Partners, Partners, Partners - Business Trap in China

There is a survey of sort saying that the number one reason for failure in doing business in China is pick the wrong partners. How true!

This is exactly what happened to me. My friend and I had a very good business idea and model, and we wanted to do the business in by ourselves I phoned up some government body to make enquries about the government regulations and the possibility of setting up a company of whole ownership by two of us. I could never get any clear answer on that. Instead I was recommended some partner that has close relationship with the government body. Things evolved and at the end, we hooked up with this recommened partner and his friend.

The Dismal Result

The result? Our business idea worked out and proved to be a success. Yet, we have sold our shares to the local partners and left China. Because we were very frustrated with our local partners’ behaviours, their lies and their competences, among other factors.

There are many details I don’t want to go into, but suffice it to say, if the business had been done without local partners, or with other better partners, the story would have been very different.

Connections and Influence?

They told you many good things about themselves when you first met them, such as good connections and influence - attributes supposedly esential in doing business in China. “My boss has this connection with who and who…” blablabla. And it seemed to us that they could do anything, accomplish anything - from setting up a company, finding a location, to recruiting staff. They are superman.

Well well… it took them four months to set up a joint venture company (they told us before it would take a maximum one month’s time); they gave us one potential candidate for the teaching posts (we were into a training business), though previously they said they had close connections with the education department and could get us at least 400 applicants. “The education department is just upstairs. We know them.”They said. What a joke! 

Another Lie

The lies are so many that I can hardly remember all of them. Here’s another one. They said they had arranged a phone company to come and install a phone in the office and the company had done the line linkage outside the office. A big lie! Because I later met the staff of the phone company who told me there was no such work as line linkage out side the office. They just started working on the phone line. Our partner lied to cover up the fact that they hadn’t contacted the phone company sooner and they lied to impress us that they had done something.

Another Lie 

Here’s another lie. They said the tax authority had contacted them to ask for a submission of the tax detail of the company. “We’d better settle the accounts,” our partern said. He had paid out of his pocket some expenses for the company so he rushed us to settle the account in order that he could have his money back. So the tax authority had contacted the company right? No, not true! Because our company was not properly registered yet - again, their “wonderful” work. When the company was not properly registered, it is impossible that the company would be contacted by the tax authority. And we didn’t find out our company was not properly registered unitl we were so frustrated and had decided to leave the company. 

On the verge of signing share transferral agreement, we were told that our lovely local partners hadn’t gone to the authority to properly certify we were shareholders of the company and as long as that was not done, the company was only temporarily established, not properly established. If it is not properly established, the issue of tax liability does not exist.

Story Never Ends…

Well, up to this point you may have noticed that we also had problems with signing the share transferrable agreements. Stories evolved on a daily basis… Doing business in China is surely not for those faint-hearted.

More of the story later in this space…