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1、Chapter 10,International Investment Negotiations,Introduction,The creation of a joint venture is probably among the most widespread and complex negotiations that exists nowadays, and paradoxically one of the least studied or understood. Two companies, one foreign and one domestic, endeavor to build
2、a common project that integrates multiple dimensions: economic and human, organizational and cultural.,This diversity makes it a typical form of joint venture negotiation. However, this chapter mainly deals with the fundamental articles of two types of joint ventures negotiation (the contractual joi
3、nt venture negotiation and the equity joint venture negotiation). When you are clear about the characteristics of those types of investment, then youll know what you should do in the negotiation.,In this chapter, you will learn: joint ventures; the contractual joint venture negotiation; the equity j
4、oint venture negotiation.,10.1 Joint ventures,10.1.1 Types of joint ventures Joint ventures first appeared in China in 1979, only six in the whole country. By 1 January 1998, 292 345 had been officially approved. Joint venture activity produces one quarter of Chinas total imports and exports. The ma
5、in areas in which joint ventures have developed are light industry, electronics, and textiles.,Two types of joint ventures now operate in the Chinese market: the contractual joint venture (CJV) (the contractual joint venture is sometimes also referred to as “cooperative joint venture” and “cooperati
6、ve business enterprises”) and the equity joint venture (EJV)(it is also referred to as “joint venture”).,The contractual joint venture (CJV) is a limited liability entity or business partnership in which both the Chinese and the foreign parties contribute cash, buildings, equipment, materials, indus
7、trial and intellectual property rights, land rights, labor, resources and services. Neither party is forced to assign a monetary value to its investment contribution, and no maximum or minimum investment is required.,The contractual joint venture provides great flexibility regarding structure of the
8、 assets, organization, and management. It can be quickly developed and the foreign investor can recover the registered capital during the life of the contract. The rights, responsibilities and obligations of each side are prescribed in the form of a contract signed through discussions and negotiatio
9、ns.,The other type of joint venture, the equity joint venture (EJV), is a limited liability corporation jointly funded and operated by each party. Risks, profits, and assets remaining upon expiration of the venture are shared according to the percentage of equity held by each party. To start an equi
10、ty joint venture, the parties must follow a complicated process to obtain State Planning Commission approval after a feasibility study.,Then the parties negotiate the contract itself and submit the agreement to the Ministry of Foreign Economic Relations and Trade for approval. Each partys investment
11、 contribution can take the form of cash, buildings, equipment, materials, or industrial and intellectual property rights, as well as land use rights. Labor is not a permissible contribution.,The foreign party must contribute a minimum 25% of the equity. Preferential tax treatment is given for some y
12、ears after the joint venture starts making a profit.,10.1.2 The procedure of joint venture negotiations,Setting up a joint venture is a long and complicated process that can be divided into four stages: preliminary investigation, prenegotiation, negotiation, and implementation.,The preliminary inves
13、tigation covers the initial approach to the market. The aims are to become more familiar with market characteristics, to assess market potential , to select an area, to develop a network of contacts with companies, public administration, and influential people, and then to find a possible partner. T
14、his exploratory stage is mainly a phase for collecting information before acting.,The prenegotiation phase includes making the first contacts with the company that could be a partner, assessing the compatibility of the two parties objectives, ascertaining if they have common views on market strategy
15、, conducting the feasibility study, and signing a letter of intent.,Such a document is not legally binding, but instead aims at showing the commitment of each party to carry on with the process as far as possible. As a consequence, the parties normally stop any parallel negotiation with other potent
16、ial partners.,When the feasibility study has been approved by the appropriate authorities, the full negotiation can take place. At this stage the parties discuss everything necessary to set up and operate the future joint venture, such as the rights and obligations of each party, as well as the respective contribution of capital, technology, expertise, and other resources.,The negotiation also addresses issues concerning the management of the joint venture, its decisionma
