Making Partnerships Work

Booz Allen Hamilton --- Many foreign companies first begin doing business in China through partnership, without having overall management control. These partnerships can take the form of either joint ventures, with shareholdings that are more or less equally balanced, or minority stakes, in which the foreign company's holdings can be as little as 5 percent of the Chinese company's equity. Some foreign companies choose this route to combine their own global capabilities with the local knowledge, distribution systems, and management teams of their Chinese partners. Others do so because the regulatory environment provides no alternative; for example, no foreign company can own more than 33 percent of a Chinese securities company. There is often a strategic choice to be made between slower, organic expansion and working with a partner to build a national presence more rapidly at the cost a lower ownership stake. For example, banking regulations currently make organic expansion for foreign banks a slow, city-by-city process. While a partnership may allow for faster expansion, a foreign bank can own a maximum of only 20 percent of any Chinese bank.

Main contents:

·Determining Realistic Objectives-For the Present and the Future

·Focus Effort on Value Creation

·Conclusion