Examine the "fairness" of establishing a 100% subsidiary by Schwitz GMBH when the alliance is on.

XIBMS – SEN SCHWITZ – INTERNATIONAL BUSINESS XIBMS – SEN SCHWITZ – INTERNATIONAL BUSINESS To the Florid-faced German at Frankfurt Airport\’s immigration-counter, he appeared to be just another business traveller. True, but a bit of an understatement. The man under scrutiny was Binoy Sen, whom the Indian media referred to as the Boom-Box king. At 14, he had assembled, from parts scavenged from the local dump, a spool-recorder that had fitted nicely into a suitcase. By the time he time he was 37, in 1979, Sen & Sen (S&S), a company he had promoted with his elder brother, Sanjoy — who made up for his lack of technical expertise with a razor sharp business brain — was Asia\’s largest manufacturer of radios and cassette-recorders. Now, at 56, he presided over India\’s largest audio-Products Company. Sen-Schwitz, a joint venture with the Frankfurt-based consumer electronics giant, Schwitz GMBH. S&S association with Schwitz had actually begun in 1984. Music had become a movement in Europe at that time, with immigrant labour of all colour and teenagers of all sizes constituting market-segments that no company could afford to ignore. But their means were slender, and intensity of output, rather than nuances of pitch and tone, was what they were concerned about. Since assembling was a labour and cost intensive process, at least in Europe, Schwitz could not manufacture low-end boom-boxes cheaply. So, the company turned to Asia, where it was certain some Chinese or Taiwanese company could meet its requirements. None could. However, on a reach of Taiwan, one of the company\’s managers had spotted a couple of S&S products at a retail outlet. While this Indo-German relationship had begun as a vendor-buyer one, Helmut Schwitz, 51, the CEO of Schwitz — no relation of Adolf Schwitz, who had founded the company just after the end of World War II — took an instant liking to the Sen brothers. Two years after S&S started supplying it products, in 1986, the German company acquired a 10 per cent stake in its Indian supplier. IN 1992, when Schwitz released that he could no longer ignore the Indian market and the Sens accepted the fact that they couldn\’t survive the threat from global competition without technology and marketing support from their German Partner, they formed a formal joint venture. The Sens and the German company both held 26 per cent stakes in Sen-Schwitz, with the rest being divided between the financial institutions and the investing. The joint venture did well right from its inception. The transnational\’s superior quality standards and S&S strong distribution network worked wonders. Within 2 years, the company had managed to carve out a 45 per cent share of the Rs. 795-crore market. The Sens were happy and so was Schwitz. By 1998, Sen Schwitz\’s share had increased to 65 per cent in a market that had grown to Rs. 1,150 crore, And when Sen reached Frankfurt for the annual review of the joint venture that Schwitz GMBH insisted on — the company had 7 joint ventures across Asia and Latin America — he could not but help feeling that all was well with the world of music and money. Sen\’s feelings were only amplified during the review. After the preliminary greetings, Helmut Schwiz took the oais. The room darkened, and a series of PowerPoint images flashed on the screen behind Schwiz as he spoke. Sen caught only fragments of the German\’s heavily accented voice, his attention was focused on the images and the bullets of text they contained. Sen scrawled a few of them on his notepad * A turnover of $ 100 billion by 2005 * AQ growth – rate of 20 per cent a year. * 35 per cent of the growth coming from India and China Then. Schwiz started speaking about India and Sen\’s attention moved from the screen to the man. What he heard pleased him. \”Sen-Schwiz has a marketshare of 65 per cent in a market that is growing at the rate of 30 per cent a year. As far as our targets for 2005 go, we believe that it is our most promising joint venture.\” The blow fell later, during the break for lunch. Sen and Chris Liu who headed the company\’s joint venture in Taiwan, were exchanging notes when Schwiz butted in and, in his characteristic overbearing fashion, quickly monoeuvrec Sen to one corner of the room. \”India is, clearly, the market of the future, Binoy,\” he said, biting into a roll. \”You\’re doing a great job, and can expect support from me for all your endeavours. But I\’m worried about your margins.\” Here it comes, thought Sen, the twist in the tall. \”A post tax margin of 8 per cent doesn\’t look too good,\” continued Schwiz, \”especially when seen in the light of rising volumes. We should take a fresh look at our Indian operations, Why don\’t you meet with Andrew?\” Suddenly, Sen was on guard. The 55 year old Andrew Fotheringay was Schwiz\’s President (International Operations). Sen liked him; they had worked together when the joint venture was being set up, and had been impressed by his eye for detail. But he also knew that Fotheringay was Schwiz\’s hatchetman. \”What\’s on your mind, Helmut ?\” he asked point-blank \”oh, nothing yet,\” replied Schwiz, \”but we have to find a way to introduce more products into the Indian market without stretching Sen-Schwitz, Talk to Andrew.\” That wasn\’t to be Fotheringay, whose wife was 9 months pregnant, had to suddenly leave for London, but promised to fly down to Calcutta, where Sen-Schwitz was based as soon as the baby was born. Now, Sen was sure that something was up : Fotheringay wasn\’t the kind of manager to do something like that for nothing. Sen voiced his fears at a meeting of the Sen-Schwitz board, which had been scheduled on the day of his return. One of the board members, R. Raghavan, 53 a professor of corporate strategy at the Indian Institute of Management, Gauhati, felt