Although China is a very lucrative and attractive market, business success in China is difficult. James Chapman, Partner, Foley & Lardner LLP, argues that foreign companies can save themselves millions of dollars and reap great rewards by learning from those that have previously succeeded and failed in China. He sets out some key best practices that will put companies on the road to success. China, like any foreign market, is difficult to succeed in alone. The business practices, language, culture, legal environment and other obstacles, make success in China elusive. In addition, Chinese law requires a foreign company to have minority ownership of enterprises operating in certain industries such as banks and insurance companies. For these reasons, joint ventures in China are common. According to the US China Business Council, in 2011 there were 5,289 joint ventures in China and 2010 saw 5,270. In these years, joint ventures represented approximately 20% of all foreign direct investment in China. It is also widely known that the failure rate of joint ventures in China is high. Joint ventures in China have achieved a reputation for being difficult to manage. Reasons include differing expectations, overestimation of the Chinese partner's market position, conflicting management styles, lack of integrity, corruption, and greed. Parties will come together, usually after lengthy negotiations, and celebrate the formation of the joint venture and only a short while later, after millions of dollars of losses, wonder what went wrong. There are a number of reasons why few joint ventures in China succeed while most fail. Most of these involve understanding the intangible aspects of doing business in China. This article sets forth a number of best practices that if followed are likely to dramatically increase the likelihood of success.

Carefully select your joint venture partner

Like other ventures, one should take great care in selecting a Chinese joint venture partner. Foreign companies must establish a list of criteria for selecting a partner. The criteria should include experience, integrity, guanxi, expertise, quality and other factors. For example, entering the Chinese market may require access to a robust supply chain. Without such access the foreign party is required to develop and manage an extra layer of business relationships and expense. If the potential Chinese partner possesses a proven supply chain, then this may prove to be a primary driver. The 'right’ partner must not only have the appropriate capabilities, but must also be motivated and sufficiently financed to succeed. In addition, a foreign company must make the investment in building a relationship with potential joint venture candidates. This usually requires the foreign company to locate an executive or team of people on the ground in China. This not only demonstrates a commitment to China but there are just some things that cannot be learned from afar. There is no substitute for being on the ground in China. In addition, the foreign company must conduct thorough due diligence of the shortlist of potential partners, their management and major shareholders. The due diligence should include among other things:

1. criminal background checks
2. civil lawsuit checks
3. interviews with customers, suppliers and others that have done business with the potential partner
4. interviews with parties active in the target industry, and
5. interviews with employees.

There are a number of qualified companies that excel in assisting with the due diligence process. Notwithstanding this common sense advice, many foreign investors enter into joint ventures without sufficient scrutiny. However, notwithstanding the above, the most reliable method of selecting a joint venture partner is to start with a party known to be honest with a proven track record of dealing with parties known by the foreign partners. However, above all you should avoid 'marrying your first date'. The company must go through a disciplined process, not cut corners and avoid acting rashly based upon 'gold rush’ fever or enthusiasm.

Always allow your Chinese partner to maintain face

Business relationships in China are complex. Disagreements between partners are common. Generally, the Chinese believe that the parties can take different positions on an issue and both be right. Although this concept may seem strange to foreign executives, it is fundamental in China. At the root of this belief is the concept of 'mianzi’ or 'face'. Generally, China is a hierarchical society and one's position in that hierarchy is very important. Any actions that undermine that position can result in disastrous consequences. In addition, the ability to build the 'face' of your partner is an important part of building and maintaining relationships in China. Accordingly, although it is important for a foreign joint venture partner to be firm and protect its interests (being too accommodating creates its own cultural problems), the foreign partner must avoid words and actions that could embarrass, diminish or undermine the authority and standing of its Chinese partner. Accordingly, solutions to problems and interaction with the Chinese partner must be calculated to allow the Chinese partner to save 'face' and avoid embarrassment. These solutions and actions must avoid a sense of condescension or lack of respect. Many foreign managers believe that the Chinese are not sophisticated, and lack modern management skills and experience. Taking the approach, which is more common than one would believe, that the foreign partner is arriving to show the locals how international business is conducted, is a recipe for failure.

Develop relationships with the personnel working in the joint venture

A Chinese joint venture cannot be managed through periodic board meetings. Although such meetings are important and the relationships with the Chinese representatives on the board of directors must be developed and maintained, the executives in the foreign partner with responsibility for the joint venture must have frequent contact, and develop relationships, with the managers and executives that are actually managing the day-to-day operations of the joint venture in China. The relationship must be based upon respect. This cannot be circumvented and there are no short cuts in this process. This relationship building requires frequent business and social meetings. As mentioned above, this is one of the reasons why a presence on the ground in China is so important. The foreign joint venture partner must invest time and energy in these relationships. Foreign managers must not ignore or fail to listen to local managers. They must avoid being perceived as arrogant. In addition, the foreign investor should have a substantial role in the day-to-day management of the joint venture. A joint venture is not a vehicle to allow a Chinese partner to manage the business with minimal executive time from the foreign investor. If the foreign investor takes this approach, problems in management, financial reporting, diversion of revenues, quality, and intellectual property theft are likely to occur. If the foreign investor cannot afford to send a full-time manager to China, it should not be investing in China at all. The relationship-oriented approach with a foreign manager active in the business is instrumental in identifying problems early and being in a position to solve them. As mentioned above, in order to avoid losing face, managers of the joint venture are likely to downplay, avoid or even hide problems with the business operation. The best way to overcome this tendency is for the foreign investor to have very frequent social and business contacts with those running the day-to-day operations of the joint venture, participate in the day-to-day operations, ask many questions, listen and understand the Chinese indirect communication style.

Understand and maintain an alignment of the parties’ interests

Identifying the Chinese partner's interests in pursuing the joint venture is not an easy task. Unlike Americans, who, for example, tend to be straightforward in discussing their interests in a transaction or relationship, the Chinese tend to take a different approach. The Chinese tend not to reveal their actual interests prior to the establishment of some level of trust between the parties. For example, the Chinese partner may be interested in a quick short-term profit or obtaining technical know-how through the joint venture so it can independently pursue the business on its own at a later date. It may desire to launch the product line under its own brand or just have the prestige of being partnered with a well- known foreign company. Too often from the initiation of the joint venture, the parties are pursuing different agendas at the expense of the other. Part of the challenge is to overcome the different communication and working styles of the parties. However, an emphasis on relationship building, training and management can help build workable communication channels. In addition, one must be mindful of the 'crouching tiger, hidden dragon’ phenomenon. The 'hidden dragon’ concept represents a myriad of invisible vested interests. The Chinese partner is in some instances just an instrument of those interests. These hidden interests can change their priorities, affect the initial agreements and change the dynamics of the joint venture. For example, one type of hidden dragon is local government officials which often can be the real authority behind the Chinese partner. These local officials may control the appointment of key people, impose unreasonable requirements of local tax collection and job creation and intervene from time to time to impose their will on the joint venture. However, the Chinese partner often has strong 'guanxi’ with the local authorities and may indirectly control the joint venture by using this power in the event of a disagreement, hence the reference 'crouching tiger, hidden dragon’. The foreign partner must make an effort to understand the Chinese partner's relationships with local government officials and other hidden dragons and identify and understand the real decision makers. Balancing these interests and keeping them aligned is tough. As mentioned above, an on-the-ground presence is essential for keeping one's hand on the pulse and being able to develop the relationships with the Chinese partner and local government officials. Constant contact is necessary to understand the others' interests and adjust as necessary to keep such interests aligned. Once these interests are identified, they must be translated into clear objectives. At this point, the joint venture has a standard for measuring progress and satisfaction. For example, investment objectives should be agreed upon and continually re-evaluated jointly as the venture progresses. The partners should set clear corporate values, communicate them to the employees on a continuous basis and monitor progress in implementing such values. The parties should make adjustments as necessary to keep the interests aligned as circumstances change. These corporate values would include such items as product design, product quality and customer service. The foreign partner should often communicate the shared interests and mutual benefits. In this way, the parties can relentlessly pursue the achievement of the common objectives. However, one must remember that China is changing rapidly and the parties must be flexible and willing to adapt to these changes. In circumstances where the interests of the parties diverge in ways that cannot be brought together, the parties must be willing to implement a pre-existing exit strategy and allow the joint venture to die. Unilever has shut down more than a dozen joint ventures and Coca-Cola and Starbucks have recently bought out their Chinese partners.

Always have a strong legal foundation for business relationships

The Chinese commonly use the phrase, 'we know the law, but that is not how things are done in China’. Cutting corners or circumventing the law based upon the belief of common practice is a 'no lose' situation for the Chinese partner and a ticking time bomb for the foreign partner. It is common for a Chinese party to use the failure to comply with the law as leverage to get more concessions from the foreign partner later or even force the foreign partner out of the lucrative business arrangement. In this regard, the foreign partner must establish a means of self-protection from the beginning. All material business relationships should be documented. A strong legal foundation would include a majority position in the joint venture, both ownership and management, a detailed joint venture agreement, the ability to control key hires such as the chief financial officer, controller and the human resources managers, develop its own relationships and 'guanxi’ with local government officials, strong anti-bribery policy and legal compliance programmes, and a strong internal and external trade secret protection programme. In addition, the foreign partner should negotiate control of the 'seals’ or 'chops’ as they are often called. The 'chop’ is often required for authorising actions by a company in China. In addition, the joint venture must ensure that it has all of the necessary permits to operate. In China, permits authorising the conduct of a certain business are very narrowly drawn. In addition, the permitting regime is complex. It is not unusual for Chinese companies to operate illegally because of the lack of proper permits. The problem can increase as the company evolves and expands its business. Similarly, it is common for Chinese companies to maintain multiple sets of books one of which is kept to justify the payment of low taxes. As mentioned above, the foreign partner's control of the finance function should prevent this type of business practice.   James Chapman, Partner, Foley & Lardner LLP A special thanks to Eric Chapman who served as a research assistant for this article.  

中國市場相當吸引，商機處 處，然而要在中國成功經營， 並非易事。Foley & Lardner LLP 合伙人James Chapman則表 示，從前人的成功和失敗經驗 學習，可以省回數以百萬元計 的成本，取得豐厚成果。他提 出幾項主要的最佳經營方式， 幫助企業踏上成功之路。

獨力投資海外市場，要取得成功，並 不容易，中國市場也不例外。商業 慣例、語言、文化、法律制度等方面的 差異和其他障礙，使外資企業難以在中 國成功經營。況且，中國法律要求經營 銀行、保險等若干行業的外資企業只能 擁有少數股權。種種因素，導致合資企 業在中國相當普遍。根據美中貿易全國 委員會統計，2011年，中國共有5,289 家合資企業，2010年則有5,270家；在這 兩年，合資企業佔投資中國的海外直接 投資總額約20%。此外，眾所周知，在 中國經營合資企業的失敗率很高，人們 普遍認為合資企業難以管理，原因包括 期望不同、對中方合伙人的市場地位估 計過高、管理方式不協調，以及企業人 員品格欠佳、腐敗、貪婪等。合資雙方 通常經過長期商討後，才會達成合資協 議，可是剛慶祝合資企業成立不久，便 虧蝕數百萬元，令人費解。合資企業成 功者少，失敗者多，有多方面的原因， 當中大部分涉及在中國營商的一些無形 因素。本文列出多項最佳做法，若能付 諸實行，成功的機會便大大增加。

小心物色合資伙伴

正如經營其他項目一樣，為合資企業物 色中方合資方時，必須十分小心。外資 企業必須列明合資方應具備的條件，包 括經驗、品格、關係、專門知識、素質 和其他因素。舉例說，要進入中國市 場，可能需要有穩固的供應鏈，否則外 資方便須建立和管理另一重商業關係， 花費額外開支；假如合資企業的中方已 具備行之有效的供應鏈，這可能是企業 成長的主要動力。適當的合資方不僅應 具備合適的才幹和能力，還應有動力， 有充足的財力，才可成功。此外，外資 公司應投入成本，與有可能成為合資伙 伴的人建立關係；一般的做法是在中國 派駐行政人員或一組工作人員。這不僅 顯示自己對中國的投入程度，而且有些 在中國發生的事情，在遠方是難以掌握 的，留駐中國實地了解情況，是無可替 代的做法。此外，外資公司必須徹底查 核有可能成為合資伙伴的潛在合資方、 其管理層和主要股東。查核工作的範圍 須包括以下各項： 1. 查核刑事紀錄 2. 查核民事訴訟 3. 會見潛在合資方的客戶、供應商和 曾與之有業務往來旳其他人士 4. 會見業內的活躍人士；以及 5. 會見僱員。 市場上有多家合資格的公司，擅長提供 這種查核服務。建立合資關係前先作詳 盡的查核，是普通常識，但許多外國投 資者仍是事先未作充份調查，便貿然成 立合資企業。不過，最保險的做法，還 是先找一些曾經和自己認識的人有業務 來往，證實為誠實可靠的人作為合資伙 伴。最重要的是，避免「和首次約會的 人結婚」。公司必須經過嚴格的選擇過 程，不要走捷徑，避免盲目跟隨「淘 金」熱潮，因一時之興而魯莽行事。 市場上有多家合資格的公司，擅長提供 這種查核服務。建立合資關係前先作詳 盡的查核，是普通常識，但許多外國投 資者仍是事先未作充份調查，便貿然成 立合資企業。不過，最保險的做法，還 是先找一些曾經和自己認識的人有業務 來往，證實為誠實可靠的人作為合資伙 伴。最重要的是，避免「和首次約會的 人結婚」。公司必須經過嚴格的選擇過 程，不要走捷徑，避免盲目跟隨「淘 金」熱潮，因一時之興而魯莽行事。

保全中方合伙人的面子

在中國營商，商業關係十分複雜，伙伴 之間意見不合，是常有的事。一般來 說，中國人認為伙伴對同一事件可以有 不同立場，而雙方都可以是對的。對於 外國人來說，這觀念看似奇怪，在中國 卻是很基本的概念；歸根究底，是「面 子」的問題。中國社會的階級觀念很 強，各人尊卑有序，任何不符身分的行 為，都可能帶來嚴重的後果。此外，為 伙伴賞面，是建立和維持良好關係的要 素。因此，合資企業的外資方保持堅 定、維護自己的利益固然重要（太易於 妥協亦會產生文化問題），但也應在言 談間和行動上避免令中方尷尬，或有損 其權威和地位。有見及此，解決問題和 與中方交往時，必須小心計劃，讓中方 保全顏面，避免尷尬。解決問題的方法 和交往時的行為，必須避免讓人有高高 在上或欠缺尊重的感覺。外國管理人員 往往認為中國人不夠老練，缺乏現代管 理技巧和經驗；外資方若抱著向中國伙 伴引介國際營商手法的心態，必敗無 疑。大家或許不知道，抱持這種心態的 外資公司為數不少。

與合資企業的職員建立關係

管理中國的合資企業，不能單靠定期舉 行的董事會會議。這些會議固然重要， 而且必須與董事會中的中方代表建立和 維持良好的關係；但外資方的負責人員 也必須與實際管理中國合資企業日常運 作的經理和行政人員經常保持聯繫，與 他們建立關係。這關係必須以互相尊重 為基礎。這是不可忽略的一環，過程中 也沒有捷徑。關係的建立，有賴經常舉 行商務會議和社交聚會。正如上文所 述，這是必須實地留駐中國的原因之 一，合資企業的外資方必須在這些關係 上投放時間和精力。外資方的管理人員不可忽視本地管理人員的聲音，避免給 人高傲自大的印象。此外，外方投資者 在合資企業的日常管理中應擔當重要角 色。經營合資企業，外資方不可吝嗇自 己的時間，完全放手讓中方管理業務； 假如採取這種做法，便有可能產生管 理、財務報告、產品和服務質素方面的 問題，甚至有收益被侵吞，知識產權被 盜的危險。假如外國投資者不能派遣全 職管理人員長駐中國，便根本不應投資 中國。 重視建立關係，派駐管理人員積極參與 業務，有助及早察覺問題，尋求解決方 法。如上文所述，為免丟臉，合資企業 的管理人員很可能低調處理或避免提出 業務運作上的問題，甚至加以掩飾。處 理這種情況的最佳方法，就是經常與管 理合資企業日常運作的人員頻密保持社 交和業務上的接觸，參與日常運作，經 常提問，用心聆聽，了解中國人含蓄的 溝通方式。

了解合資雙方的利益所在，保持利益 一致

要辨析中方經營合資企業的利益所在， 並非易事。外國人如美國人討論自己在 某宗交易或某項關係中的利益時，一般 比較直接；中國人則不同，在未與對方 建立互信之前，通常不會透露自己的實 際利益所在。舉例說，中方可能希望透 過合資企業迅速獲取短期利益，或獲得 技術上的知識，好讓自己日後可以自行 經營有關業務；可能有意日後以自家品 牌推出有關產品；又或純粹藉與知名外 國公司合作提高聲譽。從合資企業成立 開始，合資雙方往往就各自追求不同的 目標，而犧牲對方的利益。合資各方要 面對的一項考驗，是接受對方的不同溝 通方法和做事方式。注重建立關係、培 訓和管理，有助建立可行的溝通渠道。 此外，我們還要留意企業中的「臥虎藏 龍」。「藏龍」指的是企業背後無形的 一眾既得利益者。有時候，中方投資者 只是既得利益者的工具，這些既得利益 者可以改變中方投資者考慮事項的優先 次序，影響原定協議，改變合資企業的 生態。例如當地的政府人員，便是藏龍 的一種，他們可能是中方投資者背後的 真正權威。這些當地人員可能控制了主 要人員的委任，提出不合理的地方稅收 和創造就業機會的要求，並且不時介 入，逼使合資企業按他們的意願行事。 不過，中方投資者往往與當地政府關係 密切，在爭議發生時，有可能利用這種 權力非直接地控制合資企業，因此有 「臥虎藏龍」之稱。外資方必須設法弄 清中方投資者與當地政府人員和其他藏 龍的關係，辨清真正的決策者，了解 他們。 平 衡 各 方 利 益 ， 讓 各 方 利 益 保 持 一 致，是很困難的事。如上文所述，必 須 實 地 留 駐 中 國 ， 才 可 了 解 最 新 情 況，與中方投資者和當地政府人員建 立關係。應經常與中方保持接觸，以 了解各方利益，並在有需要時予以調 整，讓各方利益保持一致。認清利益 所在後，必須訂立清晰目標；這樣一 來，合資企業便訂有可量度的標準， 衡量工作進度和表現滿意度。例如應 協 定 投 資 目 標 ， 並 在 企 業 發 展 期 間 持續共同檢討目標。合資各方應清楚 訂明企業的價值取向，經常與員工溝 通，讓他們認識這些價值，並監察這 些價值的實踐進度。在環境有變時， 雙 方 可 按 需 要 調 整 ， 以 保 持 利 益 一致。企業價值涵蓋產品設計、產品質 量和客戶服務等範疇。外資方應經常 說明這些共同利益和互利情況，務求 雙方鍥而不捨地追求共同的目標。 不過，我們應緊記，中國的面貌變化 迅速，合資各方必須保持靈活，隨時 適應這些轉變。假如雙方的利益南轅 北轍，無法保持一致，雙方必須願意 按既定策略退出，終止合資企業。聯 合利華曾關閉十多家合資企業，可口 可樂和星巴克最近亦買下了中國投資 方在合資企業中的股權。

商業關係須有穩固的法律基礎

中 國 人 經 常 這 樣 說 ： 「 我 們 知 道 法 例 的 規 定 ， 但 是 我 們 不 是 這 樣 做 事 的。」因循所謂慣例而走捷徑、繞過 法例，對中方來說沒有損失，但對外 資方來說，卻是個計時炸彈。中方往 往利用違法作為工具，驅使外資方日 後給予更多優惠，甚至逼使外資方退 出利潤豐厚的業務安排。有見及此， 外資方必須從一開始就建立自我保護 機制，以文件記錄一切重要的商業關 係。穩固的法律基礎包括在合資企業 的股權和管理權方面佔大多數，訂立詳盡的合資合同，掌控首席財務官、 審計官和人力資源經理等主要人員的 任 命 ， 自 行 與 當 地 政 府 人 員 建 立 關 係，訂立明確有力的防貪政策和合規 計劃，以及制訂完善的計劃以對內和 對外保障商業秘密。 此外，外資方須與中方議定對印章的 控制權：中國企業的行為，往往須憑 印章作實。合資企業亦應確保自己具 備營運所需的一切准證：在中國經營 業務的各色許可證五花八門，每種許 可證涵蓋的範圍非常狹窄，而且批准 制度相當複雜，中國公司因准證不全 而違法經營，是常有的事；公司業務 不 斷 演 變 擴 充 時 ， 這 問 題 會 日 益 嚴 重。同樣，中國公司往往備存多套賬 目，當中一套用以作為繳納低稅的佐 證。如上所述，外資方若能控制財務 工作，便可避免這種情況發生。 James Chapman, Foley & Lardner LLP 合伙人 撰寫本文期間，Eric Chapman協助相 關研究工作，特此致謝。