New China JVs – Look Local, Act International
Western business people are justifiably wary of the old-style JV that used to be a requirement for operating a business in China. Now that we have Wholly Owned Foreign Enterprises (WOFE’s), rep offices, and other options for overseas businesses to maintain sole ownership of China-based businesses, many westerners think that JVs are a thing of the past. Thankfully, the REGULATORY style of JV is fading into memory.
But there is a different type of JV that is still going strong – the OPERATIONAL JV. Otherwise known as a partnership, these international JVs are usually started by a small number of individuals who are entrepreneurial minded and interested in building a new business or importing an existing overseas business into China. It’s not uncommon for them to be run by former classmates at an international business program, colleagues or even partner who met in supplier-client roles.
These businesses represent and important step in the evolution of China’s economy towards an open, international system. (Don’t confuse true JVs with the ex-pat service providers who still need a local partner to issue bills, collect money, or register in specific industries. These companies make great partners and service providers because – when they are working well – they really do offer the best of both worlds. They are international in terms of their systems, technology and business practices, while still able to negotiate the regulatory environment and deal effectively with other Chinese businesses.
On paper, these are Chinese companies. Many of these register locally and show up in government statistics as local businesses. The reality is that they usually behave like mini-MNCs, and often make up part of the multinational service supply chain. These are the lawyers, accountants, programmers, consultants, designers, etc. that have been powering the MNCs drive towards success in the China market.
They are important to the Chinese economy, and will continue to make many valuable contributions to the internationalization of places like Shanghai, Suzhou, Hangzhou, Beijing and Shenzhen. But these are mainly vehicles for individual service providers to register and operate. Like many business startups that center on a few talented individuals, they have difficulty sustaining growth and aren’t particularly scalable. While they are invaluable to the MNC supply chain, they probably won’t be a source of significant innovation or large-scale international brands.
Entrepreneurial international partnerships make up the third leg of the tripod, along with SOEs and MNCs. They are pioneering a management system that we will see come into play a little further down the line – after the coming glut of middle managers in both MNCs and SOEs starts seeking a more productive avenue for their talent and experience.
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