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The process to boost its stake in the Goldman Sachs Gao Hua venture from 51% to 100% has also been initiated with the local regulators, … Our lawyers have earned international acclaim for providing cutting-edge legal solutions to US- and foreign-based companies doing business in or with China. Ceding control over it as a matter of convenience is a mistake. Americans are feeling less optimistic about doing business in China. If you want effective control over a China joint venture, you must avoid this mistake. We use a dataset that accounts for all joint ventures in China from 1998 to 2007 to show that this policy is successful in its aim of encouraging technology transfers from foreign investors to domestic operations. Because there isn’t one boss, one deliverable, one person pushing the project relentlessly, it stalls. What will you contribute to our joint venture, both now and in the future? GFI looks forward to a long and successful … HONG KONG: Goldman Sachs Group Inc has signed a pact with its China joint venture partner to wholly own the business, becoming the latest foreign bank to take advantage of the opening up of the financial sector in the world's second-largest economy. Employees? ● The power to appoint and remove the general manager of the joint venture company. How can this be achieved? This answer is meaningless. Before you do a joint venture with anyone you should make sure the two (or more) of you are truly on the same page regarding what will go into the joint venture and how it will operate once formed. As such, strategic JVs can bring success and mutual benefit to both partners. The Chinese company is put in charge of setting up the joint venture because that only makes sense, right? Just today I had the following conversation with a potential client (modified ever so slightly for dramatic effect): Me: I am not clear from your email about what exactly you want to do with your Chinese manufacturer but it sounds like you want to enter into a joint venture with them and that will almost certainly be a bad idea. Zhong‐Ming Wang. What is that going to look like? Can our own businesses compete with our JV? The common practice of appointing the same person as both representative director and general manager is a mistake. The structure can be very complex, particularly in a jurisdiction like China. The bad news is that there is usually nothing that can economically be done to help a foreign company in this sort of situation. But when done wrong they actually increase the risk, but only for the non-Chinese company. What really needs to be done to ensure control? However, with competition for assets growing, and with many Chinese sellers unwilling to sell 100 percent stakes in their organisation, a joint venture may be the only viable option. Avoiding Mistakes in Chinese Joint Ventures. Normally operation of a join… The dip separates projects that begin from projects that finish. You need an answer that explains exactly how day to day disputes will be resolved so your joint venture does not collapse. Few joint ventures are fast and easy. This is particularly important given China’s ‘first-to-file’ approach to IP management. The contract must comply with the Law and Regulations of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures. Our international lawyers have seen this up close and personal with Russian joint ventures, Vietnamese joint ventures, Mexican joint ventures, Korean joint ventures, Japanese joint ventures, even a Gambian joint venture. It provides a roadmap for avoiding what is probably the biggest and most common mistake that gives Chinese joint ventures such a bad name. Miscommunication between partners, conflicting management styles and cultural differences are just a few of the potential flashpoints which could arise during the course of a joint venture. Relinquishing these three control mechanisms to your Chinese joint venture partner will almost invariably cause you long-term problems because once your Chinese JV partner has these controls you will essentially have relinquished all power to influence your own joint venture. The side that appoints the representative director will have significant control over operations. Tahir Niaz. “Well, we only have a bit at stake here, so work on something else, something where we have to take all the blame.”. The process to … I also like them because they tend to be one of our most lucrative corporate matters we do. The good news is that this sort of thing never happens to foreign companies that use their own qualified China lawyer, as opposed to their joint venture partner’s lawyer or a lawyer not familiar with China. There are a number of risks associated with conducting business in China. In many respects, the country is an attractive proposition for investors and acquirers, yet misjudging the landscape can be disastrous for an outsider. It’s easy and hopeful and exciting to start something, but challenging and often painful to finish it. Intellectual property? As part of his regular monthly gig, Steve submitted an article on how to avoid joint venture mistakes. Abstract. The automaker also runs China joint ventures with SAIC Motor and FAW Group. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice. Employees? Since the board is elected by a majority vote of company owners, most foreign investors will strive to obtain a 51% ownership interest in the EJV. I think it’s a great idea and here’s why. I applied this saying to China Joint Ventures (I was certainly not the first to do so) in a Wall Street Journal article I wrote back in 2007, titled, Joint Venture Jeopardy: The much-publicized legal fight between French beverage maker Groupe Danone and its Chinese partner, Wahaha, calls to mind an ancient Chinese proverb often used to describe a bad marriage: “Same bed, different dreams.” Danone accuses Wahaha of breaking contracts and setting up competitor companies; Wahaha denies the allegations. With control shared between often commercially competitive shareholders, the opportunities for conflict are rife. Eventually (usually many years later) the foreign company starts getting frustrated about never receiving any money or even news from the joint venture and contacts a China lawyer for help. Meetings give us the ability to stall and to point fingers, to obfuscate and confuse. It must be made clear that the general manager is an employee of the joint venture company who is employed entirely at the discretion of the representative director. Share: Share. To understand its effects on global investment, Deloitte China's Financial Advisory team has published its latest report: Sino-Foreign Joint Ventures after COVID-19: what to expect? ● Control over the company seal, or “chop.” The person who controls the registered company seal has the power to make binding contracts on behalf of the joint venture company and to deal with the company’s banks and other key service providers. Restaurants, bars, building and construction, car production, and cosmetics are just a few of the industries in which foreign companies would need to seek a joint venture with a local partner. China can be a double edged sword. As a result, the investor’s struggle for board control is rendered meaningless. China Briefing looks at the experiences of Starbucks and McDonald’s to capture important lessons. Why do you think that is a bad idea? Know-how? When this happens, your best bet will usually be to either reduce your investment to a minority share or abandon it altogether. These claims usually are used to disguise the Chinese company’s efforts to gain operational control over the company and your relinquishing these three control mechanisms to your Chinese counterpart will likely be problematic for you. Potential Client: Well, we do want to further solidify our relationship with them and we have been thinking a joint venture might be one way to do that. If our joint venture loses money, who will be responsible for putting more money in? He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. Why though would your JV partner do this and how does your JV partner benefit from doing so? Joint ventures simply tend too to be a bad way to conduct business. Our law firm has handled at least a dozen of these matters where our ten minute search revealed there never was a joint venture. Money? As majority owner, the investor then assumes he has the right to elect the entire board, and thus effectively control the company. If you do not, you will not have control over the joint venture’s day-to-day management. Joint ventures include Cummins, Dana, Honda, Nissan, Infiniti, PSA Peugeot Citroën, Renault, Kia and Yulon. Our deep knowledge of China’s legal system, culture, and business climate make our China practice one of the most sophisticated in the US. This is part one in a series of posts intended to help you spot China joint venture risks and avoid them. Suppose your Chinese JV partner can make the JV hiring and firing decisions. His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt. In 2017, the company ranked third in terms of output making 3.3 million vehicles. In this post, we are going to assume that your Chinese counterpart is legitimate and truly wants to do a legitimate JV with your company. Goldman Sachs is set to buy out its China joint venture partner, which will make it the most advanced foreign bank to take full ownership of a mainland securities business. The common Chinese company response will be something like “we will work out any issues among ourselves and if that fails, we will have a special meeting to try to resolve everything. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy. Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain. Unintentionally, this concession cedes effective power. What do you want our company to do to advance the business of our joint venture? Dan is licensed in Washington, Illinois, and Alaska. A joint venture consists of two independent businesses — one foreign and one Chinese — going into business together. What mechanisms will we use for reaching JV decisions most of them start the! Turned to joint ventures significant control over a joint venture company even know what more to say patents ) and! Ventures increasingly look like unfruitful unions gain insights and entry in unknown markets part! Seemingly minor consideration dooming EJVs venture strategy in China ventures without ever their! 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