A joint venture is a business agreement in which at least two parties pool their respective resources in order to achieve a specific objective. The success of such a partnership depends on the continuous and coherent cooperation of the different parties involved. It is possible for a foreign company to partner with a local entity to create an equity joint venture in China.
Why Opt for a Joint Venture in China?
First, it is not necessary for the partners to share the same strategic or commercial interests. The creation of a joint venture with a Chinese partner allows foreign investors to:
- Use the workforce, facilities, networks, channels and other resources of the local partner
- Avoid administrative problems and other bureaucratic complexities
- Access certain sectors and industries in China
- Benefit from the experience and market knowledge of the Chinese partner to facilitate the business’ cultural integration
What are the Necessary Conditions for the Creation of Chinese Joint Ventures?
- A joint venture must take the form of a limited liability company (LLC)
- No minimum capital is required
- The proportion of the investment contributed by the foreign investor shall generally not be less than 25% of the registered capital of a joint venture
- It is possible for the partners to make investments, either in cash, through technology or industrial rights
- A joint venture is managed by a board of administrators and managers
The Potential Drawbacks of a Joint Venture
Choosing a joint venture to establish a business in China requires certain concessions and a few difficulties:
- Cultural integration, a factor for success, can be very slow and difficult
- You do not have total control over the commercial entity, and you may have to deal with occasional disagreements with the partner
- This “marriage” requires adapting the organizational structure and implementing long-term insurance strategies in order to manage and avoid conflicts
When launching a China joint venture, your business plan should include a very thorough understanding of local customs and best practices.
That’s why, by collaborating with INS Global, you can receive the advice and expertise of an experienced and effective company. Since 2006 we have been enabling numerous companies to access the Chinese market through joint ventures and other company structures that have ensured their success in the country.
Creating a Cooperative Joint Venture: The Key Points
- Enables foreign investors to use the partners’ labor force and already existing facilities, networks, channels, etc.
- Partnering with locals also helps to to avoid administrative issue and other bureaucratic complexities
- Some sectors and industries in China are only accessible for foreign investors when creating a joint venture with Chinese partners
- The parties involved may not share the same strategic or commercial interests
China Market Entry : A Range of Potential Vehicles
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