If you want to expand your business in China, there are three main types of business formations you can select. The commonest types of business formations include representative office (RO), wholly foreign owned enterprise (WFOE), and a joint venture (JV).
The most preferred type of formation is a WFOE because it allows you to have 100% shareholding in a business. However, you need to be prepared to start from scratch and grow your business, which is never easy.
Again, a representative office (RO) might not be desirable because it is only required to represent the parent company in non-business based deals, such as carrying market research. This is why you should consider a joint venture when expanding to China.
Benefits of Using Joint Ventures in China
A joint venture (JV) in China is a business formation that requires you to form a limited liability company with a Chinese partner. In this type of business formation, the Chinese business partner is required to have controlling shareholding on the company. Here are the benefits of using a joint venture.
- You need less time to study the Chinese market.
- You can easily start and grow the business rapidly.
- You can use Chinese business partner’s networks to growinstead of building your own.
How to Select a Good Business Partner
While the benefits of using a joint venture (JV) are clear, we must indicate that selecting a good business partner can be a serious challenge. To help you identify a great business partner for a joint venture, here are some useful tips to guide you:
- Start by Establishing a Representative Office
As we have mentioned, a representative office (RO) is one of the common business formations that you can select in China. Because it is not allowed to run business deals, it is a great option to scout the Chinese market for a potential partner.
- Use Referrals
Another method of identifying a great partner is using referrals. So, reach other enterprises that have already entered the Chinese market and ask them for referrals. You could also use your consulate to search for potential partners who are committed to business success.
- Use an Agency
A simpler yet highly effective method of identifying a good partner for a joint venture in China is using an agency. Agencies are expert organizations that are allowed in law to help companies register businesses in China. The good thing with agencies is that they have been in the Chinese market and have successfully helped other businesses entering China. However, it is still important to carry due diligence before entering into a contract with a partner suggested by an agency.
When you decide to expand your business to China, using a joint venture allows you to grow rapidly into the new market. Although it comes with some limitations because you can only be a minor shareholder in a business, it is easier to achieve your dream of getting into the Chinese and Asian market.
Using the tips we have highlighted above, you can identify a great partner who you can grow together and conquer the Chinese market and beyond.