The Old Rules on Investing in China Still Apply

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The Old Rules on Investing in China Still Apply

I ran across a group of foreign investors the other day who are frustrated by their joint venture partner in China.

As I heard their long list of complaints, I could have closed my eyes and been back in the 1990s.  It was as if none of the lessons from that era had ever been heard.

What had they done wrong?

  • Invested in a remote city whose only connection to the investors was that it was twinned with a city in their home country. The hard-nosed business decision would have been to invest closer to the market and where imported materials would arrive.
  • Invested with a successful local entrepreneur who had no track record of working with foreign partners.  No other multinationals to provide a reference or exert influence on the local entrepreneur.
  • Allowed their capital to be almost entirely used up on capex for the factory. What’s gone is gone and is now bolted to the ground.
  • Had no one on the ground or even present in the country other than a plant manager they had appointed.
  • Had ambiguous paperwork on who owns exactly what share of the business.

Unsurprising that the local entrepreneur is looking to increase his share in the business before allowing the plant to go live. The leverage is all with him.  Only question for the foreign investors is whether they want a smaller share than they thought they had in an operating business or a larger share in probably nothing.

Please know the history of what works and what won’t work before you launch your China JV.

Read more of my views on my blog, Gordon’s View. And please follow me on Twitter.

By |June 9, 2015|Categories: Gordon's View|2 Comments

2 Comments

  1. Justin Perry June 10, 2015 at 16:48:30 - Reply

    This is a shocking tale that incorporates almost every mistake western firms have made in the last three decades in China – mistakes that have been well publicised and can be learned from. And frankly, it also represents ignoring a laundry list of really basic business concepts, no matter where one is operating. But, incredible as it seems, some companies and investors still ignore all basic rules and common sense the moment the words “China Opportunity” find their way into a PowerPoint deck. Gordon, you couldn’t be more right: “know the history of what works and what won’t work before you launch your China JV”

  2. George Fan August 10, 2015 at 12:21:06 - Reply

    Finding a reliable partner in China is absolutely the most challenging problem for foreign investors. It seems everything in China is more difficult when it comes to doing business here. Success does not count on how well you do your business but how many obstacles you clear on the way.

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