JVs becoming less popular as more foreign companies prefer to "go it alone" with a WFOE. You need to pay great attention to detail when negotiating the contract, as Chinese and foreign partners may have different perspectives and objectives – the analogy with human marriage is a common one, with the popular Chinese idiom "same bed, different dreams" often quoted.
The fundamental question is course why you need a partner? They should have something tangible to offer – either as an entry vehicle in an area otherwise restricted to 100% foreign investment, or in other assets such as a distribution network or quality manufacturing premises. Using them to lessen your overall cost of market entry in China due to the so-called “shared costs” is a common mistake. If you can-go it alone.
And many companies leave the entire operations up to the Chinese partner to run. This is a crucial mistake. 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 watched carefully. You have standards, so ensure these are implemented and operational in your JV.
When negotiating the amount here do be sure that the Chinese side’s investment really is worth that amount of money. Valuations are a pre-requisite on buildings machinery and land.
Other issues that must be addressed when creating JVs include :- royalties - these can be built in as part of your investment. Protect yourselves also-patents and trademarks should be properly registered. Technology Transfer can be paid as JV royalties-ensure contracts are in place and that you understand the legal and tax implications
- profits repatriation-make sure this is adequately addressed. The Chinese partner is not so concerned about this, and won't be familiar with the procedures-he' never had to do it. You can pull money out of the business in pre-tax expenses.
- mergers/acquisitions-be sure to build into the contract and articles proper mechanisms outlining exactly the procedures and protocol for changing ownership, buying and selling shares in the company, share valuations and so on.
- exit strategy- clearly define what are to be considered unacceptable levels of business(losses in consecutive years, production below targeted levels, etc) and have these agreed upon and set in the contract and articles. Make sure economic performance is properly identified as a clear reason to effect closure if things go wrong.