans for new acquisitions in the business...
Notable JV of Recent Times Tata Motors & Fiat: The JV will manufacture cars from Tata & Fiat stables. Tata Motors will also buy diesel engines for it cars from Fiat, while Fiat will distribute Tata cars in Europe. Mahindra & Renault: This JV is the market entry strategy for Renault. The JV will manufacture Renaults Logan cars in India. Renault will gain market knowledge while Mahindras will learn how to make good cars, and leverage its dealership network to additional profits. Tata-AIG: This JV was created to take advantage of the new government regulations on private insurance companies. Private insurance companies need foreign collaboration for technical know how. While the current regulations prevent foreign insurance companies setting up a green field venture in India. Similarly other JV in this field are: ICICI Lombard, ICICI Prudential, Bajaj- Allianze etc. Bharthi-Walmart: JV was primarily created by Wal-Marts desire to enter India and the government regulations regarding large foreign retail firms operating in India. This 50:50 venture with Bharti will give Wal-Mart an entry into India ( a long awaited one at that) Why form JV? The main reasons for a JV has always been an entry strategy. JV provides a lower risk option of entering into a new country. For Fiat, Pepsi, Ford, Xerox, Suzuki, etc., the JV is an ideal way to enter Indian markets and establish itself as a leader ahead of other competition. The JV also provides an opportunity for both the partners to leverage their core strengths and increase the profits. For example, Modi-Xerox venture gave Xerox an early lead in the photocopier market and help secure a strong brand recognition. For the Modi group, this turned out to be a very profitable venture. JV also provides a learning opportunity for both the partners. A smart partner will learn a lot about other partners capability. For example, Xerox learnt about distribution channels and copier usage model from the JV. TVS learnt a lot about making motorbikes from Suzuki. Other reasons to form a JV in an Indian context are: Technology: When partners have mutually rights over exclusive technology, then JV forms an option to exploit the opportunity by combining these technologies. Alternatively, when a partner has identified a profitable market opportunity - but does not have the necessary technology, then a JV is an option to go. However both parties need to have a good understanding to protect each others IP. Lower Risk of Geographic Expansion: A JV with a local partner is an ideal way to minimize risks of cross-border expansions. For foreign firms a JV with a local partner lowers risks via: ability to hire the best talent, knowledge of local markets, connections with local government, pre-existing distribution networks etc.

Government Regulations: In most emerging markets government rules and regulations prevent foreign players from establishing a wholly owned subsidiaries. For example, Indian government laws prevent foreign retailers, insurance companies from entering India directly. The current regulations force these companies to form JV with local partners

Access to Capital: Often times companies in emerging economies lack capital to expand. A JV or an strategic investment will infuse capital to the local operations and make it more profitable. In an emerging economy - the local partner provides the distribution network, human capital and government links as its investment in the JV, while the foreign partner provides the capital and technology.

JV has a definite Life span All JVs have a definite life span. Oftentimes the end objectives and exit strategy will be negotiated during the formation of the JV itself. Despite the fact that everyone knows that a JV has a definite life span, most JV falls apart earlier than expected.

The main reason why a JV falls apart is changes in partners strategy. Often either one of the partner changes their strategy which makes this JV redundant. For example Ford-Mahindra JV. Ford wanted to expand the operations but Mahindra wanted to focus more on SUV segment and did not want to invest for the expansion. Thus forcing Ford to go alone.

Often times the conditions which made a JV necessary change - like government regulations, access to technology or capital or the partner has gained sufficient confidence to go alone: All this causes the JV to fall apart. For example TVS-Suzuki JV fell apart when TVs learnt how to design motorbikes on its own. TVS designed "Victor" on its own and it was a success. This gave TVS the confidence to go alone.

Another popular reason why a JV falls apart is when the JV is successful. The JV becomes a cash cow and both the parties now want greater control over it. This often results in a nasty fight for control - and in the process the JV falls apart. Alternatively, when a JV is not doing well, the partners start blaming each other and want to take over the control to prevent further deterioration.

Closing Thoughts Joint Ventures are becoming a popular means to enter Indian markets for global giants. However, the risks of cross-border expansion are slightly lowered, but they still remain. To have a successful JV, both partners should have a good understanding of each others cultures, establish a good work collaboration and work towards a common objective. The risks of cultural integration still exist - often times management from both the sides often ignore the cultural integration issue assuming that they can take care of it - but cultural integration often falls between the cracks and the JV ultimately fails.

Countertrade Examples

Finally, a few examples of countertrade. The first is the well known Pepsi/USSR trade whereby PepsiCola delivers syrup that is paid for with Stolichnaya Vodka. Pepsi has the marketing rights of all Stolichnaya Vodka in the U.S. Recently Pepsi has made another innovative step by taking 17 submarines, a cruiser, a frigate, and a destroyer in payment for Pepsi products. In turn, this rag tag fleet of 20 naval vessels will be sold for scrap steel, thereby paying for Pepsi products being moved to the Soviet Union. In another instance, Fisher Controls International, a subsidiary of Monsanto, counterpurchased ball bearings and chair frames to be sold in Western E urope in a countertrade opportunity for control valves sold to Romania. This countertrade purchase activity set Fisher apart from its competitors, and enabled it to be awarded the contract. In another case, Monsanto is helping one of its customers in Argentina gain increased exports goods of finished goods. The exported goods contain Monsanto products, which results in increased sales. When countertrade is used in a proactive manner, it becomes a total quality activity of "meeting your customers needs." We all know this results in increased sales and profits.

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