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Joint Venture China Rare Earth Siemens(0) The joint venture involving an investment of 43.5 million euros (about $64.8 million) will be 49.9 percent owned by Silver Mile Holdings Limited, an indirect wholly-owned subsidiary of China Rare Earth, and 50.1 percent by OSRAM, China Rare Earth said in a statement. The joint venture will have an annual production capacity of up to 2,000 tonnes of tri-band phosphor when it is in full operation, with the products to be sold in China and the international market. The investment of approximately HK$83.2 million (about $10.7 million) will be funded by internal resources and bank financing, China Rare Earth said in the statement. Source : Konaxis |
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Managing your joint venture partner(0) Having conducted your due diligence, negotiated your investments, and agreed to get hitched, you now need to work out the management protocol. This subject is the topic of much debate, with conflicting points of view. Conducting business also is largely time consuming, emotional and stressful. This is only enhanced in a multi-cultural environment. There will be times both parties feel they are correct. Have you identified the potential areas of differing opinions and decided privately amongst your own foreign colleagues which to tolerate and which not to? It may be wise to draw up a blueprint of potential areas of disagreement and work out in which your China partner is more likely to have the expertise, and in which you are. It is common sense. Many companies leave the entire operations up to the Chinese partner to run. This is a crucial mistake. A new business needs all the support it can get. You need to invest in a foreign manager to keep an eye on things, especially during the early stages. Correct systems, accounting, and quality control issues all need to be taken care of. You have standards; ensure these are implemented and operational in your JV. The ideal solution is an expat manager ? if not for the long-term, then certainly for the initial development stages. However, the general manager is responsible for the operations of the business. It is wise to make this one of your personnel. Chinese management For the longer term, it is better for JVs to have strong Chinese management in place. The reason for this is the difference in basic fundamentals of economic understanding between Chinese and expatriate managers. As Jack Perkowski, chairman of Asimco, one of China’s most successful companies, told me earlier in the year, Chinese managers have a better appreciation of Chinese costs. Consider the US$100 and RMB100 bill. They have many similarities. They are the highest denomination in their respective countries. Both have pictures of national leaders on them. Yet in America, US$100 is not considered a lot of money. However, in China, RMB100 is considered a lot of money, despite the exchange rate showing it to be worth just US$14. Chinese managers therefore have a far greater understanding of the fundamental dynamics of how much RMB100 is worth than an expatriate manager and this is a key attribute when conducting financial transactions in buying and selling supplies, products and services in China. |
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Managing your China joint venture partner(0) [ By Chris Devonshire-Ellis, Senior Partner, Dezan Shira & Associates ] Investing in a joint venture in China has attracted a certain amount of criticism amongst some sections of the legal community, who see them only as sure fire ways to get into trouble, with the likely misbehavior of the Chinese partner providing a whole gamut of challenges best left well alone. Such views are myopic. Indeed, in certain restricted industry areas, a foreign investor must have a JV partner, and in others, that partner must also possess the majority equity. If entry into these markets is to be undertaken, then there is no option ? businesses must learn to live with a JV partner, and how to effectively manage them to minimize risk. Alternatively, for some investors, having a Chinese partner may bring to the table certain advantages that may well prove useful and economical, such as inheriting a good quality factory, existing skilled or semi-skilled workforce, and existing distribution channels versus developing from scratch a greenfield plant. While it may make sense to ?go it alone? with a WFOE in the more developed areas of China such as Shanghai and the East Coast, when business turns to China’s central and western regions, having a Chinese partner with the local regional knowledge may also prove advantageous. To demonstrate China’s diversity, one only needs to look at a bank note. The current RMB series incorporates seven languages on the notes, and previous editions have featured some of China’s 56 different ethnic minorities. China is much more than just mandarin, rice, noodles and chopsticks, and local knowledge via a partner may well prove immensely useful when conducting business in the country’s inland locations. You may not be bound by China’s regulatory regime to need a JV partner, but it may make still make perfect regionally cultural and economic sense to have one. Under these circumstances then comes the overriding question: how can you get the best out of your investment into a China JV? Or put another way: how can you best manage your JV partner? In this issue of China Briefing we will look at several separate scenarios: managing risk and due diligence, structuring a JV, managing a partner when owning a minority share, owning a majority share, and investing in a JV when you do have the option to use a WFOE instead. While some of this advice is interchangeable, all of it represents critical management tools that will allow a foreign investor to maximize their investment, minimize their risk, and develop a mutually profitable business with a Chinese partner. Managing your joint venture partner
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