For sectors of activity protected according to the catalog of foreign investments (Foreign investment catalog) published and updated regularly by the Chinese government, the question does not arise: the establishment of a JV – with a Chinese partner is made necessary by the application of the legal framework.
However, it seems illusory for a company with foreign investment (WOFE) to want to prosper on the Chinese market without integrating Chinese partners or collaborators.
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Operational requirements: for example, in terms of a pre-established operational site, ready to be operational, special administrative licenses and authorizations attached to the site to the standards, therefore "pre-acquired", which condition the exercise of the activity which the JV can "inherit" in particular in the event of the French partner taking a stake in a pre-existing company.
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The “contributions”, the gain of a JV : for example, saving time to establish a presence on the Chinese market. A Chinese partner who has a pre-existing distribution network is an asset for a distribution project in China.
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The scope of activity and size of each party : avoid the "marriage of the rabbit and the carp." You don't sell IT products in a well-established pharmacy distribution network. Moreover, it is often preferable for the companies involved to be of comparable size in order to limit imbalances that are often harmful.
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The degree of mutual knowledge of each party : Get to know each other! It is often recommended to start with business agreements to learn how to work together and get to know each other.
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Always control your intellectual property : we do not transfer trademarks and patents to a joint venture; this is very dangerous. We prefer to license the French company's IP to the joint venture.
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Control tools and exit routes: corporate bodies of powers and counter-powers. Decision-making by the board of directors is governed by specific rules ("unanimity of voters" regardless of the percentage of capital participation) and the exit routes in the event of a conflict with the Chinese partner are difficult to navigate and often lead to legal disputes.
Finally, again and again: a preliminary audit is always necessary because it will allow you, beyond the "love at first sight", to rationalize your "Go / No Go" decision.
In conclusion, it is an understatement to say that the JV deserves certain attention and can be a success. However, it is up to the foreign investor to include this JV project in an even more precise manner than for a WOFE, in a strategy with clearly defined contours.
Initial publication date: 22/11/2018