Over the course of several jobs, I've gained a degree of experience working in China. To say it is challenging, even certain to result in numerous "learning experiences" (read: mistakes) has been, in my experience, an understatement. And while some of the lessons I learned are particular to the Chinese experience, most can be applied to ventures in other places around the world.

My next five posts will address lessons from foreign ventures in general. In this post I want to confine myself to elements unique to Chinese joint ventures, particularly those with government-owned entities.

In my career, I've had to deal with three of these beasts (joint ventures with government-owned entities), and the experience was consistent across all three. My primary observations are as follows:

Government entities tend to focus on big, showcase events, not getting the day-to-day job done. This means attention is on signing deals, making announcements, and attracting attention, not necessarily on making things work.
Every time I've counted on the Chinese partner to be responsible for some aspect of a Joint Venture (sales, market development, hiring, etc.,) I've been disappointed. My conclusion: You will own 100% of the day-to-day operations of the JV, no matter what the partner commits to during negotiations.
Partners can get in the way of making decisions, particularly if those decisions include any element of "retrenching." These types of moves tend to result in a loss of face, and are often strongly opposed.
Your technical know-how is not safe. It probably isn't safe with wholly-owned Chinese entities, either, but experiences seem to be worse where partners are involved.

I recall the high point of one of my Chinese joint ventures being the day we signed the contract. I found myself in a hotel lobby filled with TV cameras and reporters as we announced our new company and discussed our goals. Unfortunately, things went downhill from there. As implementation of the joint venture rolled forward, it was hard to get anyone in our partner's organization to pay attention to the project (outside of quarterly board meetings, which were exercises in form over function.) Responsibilities assigned to the partner were left undone -- in this case, the development of a sales organization -- and we had to step in and try to piece things together. Over the long haul this had a very detrimental impact on the project's development, and ultimately led to a shutdown.

Another joint venture languished because we assigned the recruitment of key employees to the partner. The joint venture organization ended up staffed by hacks and pals of senior managers of the Chinese government-controlled partner. Ultimately, we had to step in and replace most of those employees, significantly delaying the early phases of the project and stunting its growth.

It is typical to have expectations for Chinese Joint Ventures that, when confronted with reality, require adjustments. In one JV, the partner became stuck on the idea that we needed an elaborate office building to gain sales -- this despite the fact that customers never visited our offices. I found myself fighting a long battle with the partner, attempting to conserve cash to cover operating expenses as we tried to build sales, rather than spending it all on a building. When I finally gave in, the building was contracted to friends of the Chinese partner's senior employees, and it was significantly over budget and was poorly constructed.

While I've never personally had technology stolen, I've heard countless stories of those who have. In one particularly extreme example, a JV had a competitor literally open up a few blocks down the road, and was staffed by several former JV and Partner employees, ones that had worked key jobs. The money behind that project? A governmental entity from a different "department." It was hard to believe the entire thing hadn't somehow been coordinated behind the scenes.

Based on my uniformly bad experiences with Chinese Joint Ventures, I recommend when considering one, just don't do it! Since you're likely to find yourself doing all the work, anyway, there is little sense in subjecting yourself to the risks and frustrations of a government-owned partner. 20.1

On Your Own in China

Tom Spears

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