China joint venture lawyersHuge swaths of China’s manufacturing sector are being thrown for a loop. Large numbers of foreign buyers of Chinese manufactured product have ceased or reduced their manufacturing in China and even larger numbers are looking to do so. Chinese manufacturers are rightly concerned and our manufacturing lawyers are seeing the results of that like never before. See e.g. Moving Your Manufacturing Out of China: The Initial Decisions. For instance, we are getting massive numbers of emails regarding bad quality product and far too often there is little we as lawyers can do to help because the foreign buyer does not have a China-centric manufacturing contract with its China supplier.

We are also getting at least triple the number of foreign companies looking to do joint venture deals with their Chinese manufacturer.  The high level thinking on these joint ventures usually goes as follows:

  1. China product risks and costs are rising due to tariffs and duties and working with the factory will mean both sides share in these increased risks and costs.  See Has Sourcing Product From China Become TOO Risky?
  2. The way for both the foreign buyer and its Chinese manufacturer to reduce risks and to increase sales and profits is to have the Chinese manufacturer sell the foreign buyer’s products in China.

The above makes sense, but there are usually better and safer ways than a joint venture for achieving these things.

As we so often write, joint ventures tend to favor the Chinese JV partner and they rarely make sense for the foreign company. See China Joint Ventures, Part 4, in which we explain why our China joint venture lawyers both love them and hate them. In addition to the various problems inherent in any China joint venture, joint ventures with your Chinese supplier have their own special issues/problems.

Chinese factories usually know very little about how to market products (even their own) domestically and when they are your factory and your joint venture partner, it can be very difficult for you to monitor the joint venture’s sales and profits. This article I wrote for the Wall Street Journal describes many of these problems. It usually does noot make sense for a foreign company to become a co-owner with its Chinese factory of a Chinese entity before it knows how good that factory will be at selling the foreign company’s product in China. The better way to handle these relationships is usually with a China-centric distribution agreement that sets forth sales goals and allows you to walk away if your Chinese factory does not hit those goals. It usually makes sense to have a trademark licensing agreement with your distributor as well.

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.