There are many ways to enter the Chinese market, including the establishment of a representative office, outsourcing production, founding a new company or setting up a production site. An often overlooked way for small and medium-sized enterprises (SMEs) to establish or expand their business in China is through investment in an existing Chinese company. The term investment is used here in a broad sense, including cooperation with a Chinese partner – in either a cooperative joint venture (CJV) or an equity joint venture (EJV) –, as well as the acquisition of a Chinese company in the form of a merger or acquisition (M&A).
Since 1993, China has had one of the highest growth rates of foreign investment in the world. However, not all investments have brought the success the investors were looking for. Only those equipped with sufficient knowledge of the market, a keen business sense and a drop of luck can expect to be successful in China.
Although developing quickly, the M&A market in China is not yet comparable to established western markets. Because of this, it is extremely important to estimate risks carefully and prepare every step with the necessary due diligence. However, because of the many cultural and structural differences in the Chinese business environment, the process that needs to be employed to realistically assess the risks of cooperating with a Chinese partner differs markedly from the standard procedures used in many western countries. This guideline will point out these fundamental differences and outline ways to cope with them, ultimately helping SMEs to make informed decisions and identify the risks involved.