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.