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Dear CBBC,

We are a medium-sized engineering firm that has been approached by a Chinese company proposing an equity joint venture. What advice would you offer on managing such a relationship?

Regards,

Sabina Shah

Companies considering the use of a joint venture entity to enter the market should first carry out extensive due diligence on the proposed partner. Do not be pressured into making snap decisions – spend time building a relationship with the company’s decision-makers while at the same time investigating the financial background of the company and its principals, capabilities and motivations.

The fundamental issue when setting up a joint venture is establishing which party has ultimate control over company operations. Foreign companies have too often assumed that a Chinese joint venture company is managed according to a standard Western format, i.e., a board of directors with controlling interests in the company.

You will need to ensure you have oversight of day-to-day operations. Control of the company ‘chop’ or seal is also very important as this is used to make binding contracts. While it is unlikely that a Chinese partner would concede on all of these points, control of one or more will significantly strengthen your hand.

Answered by Michael McCourt, CBBC China business advisor. To have your questions answered, please email enquiries@cbbc.org.

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