I honestly don’t know what to make of this China Daily article, entitled “Joint Ventures Off On A Rocky Road.” The poor English aside, it is a rather nasty hit job on John Deere, a completely one-sided affair in favour of the local partner, Xuzhou Bohui Construction Machinery Group.
Well, perhaps I shouldn’t have said “honestly,” because I have a pretty good idea why this piece was run. I just don’t have any evidence that money changed hands, and it would be irresponsible for me as a journalist lawyer human being blogger to make such an accusation.
But really, you have to read this thing to believe it, and although it’s fairly long, I have no choice but to excerpt in detail. This kind of opportunity doesn’t come along every day, so let’s take advantage of it.
To John Deere, a Fortune 200 American business, the largely untapped Chinese market might have seemed so lucrative that a joint venture with a small Chinese company might not have been enough to satisfy its appetite.
“What they want is total control and to put their label on our product,” said Chen Gang, general manager of the Xuzhou XCG John Deere Machine Manufacturing Co, a joint venture with John Deere.
“We’ve been suffering from this failed marriage with John Deere,” Chen said in an interview with China Daily. “And now we’re really tired.”
Let’s stop there for a sec. Who exactly is “we”? Notice the quote is not from the local partner but from the JV’s General Manager. Based on those those two uses of “we,” I’m going to assume that he was appointed by the Chinese partner. Keep in mind, therefore, that this factory is, in all likelihood, under the operational control of the local partner.
Moreover, the GM’s complaint about John Deere putting its “label” on “our products” is highly amusing. Some folks would call that a trademark licence, and uh, you know, the manufacturer usually has to pay for the privilege. Using a famous mark like “John Deere” is not usually seen as a burden.
Acquiring the Chinese partner’s intellectual property rights and know-how, might have given John Deere a chance to compete with its major rival back home, Caterpillar.
As it hopes, with the joint venture as its sprint board, the American agricultural equipment producer, which doesn’t own industrial excavator design and production technology, could gain a foothold to enter into China’s buoyant excavator sector.
Someone obviously slipped this by the English editors in the dead of night, but that’s another issue. Note the accusation here: John Deere comes to China to appropriate the intellectual property rights of a local company. Remember, we’re ignoring the fact that John Deere has brought cash and a famous trademark to the table, not to mention whatever technical know-how the article fails to mention.
Could this be true that a multinational came to China to steal IP from an unsuspecting local technology firm with valuable IP? Sure, I suppose it’s possible. It’s also possible that monkeys will fly out of my arse.
But wait, it gets better. The two companies (surprise, surprise) are embroiled in a bitter fight over expansion and control of the JV. This gets complicated and involves some technical legal issues from the JV Law and Company Law, but essentially it sounds like the parties wanted to increase the registered capital and then hit a snag with the negotiation.
I’ve seen this many times, and usually if one partner wants to expand and the other doesn’t, the suggestion will be “Let me pay more in, but then I get control of the company.” I bet that’s what happened here, but of course the article portrays this as John Deere attempting to usurp control from the poor, unsuspecting local firm.
Here’s a classic line:
What the XCG partner did not expect, however, was that the new-comers did not necessarily have their Chinese counterpart’s interests in mind.
Heaven forfend! You really can’t make this shit up, folks.
“Deere said that if XCG didn’t allow them to control the company, they wouldn’t allow the capital increase to go through,” Chen said.
“Over the following months, John Deere didn’t give up trying all kinds of ways to take control,” Chen recalled.
One way was to use the law. In December 2009, it accused XCG of breach of contract by using an improper land title for the JV factory.
According to the initial contract, if one party reneged on the deal, the other had the right to acquire that party’s shares. It turned out that the deed was valid, according to the Tongshan County government.
If you’ve ever been involved with foreign investment in China, all of that sounds familiar, but it’s like the history of a typical JV is being told by Superman’s special-needs cousin Bizarro. Could it have happened that way? Anything’s possible, but if all that is true, I’ll eat my laptop.
OK, I think you get the idea. The article goes on further to describe the nefarious plots of John Deere to sabotage the JV, set up a competing manufacturing base, and torture infants stolen from local orphanages. (I sort of read the latter between the lines.)
By now, you probably noticed that the entire article rests on a single source, Mr. Chen, the General Manager who refers to himself and the local partner as “we” (which would make John Deere “them”).
I’m not surprised by this JV dispute, however it happened. All of the issues described are very common. The shocking thing here is how China Daily ran with this, turning their page over to what I believe is a very distorted view of a complex fight by a biased party, and then suggesting that this behaviour is somehow common to foreign investors as a group. I would very much enjoy hearing the other side of this from someone at John Deere, although I bet I could predict exactly what they would say.
I’m generally a fan of China Daily, whose quality has improved significantly over the years. They really dropped the ball on this one, though.
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