In some cases, the only way businesses can establish themselves in China is through a joint venture. Chinese law often requires U.S. businesses to use joint ventures, so they are some of the most common entities overseas.
Though joint ventures are so common, U.S. business owners must consider the advantages and disadvantages of pursuing a joint venture carefully before moving forward.
Joint ventures make it easier to establish a business
There are several reasons that expanding a business into China can be complicated for U.S. business owners. Fluctuating diplomatic relations between the two countries and their different cultures are only a few of the most common ones.
However, a joint venture can help minimize the influence those issues have on a business. Joint ventures usually:
- Help U.S. companies meet the needs of the Chinese market and culture
- Increase a business' access to helpful resources
- Reduce risks of violating Chinese commercial laws or cultural norms
Essentially, joint ventures have the potential to provide businesses with more opportunities and services as they gain traction in the Chinese market.
However, joint ventures can also have some drawbacks
Joint ventures might give businesses an edge when they expand into the Chinese market, and they might seem like a safe option. But without the proper planning, a joint venture could create more problems than solutions.
According to Inc. Magazine, it is common for joint ventures to fall through. The article states that Chinese partners are often more familiar with how the market works. Therefore, they might end up running the business entirely.
Failing to prepare for a joint venture can also increase the chances of a partnership dispute. And overseas, these disputes can become both complex and expensive quickly.
How can owners protect their business in a joint venture?
There are always benefits and drawbacks in any business deal. If business owners are seriously considering a joint venture to form their business in China, then there are a few proactive measures they must take, including:
- Finding and vetting a partner that businesses can trust
- Familiarizing themselves with the Chinese market and laws
- Determining how to divide any profits to avoid disputes
- Addressing any conflicts of interest that either partner might have
- Ensuring that any intellectual property has the proper protection
As long as U.S. businesses approach a joint venture with sensibility and care to protect the future of their business overseas, they can reduce the drawbacks of a joint venture.