Kerry Hotel 1 Guanghua Road Chaoyang District Beijing, China Dennis Unkovic. All Rights Reserved

Transcription

1 THE SECRETS OF SUCCESSFUL CHINA INVESTORS MONDAY, JANUARY 11, 2016 Kerry Hotel 1 Guanghua Road Chaoyang District Beijing, China 2016 Dennis Unkovic. All Rights Reserved

2 AMERICAN BUSINESSES AND THE NEW REALITIES OF CHINA Presented By: Dennis Unkovic Meritas Law Firms Worldwide Board Chairman Partner, Meyer Unkovic & Scott, LLP 2016 Dennis Unkovic. All Rights Reserved

3 OVERVIEW When American companies consider making an investment in China, many mistakenly believe that their traditional business methods will apply overseas. However, the typical "American" way of doing business will not work in China. China has its own unique legal system and ways of conducting business, and sophisticated foreign investors must recognize these differences and adapt their usual approaches if they expect their investments to be successful.

4 OVERVIEW Learning the myriad of ways China operates differently than America in 2016 is a lengthy and complex process. However, there are five major factors which reflect the new realities in China which give foreign investors a strong base from which to begin.

5 FIVE KEY FACTORS Factor One: Factor Two: TRANSPARENCY CONTRACT ENFORCEABILITY Factor Three: ACQUIRING EXISTING BUSINESSES VS. GREENFIELD INVESTMENTS Factor Four: Factor Five: ANTI-CORRUPTION HIRING TOP EXECUTIVES

6 FA C TO R ONE: T R A N S PA R E N C Y

7 TRANSPARENCY Even in 2016, China lacks updated company databases for foreign investors to use; current information on any Chinese business is extremely hard to find There is a general unavailability in China of accurate and current data on the Chinese from public or private sources China does not today have strong culture of stock market and contract transparency which makes planning and decisions more difficult for investors

8 TRANSPARENCY Even successful Chinese multinationals, particularly financial institutions, resist corporate disclosure Therefore, it takes extensive and long term relationship-building with Chinese companies before they are forthcoming about their goals and limitations

9 FA C TO R TWO: C O N T R A C T E N F O R C E A B I L I T Y

10 CONTRACT ENFORCEABILITY Foreign parties cannot easily navigate and deal with Chinese courts when disputes arise In the same way, Chinese parties are put off by complex American laws and as a result reject U.S. jurisdiction in contracts From past experience, it is shown that Chinese courts are reluctant to enforce U.S. court judgments against a Chinese party Even arbitration awards are difficult to enforce

11 CONTRACT ENFORCEABILITY If an in-bound investment is governed by Chinese law, all applicable contracts should be drafted and interpreted in the Chinese language in order to encourage Chinese enforcement. Careful drafting of business and legal terms in contracts is critical, as well as fully understanding Chinese legal processes is necessary before finalizing a deal.

12 FA C TO R THREE: A C Q U I R I N G E X I S T I N G B U S I N E S S E S V S. G R E E N F I E L D I N V E S T M E N T S

13 ACQUIRING EXISTING BUSINESSES VS. GREENFIELD INVESTMENTS In America, the acquisition of an existing business is a reliable path to expansion As stated previously, lack of transparency in China makes due diligence in Chinese acquisitions a serious challenge Manufacturing in China can be subcontracted with appropriate research to identify the right firm However, marketing and sales are best achieved under WOFE ownership from the outset of the investment

14 FA C TO R FOUR: A N T I - C O R R U P T I O N

15 ANTI-CORRUPTION Xi Jinping since assuming power has launched numerous anti-corruption initiatives targeting both high and lowlevel Chinese officials The ultimate aim on anti-corporation initiatives is to restore domestic and foreign confidence in China One good result for foreign investors is fewer hidden costs in conducting Chinese business New ventures no longer need an inside man to respond to inappropriate demands from government officials.

16 FA C TO R F I V E : H I R I N G TO P E X E C U T I V E S

17 HIRING TOP EXECUTIVES Hiring top executives is much different in China than in America China s corporate executives typically stay with a company for a short term (usually less than three years) The only exception is if the company is part of a family-owned enterprise Most American executives plan for a long term tenure with their company, but this is not true in China.

18 HIRING TOP EXECUTIVES Faster and more frequent executive searches are necessary because of high turnover in China Chinese executives are chosen for day-to-day tactical management skill, not long-term strategic vision One approach is to take what might be one senior role in an American company and split it among multiple Chinese executives with different skill sets (as each component needs to be replaceable).

19 CONCLUSION Before investing, in China, American companies need to understand and embrace how different it is doing business in China and then adapt to the new realities. There are still many opportunities in China but careful planning and implementation is essential.

20 T H A N K YO U Dennis Unkovic, Board Chairman Meritas Law Firms Worldwide c/o Meyer, Unkovic & Scott LLP 535 Smithfield Street; Suite 1300 Pittsburgh, Pennsylvania U.S.A. Tel: +1 (412) du@muslaw.com.