A few months back I wrote a series of posts entitled “A China Joint Venture Survival Guide”. It was based on the story of a joint venture that had gone very wrong (you can read it here). As soon as I finished the articles, I started looking for a joint venture success story, and I soon found it amongst my readers. Today I start a series entitled “A Joint Venture Success Story”, for which I´ve only written this introduction. This is an anonymous guest post by somebody who owns a Chinese Joint Venture, and although he wants to keep his company identity anonymous he has been very generous devoting time to these articles. In these posts he shares the lessons he has learnt during his eleven years of Chinese joint venture experience. This is a story very worth reading.
A CHINA JOINT VENTURE SUCCESS STORY
We are a custom electronic transformer manufacturer with 26 years in the business and 32 employees in our home country, of which 18 are involved in manufacturing our low volume and highly specialized products in house (while our JV in China produces the higher volume product). China represents 20% of our turnover and we supply to contract manufacturers.
We currently have a joint venture with a medium sized SOE where we own 35% of the shares in the company and hold one seat on the Board of three people. The joint venture company has 250 full time staff plus another 150 contract workers. Our partner is an SOE Group of 20 companies all in the electronics sector. The Group has been in the business for over 50 years and our specific company within it started making transformers and inductors for Japanese companies back in the early 1980’s. Basically we bought into a going concern, not a start up.
Why Did Our China Experience Start?
Custom transformer manufacturing is a labour intensive process and for that reason we decided to go to China in 1999 to find a manufacturing company we could work with. Our Head Engineer was Chinese and had seen the need, well before Management woke up to the fact, that we were losing the competitive fight in our home market to international distributors who were already sourcing out of Asia.
How Did We Choose Our Supplier?
At that stage we tried to draw up a list of characteristics a Chinese company would have to have in order to be able to work with us but in the end we settled on only one:
they would have to be truthful at all times.
We then did the usual quoting, sample orders, quality checks, etc. with five possible companies and we stuck with the one which did what it said it would do, our current JV partner.
From Supplier to Joint Venture Partner
We traded for over 18 months and this gave us both the opportunity to get to know each other as individuals and as organizations. The trust that quickly developed between our operations can be credited to my opposite number who is one of the most forthright persons I know. He had started on the production floor and risen through the ranks, through sheer ability, to become the GM. Even though he is 15 years my junior, we developed a very close personal bond, also shared by our Head Engineer, which permeated the whole commercial relationship. We were very lucky!
In 2000 the GM came to us with the proposal of our buying into his company to form a joint venture (JV). It meant good tax benefits for the operation as a whole and we understood that he was looking for the prestige within the SOE Group and the technology transfer that such an arrangement would bring. We, on the other hand, had not even contemplated a JV option, but having traded with Chinese companies for two years, we had learned that you are generally given service and pricing proportional to the amount of business you bring to the table. For us the JV presented the opportunity to sit at the table and therefore insure most of our requirements were met regardless of volume while we built the business up. The due diligence and subsequent value negotiations were very easy because of the tight personal and organizational relationship previously developed and by January 2001 we were partners.
Coming soon “A China Joint Venture Success Story (part II)
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