Our company does business with a foreign partner in Tiawan with offices in China. We are considering a formal merger or joint venture to create a true worldwide presence which our customers find important, and continued success is dependant on our continuing to work together closely. Does anyone with direct experience have any recommendations or experiences to share?
Merger or JV with foreign partner
Answers
To state the obvious (which I'm sure you already know), the impact of a JV vs. a merger is completely different in every imaginable way. Having had similar considerations for a Hong Kong sub that a recently former company had, I can say that you will need to be very careful around ownership structures when dealing with Incorporation in China. There are many rules around ownership %'s (specifically, who gets 50% or more), repatriation of funds (can be tricky pulling $ out of the country), board structure and more.
First off, however, you have to determine your structure. Clearly, a merger means your entire independent company can disappear and your "real" control may drop to zero. JVs have a host of challenges as well, of course. But either path has those items I note up above. Make sure you have counsel that is U.S. based! They know the pitfalls awaiting U.S. companies doing biz in China.
I would proceed with extreme caution. There are many stories of companies that have been defrauded during JV partnerships in China. The most infamous example would be Yahoo's investment in Alibaba. If you don't know the story it's worth looking into.
I agree that there are a lot of risks and challenges in setting up any kind of ownership in China. The odds are stacked against foreign companies (ie us) in favor of local business and the government, and transactions appear to happen because of relationships and things that happen behind the scenes.
Unless your business is so dependent on its China trade vs the rest of the world, I would be very wary of changing the status quo. In addition to the politics and business
I recommend you think twice before moving on from a third party rep or distributor presence.
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