Joint Ventures in China: The good might outweigh the bad, the ugly

For American businesses, the idea of a joint venture in China can be met with skepticism, but that shouldn’t be the case.

In fact, Gerard Baynham and Peregrine Worsthorne purport that more U.S.-China joint ventures could be quite beneficial in bolstering China’s middle class and closing the budget deficit for the U.S. government.

In their article U.S.-China joint ventures could be key to closing federal budget deficit, Baynham and Worsthorne discuss briefly the history of U.S.-China business and go on to give examples of successful joint ventures.

We’ll have our own example of a burgeoning U.S.-China joint venture at our April 18 China Executive Round Table. Learn more by clicking here.

They use a quote from 1860 by Chinese scholar Feng Guifen: “What we then have to learn from the [foreigners] is only one [sic] thing, solid ships and effective guns … the intelligence and wisdom of the Chinese are necessarily superior to those of the various [foreigners].”

The message was as clear then as it was now: China needs innovation and to obtain it, they seek joint ventures. Of course, many may think to issues of losing intellectual property. Many foreign businesses can go on about ugly anecdotes to this topic. But if proper trust and arrangements are made, these risks can be mitigated or completely eradicated. Our Diamond member Dezan Shira has a great suite of information on this.

Baynham and Worsthorne add to their story with the example of IBM and Lenovo’s joint venture success:

This was a mutually beneficial transaction as indicated by the performance of their stock prices relative to the appreciation of their respective markets. Obviously, there is noise in such a broad indicator, but it is worth quick consideration. From November 1, 2004, pre-deal announcement, to today, on a basis adjusted for dividends and splits, IBM’s stock price rose roughly 50 percent more than the broader U.S. market as measured by the S&P 500. Similarly, but more pronounced, Lenovo’s stock price rose roughly two and a half times more than the broader Chinese market as measured by the FTSE China 25 Index.

As evidenced, if done right, U.S.-China joint ventures can be extremely beneficial for both parties and both countries.

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