Executives, entrepreneurs, and investors are increasingly asking how they can get out of their joint ventures in China. It’s not that they want to stop doing business there; it’s just the opposite. They want to increase their commitments to the Chinese marketplace, but on their own terms.
To understand that, it’s important to consider a few things about achieving success in China today:
– Before independence can bring meaningful revenues and profits, it’s necessary to take exploratory steps and set up imperfect, short-term joint ventures with Chinese partners.
– Few US companies have had sustainably positive experiences with joint ventures in China.
– Strong and solid results can be attained by going it alone.
To put it another way, there are three distinct phases that all companies must go through as they attempt to capitalize on the potential of the Chinese market. This is a complex cross-cultural commercial journey with bumpy, frustrating, and extremely uncomfortable stages, but those that persevere and stay focused on the ultimate business possibilities in China will be rewarded.
Finding Partners
The first phase is about taking baby steps. US companies start by scouring China to identify like-minded and strategically similar vendors and customers. The search is designed to reduce risks by finding Chinese players who can help explain their business culture and climate.
Creating Joint Ventures
The second phase kicks in when companies pinpoint one Chinese distributor or supplier who truly stands out. This is the moment when a joint venture is formed. The Chinese partner contributes the crucial country-specific relationships, access, and expertise—both cultural and institutional—to the collaborative enterprise, and the US company provides the essential capital and intellectual property.
Unfortunately, though, the notion of a joint venture is very different in China. In the United States, we think of these alliances in terms of consolidations stemming from the US parent; in China, the proposition is seen more as a stand-alone enterprise that could be at conflict with the US parent.
Going it Alone
This dissolution eventually leads into the third phase, when US entities double down and make serious commitments to go it alone in the Chinese market. During this period, they put real skin in the game and invest money and resources into their Chinese operations. This often means making the commitment to send personnel to ensure the operation is run with consistent cultural values.
The bottom line is that this three-stage process is the process, for both US and Chinese companies. And it’s clearly a necessary means to a potentially profitable end, so it must be embraced.
One of the most important factors in all this, however, is correctly establishing expectations. A joint venture helps US companies navigate their initial forays into China, but it’s never been and never will be a long-term ticket for success in this market.
For the full report, please click here, or contact me.
