Doing business in China: Growing green by cultivating red

The keys to operating a successful joint venture in China are knowledge and understanding, but neither is easy and neither is cheap -- and acquiring both can be frustrating, especially when the odds are likely that the partnership will fail.

The first step in building a partnership is performing due diligence and in-depth research, something that most small businesses are not equipped to do, but something that is absolutely essential.

"One of the Big Four accounting firms or a law firm (could) do that kind of work," said Mark Durand, a professor of international business at Regis University. "The process is really investigating who your partner is and if they can do what they are proposing."

But that process takes time, and Western businesspeople are too impatient, he said, especially when there is no guarantee of success.

About 70 percent of joint ventures with overseas partners fail, said Mark Durand, also a professor at Regis.

"That's just the nature of the business," he said. "A failed venture doesn't mean a failed business -- it's about your agenda. You want to get something going in the short term, and it works out, but then your agenda changes."

Durand said that relationships are important in China, and that having a Chinese partner can cut through the layers of bureaucracy.

"You don't have to fly over four or five times a year to talk to the government," he said. "If you can find a great partner and leverage their relationships in the country -- that is extremely valuable. The $64,000 question is 'do you have the right partner?'"

The risks are those generic to any partnering arrangement.

"You lose control," Durand said. "You can't manage the process, because you aren't as close to that part of the business. To a certain extent, failure is inevitable. The customer environment is dynamic, and it's changing faster and faster. To be successful, you have to change with your customer base and it's not always easy to bring your partner along with those changes."

But, despite the time involved in the vetting process and the failure rate, several local entrepreneurs have launched businesses partnerships in China, said George Boutin, executive director of the Office of International Affairs.

"We have people who have put in a major effort to know the country, know the culture," he said. "You have to spend a lot of time in China; it can take years to build partnerships."

The Office of International Affairs focuses on helping businesses remain local, but grow globally.

And while the office isn't an advocate for outsourcing, Boutin acknowledged that many companies couldn't exist without exporting at least some of their manufacturing processes.

"There's no doubt that these businesses contributes to the economy and well-being of the Springs," he said. "Even as they expand in other countries, they're still providing marketing and other kinds of jobs here."

Copyright 2007 Dolan Media Newswires
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