Tandem or Solo: Selecting an Ownership Approach in China

Booz Allen Hamilton --- Due to China's continuous economic rise, the country is becoming an increasingly important part of the CEO's agenda at many multinational companies. Not only are companies trying to capture a share of the growing Chinese market, but more and more firms are also integrating their China operations with their global operations — from production to brand development to sourcing to research and development, in whole or in combination. To operate successfully in China, companies need to address a series of questions related to their strategies, organizations, operations, and enabling technologies. In light of such complexity, foreign companies often ask us what form of ownership they should adopt in the China market. Should they set up a joint venture (JV) with one or more local partners, or should they operate in the market alone through a wholly foreign-owned enterprise (WFOE)? This question is critical because the ownership approach that a company chooses can have a significant impact on the success (or failure) of its operations in China, affecting its risks, its revenue and profit potential (and the sharing of these in the case of a JV), and the degree of its management control.

Main contents:

·Historical Context

·Joint Ventures: Mixed Performance

·Trending toward WFOEs

·Setting the Strategic Agenda

·Regulatory Environment

·Companies' Capabilities in China

·Implications