The debate on how best to enter the Chinese market has been going on since China first became a major recipient of foreign direct investment in the 1990s. Even though many foreign companies prefer the relative security and ease of establishing a wholly foreign-owned enterprise (WFOE), joint ventures (JVs) should not be overlooked as a possible mode of entry to the market even for small and medium-sized enterprises (SMEs), as partnering up with a local supplier, producer or distributor can offer quick market access, established supply chains and proven distribution channels to newcomers to the market.
However, setting up a JV carries inherent risks that have to be identified and addressed before any agreement can be considered. Due diligence therefore needs to be a top priority from the very beginning to correctly assess the viability of the proposed partnership, protect investment and make sure that the other party is able to make the promised contributions.
‘The main purpose of any due diligence is to protect the investment by identifying risks connected with a particular transaction.’
From the upcoming EU SME Centre guideline
To help European SMEs gauge what this process will entail in a Chinese context, the EU SME Centre will publish a guideline on due diligence for JVs, mergers and acquisitions in the coming weeks.
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If you would like to know more about WOFEs and JVs, please see the following publications, available for free on the EU SME Centre website: · Diagnostic kit ‘Are you ready for China?’: Ways to enter the Chinese market · Guideline: Establishment of a foreign-invested enterprise in China · Webinar recording: How can foreigners establish an office in China? Wholly foreign-owned enterprises and representative offices |
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