JV: China Market Access – Tech Transfer to Partner = ?

Friday, April 20, 2007 0:04

a few years back while talking to a partner in the Big 4, I asked him how many of the JVs they had structured failed.

His answer… 75%


Need a moment for that to sink in? Well, 3 years ago I did.

However, after the stun wore off, I realized that of those 75%, there were a few most likely reasons why the JV would fail.
1) The parties did not get along
2) The parties did not see an economic benefit in the partnership
3) The JV was designed to fail once investment restrictions were lifted
4) One party sees more economic benefit on going out on their own

The most dangerous of the four, this last JV exit typically comes about when one party looks over the fence and begins seeing greener pastures on the other side. they believe that through the joint venture relationship, they have gained the skills or access needed to move on.. and so they do.

More often than not, it is when the Chinese partner takes that option that the international press comes in, and in the case of GM’s SAIC partnership, I am fairly confident that we are seeing the beginning of the end.

In recent weeks, I spoke to a former member of GM who had worked within the partnership, and there does not seem to be a large concern from the GM side that SAIC will be able to put up a strong product in the near future that will compete with the GM models.

However, as the article (GM’s Chinese Partner Looms as a New Rival) in today’s WSJ shows, cars do not necessarily need to compete head to head if they are 7000 – 10,000 USD cheaper.

SAIC through its partnerships with VW and GM have been playing both sides of the field for 10 years, and have learned a lot from it. Through these arrangements, they have been able to absorb investment and technology, bring in cash flow needed to fund R&D, and poach managers from their partners that would help structure the company. In essence, they have grown very smart.. very quickly.. and now they are beginning to leverage these conditions to achieve what has also been the goal of the Chinese government… Chinese branded car exports that compete on a global level.

One of the scariest paragraph’s for me came when David Lindley spoke of SAIC purchasing of blueprints and producing the Rover 75 model

We’ve made very rapid progress,” says David Lindley, a Rover veteran who heads engineering for Shanghai Automotive’s own-brand technical center. Mr. Lindley points to the narrow space between the hood and the top of the front fender. “The old Rover had a big gap here,” he says. “The cars made by SAIC are much better.” Why? “A lot of the engineers have come from the joint ventures.”

The next few years are bound to be very interesting as SAIC begins to unveil its yearly portfolio. The first few are sure to be lackluster products, but then again so were Kia’s.

However, with technology and people moving so freely between the partners (usually in the direction of SAIC), it is only a matter of time before someone decides the benefits of partnership are no longer enough.

Entering a JV where a large amount of technology will be transferred should be avoided at all costs if given the option. Microsoft recently announced that they will by 50/50 with Lenovo on a new R&D center, and while I see the logic in the approach, I really hope in 10 years my computer is not crashing from a conflict of my Lenovo laptop running Microvo O/S.

Accessing the market is not about partners anymore, it is about product. If you are a small player with limited resources, a partner may serve you well, but for large companies who are going to invest 300 million USD into a partnership, it is simply short term gain for long term pain.

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3 Responses to “JV: China Market Access – Tech Transfer to Partner = ?”

  1. CIT2 News Wire » Blog Archive » JV: China Market Access - Tech Transfer to Partner = ? says:

    April 20th, 2007 at 1:12 am

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  2. CIT2 News Wire » Blog Archive » JV: China Market Access Tech Transfer to… says:

    April 20th, 2007 at 5:14 am

    […] read full story […]