In a recent blog post, we discussed how many companies establish a presence in China through joint ventures. However, just as many U.S. companies expand their business through partnerships with Chinese companies and manufacturers.
However, U.S. companies must take great care when considering an overseas partnership and evaluate all of the risks they could face beforehand.
A partnership does have some advantages
Creating a business partnership can make it easier for U.S. companies to obtain a head start in the Chinese market. For example, many U.S. companies partner with Chinese manufacturing companies. This can have several benefits, including:
- Creating jobs and growing the economy
- Decreasing start-up and future costs
- Expanding business overseas more efficiently
As with every venture and decision, business owners must carefully assess the risk factors before engaging in a business partnership—especially overseas. When two companies in a partnership are subject to different labor laws, business owners might face complex matters and increased risks.
Legal violations could cause trouble for both partners
Shared risks are often highlighted as a benefit of a business partnership. However, a recent news story sheds light on the risks involved in these partnerships.
The partnership between the U.S. company Apple and the Chinese manufacturer Foxconn is possibly the most well-known partnership. Their partnership creates the mass production of iPhones and iMac computers that people around the globe rely on.
However, the two companies now face accusations of violating Chinese labor laws. CNBC and Bloomberg both report that the partners are accused of:
- Withholding bonus payments from employees
- Disregarding safety training for employees
- Maintaining poor working conditions
- Employing more temporary workers than allowed
Apple denies most of the allegations. However, they admitted that more than 50% of their employees were temporary “dispatch” workers. Chinese labor laws only allow 10%.
The partnership could face significant consequences with the Chinese government because of these violations.
If U.S. businesses are involved in partnership with a Chinese company, both partners should take great care to understand the potential risks and ensure that they are on the same page as their partner. It is critical that all businesses ensure their own entity and partner are both in compliance with Chinese labor laws to avoid these risks.