As background, one of my ventures is working with a UK-based software company to expand their markets. Recently we’ve been approached by a Hong Kong based consultancy intererested in partnering to expand into HK and mainland China. This wasn’t really sought out, and isn’t part of our current business plan (Asia was originally scheduled in the undetermined future).
I’m looking for input on what factors to worry about if we decide to consider this option. A few off the top of my head, would include:
Intellectual property protections
Collections in China (getting paid)
Extracting profits from China (getting money out of the country)
Are these valid things to consider? What other things, large and small, should we take into consideration? Any thoughts on those topics? Any experiences in this or similar areas?
Thanks! This is an exciting and at the same time intimidating prospect.
We’ve worked with a couple of China-based companies in the past, and the experiences were not good. They put on a good show, and expressed a strong desire to “team” with us, but (after our naïveness wore off) it became evident that they just wanted to steal our technology and written procedures. The episodes have left a bitter taste in our mouth.
Admittedly our experience was limited to only two companies. None-the-less we will proceed very cautiously on any future involvements with Chinese companies.
That’s certainly a worry of ours. It’s something we’d worry about here a bit as well, it’s just that in China this seems a bit more possible and we’d have chance for recourse. Hope maybe some China based folks will chime in as well, let me know if I’m just being paranoid.
Don’t! S Like Crafter_Man, we have done some business in China and it was a very bad experience. The fact that they approached you rather than the other way around is also a tip-off.
As you are a SW company you have very little recourse after they get their hands on your code. Taking them to court is not a viable strategy in China. You are inevitably painted as some foreign-devil profiteering swine trying to destroy native Chinese industries. “Partnering” with the Chinese in China is a recipe for disaster.
Do I sound a bit negative? Anyway FWIW, I wouldn’t trust any Chinese company with intellectual or any other kind of property.
Hong Kong is, of course, very different. The rule of law here is very strong and if you are dealing solely/primarily with a legit HK firm, you should have no problems.
Perform due diligence on the proposed partner. Find out what they want and what you would get. Are they a legally registered business in Hong Kong? Do they have a real China presence?
Be vary wary of any company that sells the idea of covering China from their HK base. It is a very failed business model.
As to your specific questions:
Intellectual property protections
It’s improving in China but still pretty bad. I work in this industry. No realistic way to get satisfaction via the court system. Even if you win, damages are tiny.
Collections in China (getting paid)
Don’t know about your software, but when I worked for an ERP company in China, the license key had an annual shut off. Worked wonders for getting paid when a company’s financial system would go down Be smart, collections in China is a huge problem. Get paid upfront or have some sort of system to ensure you’ll get paid sooner or later (license key for example)
Extracting profits from China (getting money out of the country)
Several ways to do this. IIRC you can make 10% royalty payments on an annual basis. There is some transfer pricing. Basically, if you pay the corporate tax (which is high) there are legal ways to get you’re money out.
China isn’t that tough. If you check your brain at the door, expect to be taken to the cleaners. If act in a very conservative and prudent business manner, you might actually do quite well.
All sound advice. Thanks, China Guy, I was hoping you might pop in here. Also, I was trying to remember there is/was a well known doper in HK, but I’m drawing a blank on the name. Any ideas?
Anyway FWIW, I wouldn’t trust any Chinese company with intellectual or any other kind of property.
Be smart, collections in China is a huge problem. Get paid upfront or have some sort of system to ensure you’ll get paid sooner or later (license key for example)