Joint Ventures (JVs) are one of the four main options that new and existing foreign businesses have when they are looking to establish a presence in China. These four options (the others being the Wholly Foreign-Owned Enterprise (WFOE), the Representative Office (RO), and the Foreign Invested Partnership Enterprise (FIPE)) all have their benefits and drawbacks, which should be fundamental considerations for any business owner or executive considering entering the Chinese market. JVs are certainly not the most common legal structure adopted among foreign investors – JVs account for only 2% of the new structures created – but they nonetheless have some key features and benefits that make them suitable for some investors.
What is a Joint Venture and what are some of the core benefits?
At its core, a Joint Venture is a business agreement, not necessarily a separate legal entity. JVs are agreements that enable foreign companies to partner with a local Chinese company (or more than one, if necessary) in order to establish a formal presence in China. Usually, these partnerships involve the companies pooling their resources to meet mutually beneficial business goals.
For example, General Motors achieved incredibly early growth in the Chinese automotive market when it joined with SAIC Motor, SAIC-GM-Wuling Automobile to create Baojun, a new line of budget automobiles in 2010. Similarly, Morgan Stanley was able to enter the highly-regulated securities market in 2011 when it joined with Huaxin Securities Co Ltd (known also as China Fortune Securities Co Ltd) to create Morgan Stanley Huaxin Securities.
But it not just large multinationals that create JVs in China. Indeed, the possibility of rapid market entry (it takes on average four to six months to establish a JV in China) and other core benefits mean they are attractive to a range of foreign investors. Some of those benefits include:
Are there any drawbacks to using a JV?
JVs entail some significant drawbacks compared to other means of establishing a presence in China. Some of the main drawbacks include:
How are JVs established in China?
For companies that have decided to establish a JV despite the potential drawbacks, the process is relatively straightforward to understand, but complex in practice:
There are a number of options that foreign investors are presented with when considering doing business in China. Of them, the JV may be suitable for some businesses, especially those that are able to find a ‘good match’ in the partnership to further mutual
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