The article then goes on to note how “thoroughly vetting your joint venture partner” will “dramatically increase your likelihood of success,” but states that most China joint ventures fail because the foreign partner made the “fundamental mistake” of believing its 51% ownership gave it effective control over the joint venture: Foreign investors too often assume Chinese joint venture companies are managed according to a common Western model, under which a board of directors has controlling power over the company. Our deep knowledge of China’s legal system, culture, and business climate make our China practice one of the most sophisticated in the US. Goldman Sachs moved Tuesday to acquire the remaining stake in a China securities joint venture as it eyes further growth in the world's second biggest economy. He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. ), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions. Avoiding Mistakes in Chinese Joint Ventures. Goldman Sachs will buy out its China joint venture partner to make it the most advanced foreign bank to take full ownership of a mainland securities business. The problem with China joint ventures is not China-specific; it is joint venture specific. What will you contribute to our joint venture, both now and in the future? When this happens, your best bet will usually be to either reduce your investment to a minority share or abandon it altogether. Our China lawyers also love taking apart China joint ventures that have gone wrong, and again, not because it is in any way a good thing for our clients (who usually are in dire straits when they come to us with their joint venture problems) but because resolving joint venture disputes is like a championship chess game, but at our hourly rate. JPMorgan took 71% of … Suppose your Chinese JV partner can make the JV hiring and firing decisions. Miscommunication between partners, conflicting management styles and cultural differences are just a few of the potential flashpoints which could arise during the course of a joint venture. A Q&A guide to joint ventures law in China. When drafting their joint venture agreement, parties should ensure that there is a clear and workable agreement governing the JV structure, with management roles plainly defined. HONG KONG: Goldman Sachs Group Inc has signed a pact with its China joint venture partner to wholly own the business, becoming the latest foreign bank to take advantage of the opening up of the financial sector in the world's second-largest economy. As part of his regular monthly gig, Steve submitted an article on how to avoid joint venture mistakes. Care must be taken, however, to tailor the joint venture processes to the local context, to avoid running afoul of local rules and regulations. With control shared between often commercially competitive shareholders, the opportunities for conflict are rife. We know of cases where an EJV partner concedes on the percentage ownership issue in return for control over the two key management positions in the company. Foreign companies too often rush into China joint ventures without ever discussing their respective dreams with their China joint venture partner. What is that going to look like? Money? The article then sets out the following basics for maintaining control over your Chinese Joint Venture: ● The power to appoint and remove the JV’s representative. Leadership Styles and Organizational Effectiveness in Chinese‐Japanese Joint Ventures. Chinese requited Joint Ventures are a mechanism for forced technology transfer. The automaker also runs China joint ventures with SAIC Motor and FAW Group. Know-how? by Chris Carr and Lotus Sun, Minter Ellison. I also like them because they tend to be one of our most lucrative corporate matters we do. Marketing genius Seth Godin beautifully explains why this is the case in his post, “Why joint ventures fail so often“: There are two reasons joint ventures fail. Equity Joint Ventures provide a means by which foreign and Chinese companies can collaborate on projects within China with limited liability, where the foreign and Chinese partners contribute to the equity in the venture in alignment with their shareholdings. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy. Since the board is elected by a majority vote of company owners, most foreign investors will strive to obtain a 51% ownership interest in the EJV. Just as a quick aside: there is a 99.99% chance you will never see a dollar from your joint venture if you use your joint venture partner’s attorney or even any attorney chosen for you by your joint venture partner or you use no attorney at all. Normally operation of a join… A joint venture in China is a legal entity with limited liability established on the basis of a joint venture contract between Chinese and foreign parties. Our China lawyers have seen countless exploitive “joint ventures” but most of them start in the same way. We often see this done by using one of the following two tactics: For better or worse, our law firm has developed quite a reputation for not liking joint ventures and so it is not uncommon for us to get calls from potential clients that start with them saying they know we don’t like joint ventures and then explaining why their doing a joint venture is either necessary or will be different from the ones we write about. While many companies are shying away the Joint Venture structure due to the large amounts of inherent risk, it still has several advantages. By forming a joint venture, companies gain access to new markets and distribution networks, along with new (and often greater) resources – both human and non-human. It currently holds 51% in the venture. Joint ventures can be a risky proposition, but they can be a valuable tool for companies hoping to crack the Chinese market, if done properly. 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