Fears of being swindled, and changes in Chinese legislation, are prompting more and more foreign companies in China to choose fully owned subsidiaries over joint ventures with local partners. Case in point: The small Swedish coffee machine producer Coffee Queen. When the Vaermland-based company decided to establish a factory in China 18 months ago, the management initially considered finding a Chinese partner, but eventually the Swedes decided to fly solo.

"We think we did the right thing. I've seen a lot of examples of how joint ventures have ended up with disagreements and hard-to-reach end goals," says Michael By, head of Coffee Queen operations in China. "The problem is that the partners have different agendas: Same bed, different dreams."

And Coffee Queen is not alone. In fact figures show that joint-venture avoidance is becoming a trend among many foreign companies setting up shop in China, whilst companies who have been in the Middle Kingdom for some time are increasingly trying to buy out their Chinese partners. As mentioned above the reason for this development is primarily two-fold:

1. While legislation in the 1980s and early 1990s demanded that foreign companies partner up with locals, such laws are no longer applicable; foreigners are now free to set up 100% self-owned businesses. Thusly conflicting agendas between Chinese and foreign partners can now be avoided, and companies can fully control their own operations.

2. Tales of foreign companies being swindled in China abound. More than a few Western businesses have found copies of their products floating around the Chinese market, only to discover that the copycats were none other than their supposed local partners.

"The greatest fiascos are secret, but there are a good deal of stories about companies being tricked by their Chinese partners – some of whom even start producing copies in another factory," says Fredrik Haehnel, former executive at the Swedish Trade Council and currently with the SEB banking group.

Today the joint venture requirement only exists in fields that are considered to be of national strategic importance, such as media, certain parts of the telecommunications industry and the production of steel. This last field directly resulted in Swedish steel manufacturer SSAB's refusal to invest in China, but the joint venture isn't quite dead yet. Especially foreign companies that harbour a desire to reach Chinese consumers have a great need for local distribution networks, licenses, et cetera. And here, a joint venture is not something to be poopooed.

Companies such as Ericsson, SKF and ABB are all benefiting from effective joint ventures with Chinese partners and are raking in profits. But even large corporations are getting wary of the growing confidence and sense of national pride that many Chinese companies have been exhibiting for quite some time now.

One of the clearest indicators of this new tendency is the ongoing conflict between French food giant Danone and its former Chinese partner Wahaha. What used to be a shining example of Sino-Western joint venturing has turned into a bitter war about who owns the brand name of the mineral water 'Wahaha' (the brand had a turnover of 10 billion SEK in 2007 alone), and whether or not the Wahaha company has produced and sold the popular mineral water behind Danone's back. The Wahaha management has compared Danone to the European colonialists of old and has carried the victory standard out of every Chinese court the case has been placed in front of. Western business looks on with bated breath.

"Today's Chinese companies have a totally different level of self-confidence. Ten years ago they needed a Western partner; today many Chinese companies are courted by venture capitalists, foreign corporations and other Chinese companies. At the same time they are aware of the fact that they can take care of themselves. These factors, combined with rising nationalist current, have given Chinese companies enormous self-esteem," says Fredrik Haehnel.

Full story in Swedish

Published on this site: Jul. 2, 2008
Source:va.se