For many companies wanting a direct presence in China, finding a local partner to form a Joint Venture (JV) can be the fastest way to gain a foothold and scale in the market.
The Italian company brings technology, know-how, and branding, while the Chinese partner brings market and customer knowledge—what could go wrong?
Unfortunately, experience shows that what the Chinese partner says before forming the JV doesn’t always reflect their true long-term intentions.
So, what begins as an idyllic partnership often turns into a nightmare and ends in a painful breakup.
Though I’m generally wary of JVs in China and always warn clients about the risks, there are two cases where a JV might make sense:
- If your business operates in a sector listed in China’s negative list .
- If a local partner can offer essential assets you don’t have to do business in China
Your potential partner will likely try to rush the process—but that’s exactly why you should take your time and carefully go through the three phases of a successful JV setup
These phases are:
1 PRE-AGREEMENT: Uncover the true strategic objectives of the other party and check for any conflict with your goals. Don’t skip this step, even if the partner seems perfect.
1 NEGOTIATION: Define every detail of the agreement, including the rules for operating and dissolving the JV. Be thorough—even if it feels excessive. Begin building a collaborative relationship at this stage, if possible.
1 MANAGEMENTWhen the JV starts operating, don’t give the Chinese partner full control over sales. Turn your business plan guidelines into a detailed strategic and operational plan.
Following these steps won’t guarantee JV success in China, but they’ll help you avoid serious pitfalls if things go wrong.
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