Sino-Foreign partnerships -- be they formal joint ventures, long term contracts or informal best-efforts sales agreements -- aren’t necessarily bad solutions for western businesses aiming to sell into China, but they can lead to messes that can overwhelm your company if you are inexperienced, not knowledgeable or unprepared.

The advantage of a partnership
Though it now becomes much easier for foreign investors to set up Wholly Foreign Owned Enterprises (WFOEs) in China which are fully protected by Chinese laws, it’s still preferable to strike a partnership when you plan to sell in China.

Foreigners have traditionally come to China mainly for OEM or to buy finished goods, and they got much valuable experience about how to handle Chinese suppliers. But catering to Chinese customers, especially end customers, are worlds apart from Chinese supplier management. All the successful foreign brands attained their status through strong localization. You can not readily attract and hold your local customers by merely hiring translators and Asian middle managers. Your potential partners’ distribution networks, local streetwiseness and know-how, and many other local resources can open many doors for you or save you from sinking in -- if you select out the right ones.

Avoid incestuous relationship
Overseas Chinese, Singaporeans and Hong Kong citizens were used to be perceived as the perfect gap-filler at cross-cultural deal makings. But they now seem lost some of their appeal. After all, they are brought up in western ways of thinking and only yellow at face-value. One exception is Taiwanese who were indoctrinated under traditional Chinese pedagogic system but also were heavily influenced by western values and business practices. The colossal success of KFC in China attested to its “Taiwan gang” leadership’s deep knowledge of local market.

A good many westerners end up in incestuous relationships with partners who have more in common with them than with their Chinese target market. Choose the one works, not the one you like. Keep in mind that you are looking for complementary skills and capabilities -- not similarities.

Seek out the right balance
Before diving into a deal, cautiously weighing your potential partners’ size and capability is far more than necessary. If your partners are too big or powerful, your deal won’t matter much to them and they are hard to negotiate with. If your partners are too small or weak, they may not have sufficient resources to fulfill all of your requirements though the negotiating table will lean to your side. As game theory demonstrates, if the power level of the weaker partner diminishes below certain reasonable line the relationship will be distorted and lead to less economic outcomes.

If a prospective partner can only satisfy a fraction of your needs and you have to find additional resources, you would be best off hammering out a non-exclusive deal.

See through the over-promise
Many times a period after signing a contract, western investors were awakened to the scary fact that their Chinese partners were way from capable of delivering what they formerly promised. It is sad that some Chinese companies have a tendency to over-promise before the deal is closed, only confront you later with new demands for more resources, time or cash in order to fullfill what they promised earlier.

Find a partner who is not all of honeyed words and wonderful commitments, leave a certain margin and flexibility in the deal, and prepare in advance for any lag, delay or ineffectiveness.