Subcontinental Telecommunications Solutions Case Summary

I. Problem Identification
World Wide Telecommunications (WWT) entered into a joint venture with an Indian company, Subcontinental Solutions, Pvt. Ltd. (SSS), to form Subcontinental Telecommunications Solutions, Pvt. Ltd. (the JV). The issues that have surfaced since the JV was finalized, such as equipment problems and sexual harassment, are results of a dysfunctional partnership. The main problem for WWT is that the joint venture agreement is structured inefficiently with inadequate due diligence. This has led to a lack of communication and poor decision-making by the JV. The structure of the JV agreement needs to be clear and detailed in order to create a functional environment for the partnership to take advantage of the opportunities presented
by the JV.
II. Situation Analysis
WWT embarked in a joint venture with an Indian company, SSS, in order to develop software and fulfill its obligations under its contract with International Corporate Communications (ICC).
WWT considered two other alternatives to develop the software for ICC: double the current capacity of its software division to develop the software in-house or contract out the development of the software. The decision to enter a software joint venture with SSS created much potential for gain and risk. The strengths highlighted include lower labor cost, recent relaxation of government regulation and SSS’s experience writing telecommunications software. Labor costs are significantly lower in India than in the United States and the quality of the work is comparable. Lower labor costs can help increase WWT’s profit margin. The Indian government remains interested in software, which has made it easier for foreign firms to get government approval required to invest in a joint venture and to obtain favorable import tariffs for equipment. WWT speculates it will be able to import software equipment at a 15% tariff, which is 45% lower than other industries. In addition to these benefits, there are some external opportunities that exist from engaging in a joint venture located in India. India is a huge potential market for WWT and therefore it is important for them to learn about the Indian business environment. WWT can take advantage of the opportunity of having the JV located in India by learning
how to navigate the regulatory and legal environment. Opportunities also exist with regard to SSS beginning to import and sell telephone equipment in India. SSS has successfully set up a small distribution network for the telecommunication market. Lastly, WWT benefits from the time difference since United States managers can put in requests for software changes before they leave the office and arrive the next day with the changes already made. This significantly improves a company’s efficiency. Weaknesses apparent with regard to the JV are results of weak intellectual property law protection and a corrupt Indian judicial system. In India, software copyrights are extremely difficult to enforce and potential piracy of the software is a legitimate concern. This creates significant risk for potential loss, especially since U.S. firms lost $500 billion in 2004 in India due to piracy. India’s male dominated society and issues linking Indian and U.S. computer systems and software are external threats to the JV. India’s male dominated society can potentially create a dysfunctional work environment focused on sexism. Difficulties arising from linking the Indian system to WWT’s U.S. system could lead to production delays and revenue losses. WWT has the potential to make significant gains from the JV agreement with SSS, but needs to have a system set in place to deal with the apparent risks involved with the partnership.
III. Alternative Solutions
WWT is presented with three separate solutions to address the main issue of having an inefficient joint venture structure and inadequate levels of due diligence.
The first solution is to have the board terminate the joint venture. WWT is in an unfamiliar environment and the JV may have taken on more expense than it should have. WWT can still properly develop the software to fulfill its obligations under contract with ICC either in-house or by outsourcing. This solution would greatly increase WWT’s production costs, but it would also eliminate the issues of having to navigate through the business environment in India and allow WWT to attack a market it is more familiar with. It is difficult to ensure that WWT has realized as much value as possible from its investment in the JV. By terminating the JV, WWT would be cutting its losses and starting over. The potential gains from the JV are unknown, but with an inefficient system in place the future viability of the JV is in danger. The second solution is to clarify the terms of the partnership. To accomplish this, the JV must clearly define the terms and implications of share ownership. SSS and WWT will be liable for the amount proportionate to each company’s pro rata share holdings. This will help avoid future budgeting issues and establish each company’s liability in lawsuits. In addition, the board of directors will have exclusive authority over appointing key employees after proper due diligence, which will improve
communication between the board and key employees. Any board resolution concerning key employees shall be enacted only after receiving an affirmative vote from at least six members of the board. If a six-member majority cannot be obtained, the shareholders shall hold an immediate meeting. The shareholders will continue to stay involved to ensure adequate communication. The fact that the SSS and WWT simply alternate in appointing key employees instead of obtaining a general consensus from the board can create problems. Additional due diligence on key employees will ensure that intellectual property rights are protected within the joint venture and the employee non-disclosure agreement is honored. Lastly, JV will enforce equitable compensation, if any, for all board members, determined by a shareholders’ vote. Directors, such as Sanjay Bajibah, should not be extended special circumstances. The third solution is to find and add a new member to the board with knowledge about India and its economic environment. All decisions must now reach a seven-person majority in order to maintain a proportionate balance of power from each company in the JV. The deciding factor for WWT to enter into the JV was the fact that it was a tremendous opportunity to learn more about the dynamics of the Indian business environment. The board of directors holds the concentrated power to make decisions for the JV, and adding a member that has both knowledge and experience with expansion specific to India will help to promote more efficient decisions and operations. This solution may be unfavorable towards SSS, since WWT will be able to appoint two more directors than them.
IV. Recommendations and Justification
Given the analysis in these solutions, the best alternative for WWT and the JV would be to implement solution two by calling a board meeting to clarify the terms of the partnership. This will result in the creation of a functional JV structure that can operate efficiently. Terminating the joint venture fails to take into account the value that will be realized in the future by taking advantage of the many strengths in the market and opportunities in India. The inefficient JV structure has created an environment more susceptible to weaknesses and threats. However, it is important to understand that losses incurred can be offset by future gains. In addition, restructuring the board by adding a new member may address the bad decision making at the highest level, but it fails to recognize the underlying issue that the terms of the agreement are flawed. The risks of entering into a joint venture in a market like India cannot be eliminated, but implementing a more functional business structure will result in improved decision making. Clarifying the terms of the JV agreement attacks the root of the problem so that similar symptoms (delays, financial disputes, employee violations) will not materialize in the future.