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Is a Chinese firm a good JV partner?

A Fin24 user wants to know if it’s a good move to have dealings with a Chinese compnay. He writes:

We are a start-up fencing company. We do have skilful personnel who have always done domestic fencing for local residents at lower rates. I then advised them to set up a company and go bigger.

So far, we have not received any work but we have priced a certain governmental department and we await their response.

We have a website and we recently received an email from a supplier based in China. They are actually inviting us to buy their goods.

I do not know anything about this supplier but if they really are manufacturing a good fence that we do not have in SA, I think there is a good business opportunity here.

However, I do not think importing their goods is good for our economy.

My vision is that if we go into a joint venture with them and open a manufacturing plant in SA, that will create jobs.

The problem is, I am not sure how to go about selling this idea to them. I am optimistic about this given the fact that Chinese are willing to invest in our continent.

If I do successfully convince them to join us, is there any way for us to get capital of our own just to make sure we don't get swallowed by them?

MindPilot’s Bertie du Plessis responds:

Remember the first rule of business: cashflow!  You cannot wait for a government contract to come through. Your people must keep on doing lower paid work to get the money flowing in.

Of course the Chinese would invite you to buy their goods; they are constantly scanning the internet to find new markets.

It is always a good opportunity to buy at lower prices, but you must qualify suppliers; otherwise you have no guarantee that deposits will be honoured.

How are you going to test the quality of their products? Large organisations visit their suppliers to see for themselves. Won't such a trip erase all the cost advantages of dealing with a cheap supplier?

You won't be able to sell the joint venture idea to the Chinese. They invest in raw materials and commodities. It's because their labour is so cheap that they have the cost advantage ; they will never willingly subject to South African labour laws and practices. 

That said, I saw Hisense established an assembly plant for TVs in Atlantis earlier this month. (Note assembly - not manufacturing.)

Despite what I said above, they do have to make commitments to invest as a show of goodwill for their extraction of raw materials and commodities.

I maintain that the chances are negligible that a joint venture will succeed.

 - Fin24

Share your experience of setting up a business or simply ask a question. Our business panel can put you on the right path.
 
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