Imagination’s Approach To Business In China

Creating a joint venture isn’t always the right approach.


In my role as Imagination’s CSO, I have been asked several times today whether Imagination would hive off its China operations into a China JV.

My first response to this question is “Why?” And this generates several responses.  The conversation goes something like this:

Because you have to!”
No, not at all. Nobody has asked us to do that – we can transact business in China (and every other market) unhindered.

“Chinese customers expect this!”
No current or prospective Chinese customer has requested this. What they do request is faster delivery of roadmap items, more support and better commercial terms, i.e. greater value for money, shorter cycle times and high quality – like customers everywhere else.  In fact, as some Chinese customers know, they prefer to talk directly to the arm of the company that is (was) the global HQ, which originally developed the technology, and with whom the customer-side executives have strong relations – versus talking to what has been an overseas sales organisation, which is trying to move from being a distributor to a developer of original technologies – a quantum leap.

“But creating a China JV allows you to penetrate China more deeply.”
Not necessarily, relative to having a strong local management team in China, devolving responsibility to them, and supporting them strongly. Which is what a large number of successful companies have chosen to do.  By having a single, global, and unified company, the China operations benefit from the worldwide talent pool and the insights gained from operating globally. A China only organisation may be able to focus on China but may well be denied the insights from markets outside of China – and let’s not forget that the customers of IP companies, wherever they are, operate globally.

“But you can later IPO the JV.”
Well… you can try to IPO it.  When a company prepares for an IPO, analysts and consultants are all over it, trying to work out what the company’s value drivers are.  Do they have a strong patent portfolio, including fundamental patents that can help protect their customers?  Will they be around long enough (like the parent company that spun-out the JV) to support customers in the long-term, for applications such as automotive electronics? And have they been meeting the revenue commitments made to their investors in a sustainable way, i.e. not mortgaging the future or resorting to government grants and projects?

And there is the problem of a kind of ‘corporate schizophrenia’, where two entities, sharing the same brand, have wildly different views about the world they serve, and conflicting ways of serving it, i.e. a strategy conflict. This muddies the brand and contorts it, confuses the ecosystem (which is a big part of competitive advantage and an indirect value driver) and puts the parent in open conflict with the spun-out JV – a parent that has a less than 50% shareholding, whose voice may not carry that far.

And what if, in order to meet their revenue targets, they end up competing with their parent in markets outside of China? That undermines value creation and brand value in both firms, damaging the IPO prospects of both.

Customers don’t like going through the pain of having their contracts novated/assigned to then see open conflict. Not for nothing is it said about JV’s in China: ‘Same bed, different dreams.’

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