Spotlight on China
Form and operate effective partnerships in China
Chinese and foreign M&E companies alike have found that going it alone is not always the best strategy for market success. Partnerships between domestic and foreign M&E companies allow both parties to leverage each other’s strengths.
Partnerships are most successful when all parties agree to a corporate governance structure and to a long-term vision for the venture and embed these within their agreements.
Of the 43 M&E companies listed on the Forbes Global 2000, 14 have formed joint ventures (JVs) in China since 2008. Some have more than one. However, forming and operating partnerships requires careful planning and skillful execution.
Number of JVs or film co-production deals announced in China, by year, for M&E companies on the Forbes Global 2000
Source: Ernst & Young analysis.
There are many types of partnerships, ranging from licensing deals to strategic alliances and JVs. But for Chinese and global M&E companies, JVs have become a preferred method for coming together. Advantages of JV partnerships include:
- Overcoming regulatory restrictions
- Leveraging local market knowledge
- Pooling resources and sharing financial risk
- Gaining access to domain knowledge and intellectual property (IP)
Elements of a successful JV partnership should include:
- Aligning the JV’s scope and choice of partner(s) with the company’s strategic objectives in China. M&E companies must evaluate how a JV will help it meet their strategic objectives in China. Success requires developing clear, realistic objectives, understanding how a range of potential economic and political scenarios may impact the venture, and selecting a partner that brings the right mix of attributes.
- Embedding the JV’s long-term goals and governance model in the partnership agreement. Partnerships are most successful when all parties agree to a corporate governance structure and a long-term vision for the venture, and embed these within their agreements. The partners are also careful to include provisions on how to optimally use and protect IP.
- Developing JV corporate infrastructure to support both traditional and digital media. The JV must invest enough resources in critical M&E back-, middle- and front-office functions to support its business objectives.
- Establishing a trust-based approach to management and being sensitive to cultural nuances. Partners must help to ensure progress and track the venture’s performance, yet also allow the JV’s management enough latitude to manage the organization on a day-today basis. Trust and open dialogue are also critical when the JV involves a foreign and Chinese partner.
- Considering the impact of a JV exit, buyout or IPO on short- and long-term goals. Successful venture partners should consider early on what the long-term goals and potential end-game options for the JV are. Each partner must consider the financial impact of each option in the short term, and how those options impact their longer-term strategic objectives in China.