Pros and cons of embarking on a joint venture inChinas PRD region

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Time to partner upOf the many options available to foreign and domestic companies looking to grow in Chinas PRD(Pearl River Delta region) entering into a joint venture may prove to be one of the smartest businessdecisions one could make

Partnering up with an organization or an individual is a strategic partnership that involves the sharing ofvarious resources between both parties and if the right partner is found will hopefully result in thesharing of greater profits Anyone looking to expand their market presence and business influence inone of the biggest markets in the world will do well to study up on what a joint venture entails

In this blog we will take a closer look at what a joint venture is and run you through a breakdown of itsown distinct set of pros and cons so you will be able to make an informed decision on whether or not ajoint venture is the way forward for your enterprise

What is a joint venture

A joint venture is the coming together of two companiesindividuals to form a single entity that sharestheir respective markets resources technical knowledge assets and all of the profits gained from theleveraging thereof

Joint ventures are of the nature that they enable positive growth often without the necessity of havingto borrow any additional funds or seek the help of other investors Embarking on a joint venture is oftenused as a weapon for larger companies to strengthen their position and increase their market share or

for smaller companies to become more competitive Partners are able to leverage each otherscustomer database to market their products and services

In the case of a sino-foreign joint venture leveraging local assets as well as the expertise andknowledge of local conditions from the Chinese side and the advanced technical knowledge andmanagement expertise from the foreign side may prove to be a strategic decision resulting in successand mutual benefit

In China their are two types of joint ventures that foreign and domestic companies can choose to enterinto

Equity Joint Ventures

Cooperative Joint Ventures

More on these types of joint ventures here

The pros of embarking on a joint venture in Chinas PRD region

Much like any relationship worth having a joint venture involves a great amount of give and take fromboth parties Finding the right local partner with the right amount of resources and expertise isobviously the biggest factor to consider when partnering up and if done successfully presents thefollowing advantages for an enterprise

1 Gain more insider knowledge and expertise in the region

2 Simpler handling of complicated bureaucratic procedures

3 Greater access to a massive market and any existing distribution networks

4 Sharing of all of the risks and expenses with a partner

5 Greater access to local resources and cheaper labour

6 Strengthen a companys position and win even more market share

7 Continue to stay competitive in the world space

8 Open up new business opportunities outside of a companys core business

The cons of embarking on a joint venture in Chinas PRD region

As many pros that there are for venture partners in the case of a joint venture the old saying of Unitedwe stand divided we fall reigns supreme If one enters too hastily into a partnership without getting toknow ones partner and the objectives of the joint venture it may present the following disadvantagesfor an enterprise

1 Miscommunication between partners may result in costly business decisions

2 Sharing all the risks and expenses with an unsuitable partner

3 Conflicting management styles may lead to disparity within the company

4 Mismanagement of resources will lead to higher expenditure and waste

5 An imbalance may occur in what each partner brings to the joint venture

6 Cultural differences may lead to confrontation between partners and a falling out

As is plain for all to see finding the right partner to embark on a joint venture is paramount to acompanys success in Chinas PRD The good thing to note is that with joint ventures the pros outweigh the cons if you do happen to find the right person to go into business with

Are you interested in setting up a joint venture company in Chinas PRD region

Find out more about how Hongda can help you set up your own JV company here