Private institutions have a traditional commercial culture :

Joint venture agreements and impact on cost of living

M. A. Q. M. Ghazzali
Attorney-at-law

The announcement of an increase in the price of “LP Gas” on the eve of the new year came in quick succession.. The increase was by a staggering amount of Rs.165/= per 12.5 Kilo cylinder, and it was no soft message for any consumer.

Two months ago on the occasion of an earlier price increase by Shell Gas the Minister in charge made a an apologetic assertion that prices will never again increase by such big amounts.

The minister’s assurance and authority was of no avail against the contractual rights of the supplier of Shell Gas..

Barely two weeks previously, ,”Prima” who has the monopoly control of milling and supplying wheat flour to the nation imposed a burdensome nine rupee price increase per Kilo of wheat flour. This was hitting the nation where it hurt most, and the minister in charge was helpless.

Stretegic partners from varied fields are staking a share in the Sri lankan economy as suppliers of technology, goods and services.

Simultaneously prices of essential consumer goods are taking a gallop at the whim of the external collaborator, who is the supplier partner. The local political head in charge of trade is the ultimate authority on the side of the recipient, and is assisted by administrators and advisors.

They negotiate agreements on behalf of the nation, and are responsible for the provision of comprehensive safeguards for the consumer, against the vagaries of international trade.

The impotence of the local authorities to stand up against the domineering price gallop by the supplier partner, is a sure sign that the whip in pricing matters is in the wrong hands.

The duty of care has lapsed, failing to understand, at the early stages of negotiations, that the interests of the supplier partner is primarily dictated by commercial dynamics..

Want of care at the negotiation stage with the supplier partner can cause menacing price increases for the consumer, as objectively demonstrated in the price decisions of LP Gas and wheat flour. This can contribute to the galloping cost of living.

The battle to fight inflationary cost of living has to begin at the initial stage of Trading and Industrial Joint- Venture negotiations.

Joint-venture is increasingly manifesting itself as the new commercial order in a globalised world.

Nations advanced in technology and commerce, and their Trading Agents are stealing away tactfully, not only to exploit the vast avenues for development, but taking advantage of the urgent need to “leap frog” in technology and commerce, that are surfacing in the underdeveloped sector of the globe.

Strong commercial concerns from the advanceed nations, as formidable suppliers of “know how” and “goods” tie up with less advanced counterparts in the less developed (and described with certain amount of malice albeit descriptively, as the) “third world” .

Their control and sway over the receiving institutions reflect the gap in knowledge and expertise between the two partners.

India, our giant neighbour among others in the region, like Singapore, and Malaysia, has mastered the art of joint-venturing.

Their deals with their collaborators are well thought out. Every inch of benefit both to the nation and to the consumer within is thought of and fought out, before the inking is done. It is no marvel that these nations have covered great distance on the path of economic development.

India is fast becoming the automobile workshop of the world, and its products are priced at the reach of its poorer consumers. Parallel products from Japan are much dearer by comparison, and the Indian record speaks volumes for its negotiating skill and care particularly on matters of pricing.

Industrial giants like Boeing Co. are in hot pursuit of Indian counterparts, in this instance, The Hindustan Aeronautical Ltd. (HAL), as a necessary exercise for survival in a price competitive economy.

The Sri Lankan experience, by comparison leaves much to be desired. The Shell Gas pricing lays the picture bare. The advent of Shell Gas into the Sri Lankan domestic Gas market, was a quick fire exercise. Much against the loud cry of politicians and indeed the Consumer Protection Authority, the consumers were subject to a great deal of rough handling.

Joint-ventures of varying degrees of intensity and covering several different areas that affect the daily life of the masses are currently invading the Sri Lankan economy. The benefit that will accrue to the people at large by this exercise, will eventually depend on the provisions or the agreement that the parties enter into at the outset.

The need to have the provisions that will contribute to the advantage and benefit of the people and not hold them to ransom, cannot be overstated. The amount of benefit that will accrue to the recipient of the technology needs to be spelled out in the initial agreement.

Although it looks simple, the proceedings, provisions and the conclusion of a technology transfer agreement form an involved commercial and legal manoeuvre. It requires extreme skill and knowledge of the intricacies of the subject in issue.

The supplier party will naturally be advanced in knowledge in his own field. The recipient party will normally and more often than not require to supplement his elementary knowledge with external consultations and guidance. It cannot and should not be done in a hurry, as a quickfire exercise.

Any failure or lapse in the essential provisions will operate to the advantage of the supplier, who in due course will take advantage of the incomprehensive provisions, as much as of the absence of provisions. The absence of provisions for the free use of Gas cylinders has clipped the sails of the desired price competition.

Calling in additional players by itself cannot solve the problem in the absence of “perfect competition” In the field of petroleum LIOC came in as an additional player; but its wings are clipped by regimented compliance with the Corporation pricing policy. The marginal price advantage of Laugfs Gas is showing itself as mere window dressing. .

An area requiring great care and caution, is the proper identity of the supplier partner. Much fanfare greeted the talk of collaboration between the CTB and the London Transport.

It appeared like the panacea for all passenger transport problems and eventually turned out to be a hoax . Many pretentious outsourcing companies have gone underground leaving eager middleclass investors in the lurch and much .poorer. .

The “gold coin” adventure was brought under control only after first accommodating them without proper examination of credentials. Marauders of such ilk, can fleece from the national institutions and from the hard earned savings of the innocent common citizen.

Private sector commercial and service companies too have a responsibility to take care. Their operations must not be aimed at profit only, that will add to the cost of living. They must also serve the consumer, and in the ultimate analysis their profit must be well earned.

There are several private sector collaborations on the cards. Hot Property Real Estate has announced its impending tie up with the internationally renowned Damac UK. Asiri has entered into an MOU with Indian Manipal Health Systems.

News is afloat of several more impending B2B collaboration deals by local leaders in Trade and Industry with international counterparts.

In Sri Lanka, private institutions have a traditional commercial culture of greater efficiency than the State sector. However the bottom line is that “Joint-Venture” is an untrodden area for Sri Lankan enterprise. The players may belong to either sector. They will be well alerted to be on guard in all areas of negotiations.