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Solve the Chinese equation of foreign logistics joint venture

solve the Chinese equation of foreign logistics joint venture with the way of foreigners. From 2005, some powerful foreign logistics enterprises will enter the Chinese market in the form of wholly-owned subsidiaries

in the past, foreign logistics mostly entered China in the form of joint ventures. Will they continue to do so in the future? What new changes have they made in their cooperation standards with local logistics

sole proprietorship? Joint venture

from single 1 continuous extrusion of thermoplastic film to the production of honeycomb structure in 2004, a core problem faced by foreign logistics enterprises is "what kind of operation mode should be adopted": is it to establish a wholly-owned subsidiary or a joint venture? According to the agreement on China's accession to the WTO: by the end of 2005, China should amend relevant laws and regulations to remove restrictions on the ownership of foreign-invested logistics enterprises. Therefore, whether to establish a joint venture will become a commercial decision at that time, regardless of regulatory restrictions

today, let's discuss the thinking of choosing the Chinese partner of the logistics joint venture. Understanding the thinking mode of foreign logistics enterprises and determining the process of evaluating foreign partners may help you provide some guidance when establishing cooperative relations with foreign enterprises

it should be emphasized that some foreign logistics enterprises have decided to adopt the form of wholly-owned subsidiaries. K&n (Kuehne & Nagel) of Switzerland established its market position through two ways: first, it established representative offices in 18 coastal cities in China; The second is to use the cross shareholding relationship with SembCorp logistics to strengthen the penetration in the Chinese market through St anda. Through the CEPA cooperation between the mainland and Hong Kong, k&n has obtained the license to establish a wholly-owned subsidiary before the full opening at the end of 2005, and obtained the class a license from the Ministry of transport in 2004, which was only 14 parts per million of the size of carbon fiber. Based on the two logistics centers in Baoshan and Waigaoqiao in Shanghai, k&n also plans to open new offices and distribution centers in the mainland such as Wuhan, Chengdu and Changchun. This shows that k&n will invest a lot to achieve the goal of rapidly expanding market coverage and gaining competitive advantage

however, not all foreign logistics enterprises have enough experience or willingness to take risks to set up wholly-owned subsidiaries. Some enterprises prefer to find Chinese partners to establish joint ventures to enter the market faster and more succinctly. But finding, evaluating and negotiating with partners is a complex process anywhere in the world. In China, this process is particularly challenging due to the rapidly changing market and cultural differences between Chinese and foreign enterprises in seeking partners

what is the joint venture plan

when foreign logistics enterprises establish joint ventures in China, they usually hope that Chinese partners can bring the following advantages:

● enter the market more quickly on the whole

● relations with local and central governments

● network capabilities in China

● customer relations in China

● talents

similarly, foreign partners usually hope to make contributions in the following aspects, In order to complement Chinese Enterprises:

● integrated logistics solutions

● in-depth understanding of a specific industry field

● international network capabilities

● multinational customer relations

● management skills

who will work with foreign logistics

Mercer often helps find and evaluate Chinese partners at the request of some foreign enterprises. After screening a large number of Chinese enterprises, we will conduct a detailed evaluation of a few shortlisted enterprises. In the process of evaluating whether the shortlisted enterprises are suitable for establishing joint ventures with foreign parties, we mainly focus on the following five aspects

I. partner qualification

we usually adopt four standards:

organizational effectiveness: different Chinese logistics enterprises have different organizational structures. Some enterprises adopt decentralized structure, and subsidiaries in various regions occupy a dominant position; While the headquarters of some other enterprises implement more centralized control over key customer relations, solution design and service pricing. These enterprises can have clear control over the network and are more convenient to provide integrated solutions

management team quality: in some Chinese enterprises, management power is highly centralized and controlled by one leader; In other enterprises, there are broader and deeper management models. We are also very concerned about the educational background of all important managers in Chinese enterprises

market reputation: we understand the situation through shippers and industry experts, and compare the candidate cooperative enterprises with other Chinese logistics enterprises from the perspective of service quality and industrial ethics standards

financial advantage: This is very important not only from the perspective of initial investment in the joint venture, but also from the perspective of continuous investment in the joint venture in the process of long-term cooperation to ensure business growth. If the cooperative enterprise has a parent company, we also need to pay close attention to the advantages of its parent company and its commitments to its subsidiaries

second, network capability

we divide this standard into the following aspects:

breadth and depth of products and services/network coverage: for foreign logistics enterprises, it is very important to obtain the network of partners in the domestic market. It is difficult for foreign logistics enterprises entering the Chinese market to establish domestic networks by themselves, especially in the mainland of China. Therefore, we will spend a lot of time visiting the partner's domestic network equipment to confirm its network coverage

equipment/management quality: by visiting representative equipment in the domestic network, such as storage equipment and regional distribution center (RDC), we will evaluate the service quality and the management and operation of the equipment

quality of supplier management: we will understand that the popularity of third-party goods in China has absorbed the advantages of the same type of experimental machines at home and abroad, and the industry's experience in managing transportation and storage service providers is crucial for the future development of the joint venture

III. relations

foreign enterprises hope that Chinese partners can bring government relations and customer relations

government relations: foreign enterprises attach great importance to the relationship between Chinese partners and the central and local governments, not only because it can promote the initial approval of the joint venture project by the government, but also because government relations can ensure that the joint venture company can continue to obtain the necessary operating licenses in the future, especially in transportation

breadth and depth of customer network: although foreign enterprises may have a good relationship with multinational enterprise shippers, it still pays great attention to the local customer relationship that Chinese partners can bring. This can also help the joint venture project obtain more income at the initial stage. However, due to pricing and relationship considerations, it is challenging to transfer the customer relationship of Chinese enterprises to joint ventures

customer coverage in a certain industry: China is facing a trend towards industry specialization. The advantages of Chinese partners in specific industries such as high-tech, automotive or consumer products are of great value

IV. strategic alignment

if there is a lack of strategic consistency between the two sides, it will be difficult to establish a joint venture. This standard can be summarized in the following three aspects:

vision and commitment: whether the Chinese side has the same vision with the foreign side in establishing a joint venture, and whether the two sides are truly committed to full cooperation

strategic consistency of third-party logistics: do Chinese partners have common strategic objectives with foreign enterprises in terms of customer selection, value orientation and growth path

views on cooperative relations: does China have a long-term vision for cooperative relations? Is the partnership equal? Is this a win-win partnership, or do Chinese enterprises want to use this opportunity to learn from foreign enterprises and operate independently

v. possibility of reaching an agreement

if Chinese enterprises cannot highly meet this standard, then other standards are tantamount to empty talk. The question is, "can the deal be reached?"

disclosure of share structure: This is a difficult problem that needs to be clarified at an early stage. Powerful Chinese companies often find it difficult to give up majority ownership

publicity of operation control: at the operational level, both parties should clarify which party should hold some important positions, such as general manager and chief financial officer, in the early stage of cooperation? The determination of these positions can reflect the shareholding, but there can be exceptions

flexibility of business scope and commitment to exclusivity: sometimes, some powerful Chinese enterprises may be required to put business in a certain field into the joint venture, but soon some friends questioned and promised not to continue to develop business in this field outside the joint venture. This means that in order to obtain long-term benefits, we have to sacrifice certain short-term benefits

measure barbarians with the way of barbarians

to sum up, from 2005, some powerful foreign logistics enterprises will enter the Chinese market in the form of wholly-owned subsidiaries; Although policies and regulations will be relaxed, some enterprises will also seek Chinese partners to help them enter the market quickly and efficiently

we can see that these foreign enterprises wishing to establish joint ventures have realized the importance of making full preparations and conducting a comprehensive evaluation of Chinese candidate partners. When Chinese enterprises need to evaluate foreign partners and establish joint ventures, they can use the same analytical skills to establish more successful joint ventures, so that both sides can obtain benefits. (end)

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