Thursday, November 15, 2007

"China Hearsayworthy" and Signs of China JV Trouble

The always prolific and thoughtful China Hearsay came out with something quite entertaining, and with a bit of southern accent: You Know You’re [Your China JV Is] in Trouble When the . . .

[For a sampling:]

JV partners haven’t spoken to each other for 7 years.
CFO is the wife of the local partner.
Foreign investor has never visited the JV and forgot what city it’s in.
Local partner claims he is son of a PLA general.
Neither party can remember who was supposed to file the application docs.

Stan points out five more signs dooming a China joint venture. Of course, not all of these signs will be present in all JV failures, but some definitely are in the Danone-Wahaha joint venture fallout.


Todd Platek said...

Let's face it: Trust is a beautiful thing. Why get all legal about things when there's the promise of big bucks to be made, and everyone in the deal is "ga-ga" with each other during their commercial honeymoon? Suggesting that agreements be put into legalese is tantamount to saying "I don't trust you," and that can be a cultural difficulty, if not outright no-no.

I continually scratch my head when I see what some clients get into, but I'm only a lawyer. I've even had Chinese law firms look at our style of lengthy commercial agreements and tell me the agreements are too long; just include the basics of the relationship, and leave the rest to fate and time. Scary?

Brad Luo said...


Chinese law firms'preference to roughly define the contractual relationship is "scary" to foreign investors (your clients), but it surely serves their purpose. After all, they are just representing their Chinese clients who probably want some built-in wiggle room in the contractual provisions.

I am wondering what the same Chinese companies would prefer in contracting if they changed their roles by investing overseas. Say, Germany? Or the United States? Trust probably is not the most important factor any more in the initial stages of their contracting relationship. At least their lawyers should tell them so.

With respect to "trust is a beautiful thing", I cannot stop thinking about this British guy--

That is what he did--he trusted a HK man...

If you haven't watched it, you should. I shook my head when he handed over his invention to the HK guy, without a contract, of course.

Todd Platek said...

Actually, most of my clients are Chinese companies with offices/operations in China and the USA, and that's why it is still scary to me, despite 21 years of legal practice. Wiggle room is one thing, but condensing a standard agreement of 20+ pages into two or three pages? Reminds me of someone habitually driving with a gas tank containing only a couple of gallons, fully confident that there will always be a gas station within the next 10 miles so she can add another $5 worth of gas.