Setting up joint venture in China requires realistic approach
Joint ventures (JV) in China are often reputed as organizations difficult to manage. From time to time some stories hit the international press of a Chinese starting a business in parallel after learning all the secrets of his foreign partner. We cannot deny that those situations happen, but we must also admit that is not an exclusive problem of JVs in China. As most know, JVs are challenging even if both partners are from the same country. Besides, there are many JVs that function correctly and achieved the objectives they were created for. And those don’t hit the news.
We conducted a survey among foreign executives working in China. In total 246 executives answered the survey, 117 of them were at CEO level. Those executives have an average of 18 years work experience, of those 7.4 years working in China, and come from 33 different countries.
What do those that have Chinese JV partners think of them? We asked them this question. Of the 60 executives that answered it, 53 percent admitted that it was difficult or very difficult to work with their Chinese partner. We asked why it was difficult.
The top two difficulties are basically about the relationship among the Chinese and the foreigner executives. The other three reasons are basically about differences in their business understanding and objectives. The conclusion is that soft skills and clear and agreed objectives are both critical for the JV success.
Regarding the first two reasons, it is very important to select executives from both sides that have the flexibility and adaptability to work across cultures. In a way, personality matters. When you select the executives think that their technical and professional skills are necessary but not enough. Both sides must have the openness of mind to work together. Marriage is a metaphor that is a times used when talking about JVs. As in any marriage, there is a Honey Moon period when everything seems perfect. Problems usually appear later and if the channels of communication are not open and each side is willing to show flexibility, and mistrust can readily undermine the relationship.
The second group of reasons identified in our survey is related to the business objectives of the JV. It is important to have clear objectives, what you want to achieve together and how you will solve the differences when things don’t go well.
Managing a successful JV requires from its executive team flexibility and cultural savvy. It also requires clear objectives for the partnership. But remember, JVs are not for life, they are formed to achieve certain objectives. When those objectives are achieved we should consider amicable ways to dissolve the JV. It is better to agree on a divorce when the relationship is still good than to wait until the relationship is rotten. As in Las Vegas weddings, think of a pre-nuptial agreement, in which you specify the reasons for separation and how you will split the assets.
There is a Chinese saying, “one bed two dreams,” that is frequently used when talking about JVs. The implication might be that we have to merge both dreams. I don’t agree with that view and here is where the marriage metaphor breaks. We need to be realistic, companies form a JV because they expect some benefits from it. As long as both sides see the benefits, they will be happy.
They also need to perceive that the contribution and benefits each part gets is balanced. What gives value to a JV is precisely that the two partners bring their dreams together and they decide to help each other to achieve them.
A love encounter could be a better metaphor for JVs that a marriage. If the relationship fructifies, it can end in a long term relationship otherwise they can amicably split when they have achieved what they wanted. As the Chinese comedian Joe Wong says, “The sad thing about marriages is that 50 percent of them last forever.”
I once asked a successful Chinese entrepreneur with a JV with a European company what he thought of it. He told me it was quite challenging the first three years. I then asked him for how long he had the JV, his answer was three years. Do not forget the Chinese often share the same difficulties.
Juan Antonio Fernandez is a professor of management at China Europe International Business School in Shanghai.