Are you looking at setting up a joint venture with a Chinese company? Our lawyers and paralegals have a lot of experience and stories to tell about this.
Many companies in places like the United States, Australia, and England want to tap into the Chinese market. It’s massive, with $1.4 billion people.
If you target the top 10% of income earners, that’s 140 million people that could be your customer.
Many of these top 10% of income earners in China are located in places like Beijing and Shanghai. Therefore, we have lawyers in these places.
We also service Tianjin, as it’s a massive port city. You might have never heard of Tianjin, but it has over 12 million people.
The capital of Australia, Sydney, has only 5 million people.
It’s this kind of statistic that makes western people excited about expanding into Asia. And of course, China is the most successful market in Asia.
Japan used to be the leader but after the market crash in Japan in 1991, and the fall of the Soviet Union in 1990, China took over most of the economic power in Asia.
Companies Expanding Into China
Many companies in the west want to expand but are nervous about China.
They hear a lot of stories in the media, and also from friends of theirs that have companies in Asia.
Some of the stories are true, and others are nonsense.
As is the case with most business plans, there are pros and cons to growing into China.
Most companies want to set up a joint venture with a Chinese company.
The idea is that the Chinese company has already built out the connections and the infrastructure. Let’s say your company is called Organic Skin Inc.
Organic Skin wants to start selling its organic lotion in Beijing.
So you decide to enter into a joint venture with a company that has relationships with all the grocery stores in Beijing.
Perhaps your product will be carried in 250 grocery stores. The name of the joint venture company is Beijing Wholesale Ltd (we just made it up.)
What Are The Benefits Of The Joint Venture?
The company will likely have a lot of followers on their social media. This will make it easy for you to test the market quickly.
The last thing you want to do is spend years building up your following, to find out people don’t like your products.
You can pay a marketing company to build your “paid” followers, but they have never tried your product.
You then have to convince these people to try your product. Will they like it?
If you use the WeChat account of Beijing Wholesale, they might offer an amazing promotion.
For example, for the month of June, the products of Organic Skin are 50% off! If people are not willing to buy when it’s 50% off, they never will.
What Are The Risk Of A Joint Venture With A Chinese Company?
If they purchase the products and complain, it’s a bad sign. We have seen this happen.
A consulting company in Shanghai (Shanghai Imports) helped a Canadian company (Healthy Co) expand to China.
Shanghai Imports had a booth at a health conference. Healthy Co provided tons of samples for people to take.
I believe they gave out thousands of products, and also sold hundreds of bottles of organic face cream.
The branding and packaging of Health Co were fantastic.
People loved the products and ordered more. Sadly, Health Co had a hard time delivering the products from Toronto to Shanghai.
They refused to work with experts, and their shipments were seized by the Chinese customs agents.
Also, people tried to return the products because they turned “brown” after a month. Shanghai Imports decided to stop working with Health Co.
What Do You Need To Get A Chinese Lawyer To Do?
The situation above shows the risks when your product doesn’t meet the market need. It also shows that there are operational risks.
However, there are also risks between the two companies.
Let’s say that Healthy Co’s products were successful. Suddenly, everyone is placing orders at Shanghai Imports.
It takes three weeks for the organic products to arrive in Shanghai from Toronto and clear customs.
Organic products don’t last very long because they have no preservatives.
Suddenly, it makes more sense for the Canadian company to make its products in Shanghai.
The Canadian company gives its “secret sauce” to Shanghai Imports so that the products can be made.
Eventually, the Shanghai company decides that they no longer want to share 50/50 with Health Co.
What can Health Co do? Hopefully, they had a lawyer in Shanghai to create a tight joint venture agreement.
If they did, it might say that all legal issues will be dealt with in by arbitration in a court in Toronto.
Also, both parties agree that a judgment made by the Toronto arbitration is enforceable in a court in Shanghai.
Once the judgment shows that Shanghai Imports owes Health Co $2 million, Health Co can hire a Shanghai lawyer to enforce the judgment and collect payment.
Maybe Health Co can take over the warehouse as payment.
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Author: Alistair Vigier is the CEO of Clearway and can be reached on Wechat at: alistairvigier