China: The Pluses And Minuses Of Joint Ventures

Joint ventures are the most widely used form of foreign business in China, according to James Shen, president of Wicon International, and most successful multinational drug companies have or are setting up local manufacturing operations as a jv.

Solely foreign-owned subsidiaries are newly-allowed and rare, he has told a US symposium sponsored by the International Institute for Learning (Marketletter March 13). acquisition of a Chinese company is theoretically possible, but so far, no domestic health care company has been acquired by a foreign firm. Both JVs and solely-owned companies are limited to manufacturing and not allowed in distribution, although they can market and distribute their own goods domestically and internationally.

The benefits of Sino-foreign JVs are that they: offer long-term profitability; qualify for government support and incentives; offer the image of a local product and have a better chance of getting onto reimbursement schemes which increases sales; allow production costs to be lowered for more competitive prices; permit the use of the Chinese partner's experience, connections and distribution system and possibly facilities; and build a corporate image.