Auto parts industry should guard against "joint venture traps"

Northwest Bearing Group Co., Ltd. aimed to leverage the advanced technology, scientific management, and renowned brand reputation of FAG, Germany's largest bearing company, to drive its growth and development. However, since the establishment of the joint venture, the company has not experienced any success—instead, it has continuously faced bitter outcomes: losses exceeding 10 million yuan within two years, ultimately leading to a disastrous result known as "wrong marriage" and "losing both wife and soldiers." The author believes that domestic auto parts companies should take important lessons from the West Shaft joint venture experience: First, they must insist on autonomy. While openness and technology introduction are necessary, during the entire "blind date" process of joint ventures, without maintaining independence, core interests can be lost. Therefore, Chinese auto parts companies must always uphold their autonomy in every situation. Second, they should firmly control the critical 2%—that is, maintain control. When foreign partners propose a joint venture, they often demand a certain shareholding ratio, typically 51% to 49%. By insisting on this ratio, the foreign partner gains control at the lowest cost, whether in business or management decisions. In contrast, a 49% stake and a 1% stake make little difference in power, but the risk exposure is significantly different. Experts suggest that Chinese companies should never easily lose control in joint ventures and must insist on a 51% stake to maintain full control. Third, companies must carefully assess the advantages, disadvantages, risks, and risk mitigation strategies of joint ventures. During negotiations, thorough feasibility and infeasibility studies should be conducted. Democracy should be encouraged, and input from experts, entrepreneurs, and legal advisors should be collected to clearly understand the pros and cons, risks, and risk avoidance strategies of the joint venture. Fourth, attention should be given to asset evaluation. Asset appraisal is a crucial step for Chinese companies to protect their own interests. It’s essential to hire a reliable and impartial appraisal firm during the joint venture process. The appraisal should involve relevant department staff to prevent undervaluation of the company's assets and the erosion of national interests. Companies must also dare to claim their right to "marital autonomy." Joint ventures, restructurings, and mergers are all business operations that should naturally be led by the companies themselves. Chinese entrepreneurs need to be brave enough to protect their ecosystems and compete without external sabotage. They should break free from the "chain of government-led joint ventures and restructuring" and strive for long-term success and happiness. Learning from past experiences is key for future development. As a philosopher once said, "You cannot step into the same river twice." Domestic auto parts companies should learn from the West Shaft joint venture and avoid repeating the same mistakes. They must not allow similar losses to occur again in the domestic auto parts industry, ensuring that the same painful story is not repeated.

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