WPBEIJING
China Marketing

Joint venture [JV].

Risks and Failures of a Joint
Venture in China
Manfred Fuchs
Uni-Graz
distributed at the EU-China Workshop on HPCN in Pisa and Abingdon June 1997
comments are welcome
manfred.fuchs@kfunigraz.ac.
Institute of International Management 1997

pre-contract difficulties

Don’t think it it a marriage made in heaven.
You will have always the same bad, but different dreams.
What does your partner “really” expect?
Saving his company from severe difficulties
(financial, technological, employ people from the mother company, earn foreign exchange)

pre-contract

what is the role of the province and central government
is the company, which is presented to you the only feasible partner
what choice do you have (wholly owned foreign enterprise, contractual JV, cooperative JV)

What partner and which location

become familiar with the partner company
You do not have always the luxury of choosing the company and location
be aware of the power relations within the buerocracy
who is authorized to negotiate with you!!

check list pre-negotiation

is the proposed project part of the province’s of the Ministry’s plan
is the approved project part of the province’s and Ministry’s plan
make sure that your partner is authorized to negotiate with you and contract with a foreign company
take the letter of intent and the feasibility study seriuously

project plan of your cooperation

the project find not the needed support (water, energy, transportation, other state-supplied facilities)
insufficient support could result in invalid and uneforceable contracts

To whom negotiate?

the Chinese - although acting in good faith - are often not authorized to negotiate with foreigners prove the right of a Chinese company make contracts with foreign companies
this issue is carefully controlled in China most companies in China have not the necessary “foreign trade rights”

What information?

You will have to gather your own information You cannot risk to depend on your partners
selection of information you need
You will have to learn how the “System works”
it is extremely important that you are sure that your negotiating partner is fully authorized to talk to you!
additionally you need uninformal contacts!

Approval process

Usually the MOFTEC is the key to the project proposal
MOFTEC wants to have more control over the approcal process by keeping a distance to the foreign companie!
You will not always get to know the details which your are negotiated between MOFTEC and your partner in China

letter of intent

take the letter of intent very seriously it will be a part of the project proposal and an indefinite element of your business scope
at least the letter of intent should content: business scope, corporate control, foreign exchange and export figures, production scale, source of technology, suppliers, materials you need, markets you will serve

feasibility study

the feasibility study MOFTEC as one of the main documents
be aware that marketing is a difficult and often underestimated acitivity in China (“buyers will line up at the company doors”)
Chinese companies see production as their main goal
manpower costs for feasibility study are considerable

misconception

not all chinese are the same; their are severe conflicting interests
make sure you have a good lawyer; MOFTEC does not need your lawyer, but you do!
the Chinese have enough time for negotiation, the Chinese will always try to make the project successful (but for whom?)

misconception

Chinese do not like conctracting everything contracts should be clear and short
(but its better to have a long and clear contract as a short and ambigious one)

What should be done

choose your own partner and do not rely on introductions and official visits
you have to get to know your partner
you confirm informations and the authority of your negotiation partner
if the Chinese party supplies land, plant or other equipment - check the real extent out

What should be done

take the letter of intent very seriously (think about ) negotiating this document)
same with the feasibility study
check if letter of intent is practicable
review and confirm all Chinese approvals and documents affecting your project
meet with your JV partner to meet Government people and built up relations
plan your negotiation

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