By Matt Young

John Hjelset, executive director of consulting company Norse Dragon Co. Ltd., knows a thing or two about China partnerships. As president of the first Norwegian joint venture (JV) in China in the 1980s, Mr. Hjelset since has learned the virtues of going it alone, which he’ll discuss at China’s SME Challenge, sponsored by AmCham-China. The event takes place Friday, January 25, at China Resources Hotel.

In his JV, culture tug-of-wars were inevitable.

“We bought a building and some ships,” Mr. Hjelset recalled. “We wanted to depreciate the buildings and ships so much per year [for tax purposes]. Depreciation of ships and vessels was ok [with our Chinese partners]. But depreciating the building was out of the question – because buildings go up in value, they thought.”

Mr. Hjelset got a chuckle out of that.

Other problems were not so funny.

“As a general rule, one Chinese partner cannot serve all your needs,” Mr. Hjelset said. “That was one of the weaknesses of the old system – the thought that, ‘If I have a local partner, they can take care of everything from A to Z.’ There is no such thing.”

Today, Mr. Hjelset advocates using Wholly Foreign Owned Enterprises (WFOE) as investment vehicles whenever possible. He suggested contracting with service providers when necessary, and abiding by the following pearls of wisdom:

• The best contracts should be put in a drawer and never taken out again.
• If you start looking at page 17, clause 32 B, that’s the beginning of the end of the contract partnership.

• Educate new company personnel about the intentions of the contracts when they were signed. Intentions are just as important – if not more important – than the underlying words.

It remains very difficult for foreigners to build up sales and distribution networks in China. You can have a WFOE but very strong contract arrangement with sales and distribution.