ISSUE 23: Joint Ventures and Washing Machines
JVs are no linear - they slosh back and forth ... a lot
Please note all content is personal opinion only and does not reflect the opinion of anyone – except Alan in this case as this is his theory.
2025 predictions
Lawyers always bang on about being busy in late December as people manically and bravely endeavour to close the deal before year end. This is yet another reason why people do not like lawyers – they do exaggerate. At least for me December 15 to January 15 is the quietest time of the year. Normally if there is a deadline it will either be solved by around December 21 or people will just say … well there is always next year. At least in the last 30 years I only once had to work on something urgent at Christmas … and even in that case I dimly recall that I may have been one of the forces pushing matters as I was alone in Shanghai and bored.
Being quiet does give one the opportunity to think about the year ahead. In relation to China-international my predictions are:
No great improvement in Chinese economy – will likely continue on the current trajectory of getting slightly better but not falling off a cliff.
USA-China relationship will be complicated – it is just too important and complex to fall apart – some tariffs likely (but limited due to inflation concerns) and USA will also cast an eye on Chinese manufacturers active in third jurisdictions that export to the USA (i.e. Vietnam, Cambodia, Mexico etc.). However, guess is that President Trump will prefer co-existence to massive disruption (despite appointing China hawks like Marco Rubio). There will be “cold war” like activity in relation to cutting edge technology but this is much narrower than the media claims.
Legal Market – I know most people are greatly concerned about the welfare of lawyers ... especially corporate lawyers. In this regard I sadly predict the legal market will continue to be overly competitive and lawyers in China will be … sad. If you see one hug them.
Creating a JV is Messy
I am also predicting an uptick in JVs in China – due to geopolitics and business uncertainty but mostly because I have a book out on JVs. Available at all good bookstores –Amazon
The first insight of the book is that while the world loves a good, clean, linear story life is chaotic and messy. The classic description in most case studies is the plucky international company sees an opportunity/threat, finds a partner, negotiates terms, and then signs on the dotted line.
It is not like that in real life – the JV process is more like throwing dirty (often with skid marks) laundry into a washing machine: messy, repetitive, and often something goes missing while it is happening and no-one knows how or where it went.
Question 1: Is a JV the Right Solution for me? For my partner?
JVs are invariably a solution to a problem - an opportunity that could not be passed up? A problem too complex to tackle alone? A way to enter a new market? Method to gain access to intellectual property? Reduce risk by shared funding?
The question of whether a JV is the right solution has two parts. First is a JV the right fit for you? Second, what is the motivation of your partner? Are they equally invested?
Invariably the partner initiating a JV believes teaming up is better than going it alone but sometimes they find out they were happier alone. Many JVs fall apart because they were doomed to fail from the start because no one understood the motivations.
Question 2: How to Find the Right Partner?
Finding the right partner is a lot like dating. You want someone who checks your boxes—compatible goals, shared values, complementary strengths - but even if you find "The One," there’s no guarantee they’ll be interested.
Initial meetings are often shallow – people often rely on gut feelings rather than rigorous vetting. It is important to really understand the partner and their motivations.
Question 3: How to Approach the Negotiation Dance?
The JV courtship phase is marked by non-binding agreements: Memorandums of Understanding (MOUs), Letters of Intent (LOIs), or sometimes just meeting minutes. These documents outline the basics, like scope, ownership stakes, and governance structures. They’re high-level agreements that signal intent but aren’t legally binding. While these agreements sound simple enough (and are necessary) they often bog down the process. Lawyers, advisors, and senior executives get involved. Each one well-meaningly brings fresh perspectives to show their value – in most cases they are of limited help but greatly complicate matters. The ideal preliminary document is a term sheet which integrates a business plan. The business plan is more than just a roadmap - it’s a litmus test for alignment between the prospective partners. The two sides must agree on finances, governance, and operational matters – if no agreement then go back to looking for a partner who you can align with. A poorly aligned business plan is like a badly loaded washing machine—it wobbles and risks breaking down.
Question 4: What kind of JV Contract?
The shift from informal term sheets to the formal JV Contract is a pivotal moment in the JV in part because the difficult issues need to be resolved (although sometimes the parties skirt around this) but much more importantly, this is the point when the business teams hand the reins to the legal counsel. The lawyer should document the discussions and flesh out the specifics of the transaction. If you have the wrong lawyer working through the contract the project will move at the pace of a tortoise… on vacation… carrying heavy luggage … with a sore leg. The lawyer’s primary responsibility is to draft a document that is legally binding and covers the agreement between the parties – not to amass billable hours.
Regardless of the lawyer involved, JV negotiations are gruelling - tedious negotiation sessions where every clause is scrutinized, often in a room full of people with conflicting opinions and some of whom are asleep.
Occasionally, the process moves to “small table” discussions—intimate, high-stakes meetings where thorny issues are hashed out. These sessions can save the deal or create internal friction, especially in large, hierarchical companies where everyone feels they have a say.
If you have everyone in the room talking or a lawyer on either side who is inexperienced or impractical then expect sluggish progress, broken trust, and a lot of unnecessary drama. Also, a greater risk of project derailing or major renegotiations.
Question 5: How to Deal with Approvals
As the JVC nears completion, the process enters its most delicate phase: approval. This isn’t just about getting buy-in from senior management; it’s often a tug-of-war between internal politics and external pressures. One party might feel the other is gaining too much leverage, leading to last-minute renegotiations. Time is of the essence. Delays result in more people getting involved and this is never helpful.
Key Lessons from the JV Washing Machine
Trust Is Everything: From partner selection to negotiation, trust (or the lack of it) dictates the process. If one side feels uneasy or has major trust issues then it’s better to walk away early.
Business Plans Are Make-or-Break: They’re not just formalities—they’re tools to align expectations and uncover hidden tensions. Skimp here, and you’ll pay for it later.
Prepare for Setbacks: Be ready for the process to thrash back and forth, sometimes to the point of frustration.
Pick the Right Team: Negotiation teams and legal counsel can make or break a deal. Competence, experience, and alignment are crucial.
Keep the Approvers Engaged: Surprises at the approval stage can derail months of work. Regular updates and internal alignment are essential.
Have a Plan B: Given the low success rate, always hedge your bets. A parallel strategy adds credibility and ensures you’re not left empty-handed if the JV falls apart.
Next Newsletter
In the next article we will consider Spring Festival (is it a good time to visit China) as well as continuing our joint venture journey with a short yet boring article on the importance of following a process when doing a JV. Hope you all have a good start to the year and have slowly started to become productive and not continue to push things off like me (I now believe the year will only truly start after Chinese New Year is over).
cheers