Project of Establishing Gearbox Joint Venture by Dongfeng Motor Group Co., Ltd. and GETRAG International GmbH (2012)
Basic facts:
After more than two years of hard work, GETRAG International GmbH (hereinafter referred to as “GETRAG”) and Dongfeng Motor Group Co., Ltd. (hereinafter referred to as “Dongfeng Motor”) signed a joint venture contract in Beijing on October 2012. Our lawyers have participated in the entire process of negotiations, assisted the client in finalizing the joint venture contract, articles of association, technical agreement and other contacts. The newly established joint venture company will be engaged in R&D, production and sales of automatic gearbox, spare parts and components. Each shareholder holds 50% stake of the joint venture respectively. The total investment of the joint venture is EUD 120 million. The annual production capacity will reach 250,000 DCT in phase 1 and gradually reach 500,000 units per year.
GETRAG is the world’s largest independent supplier of gearbox for passenger vehicles and light commercial vehicles. The strong-strong cooperation is to jointly develop low-torque DCT. This cooperation also reflects the future direction of the advanced gearbox technology in China market. According to the plan of both parties, the joint venture company will establish a R&D center of gearbox products and gradually form the gearbox research and development capability.
Technology was one of the core contents of negotiation. Since the beginning of the negotiation, the ability of making R&D on the gearbox system was the focus of this negotiation. The contract between both parties was agreed on the basis of the R&D ability. Both parties have agreed on the setup of a gearbox product R&D center in the Joint Venture Contract and have prepared a clear route for the joint venture company to develop the full research and development capabilities of the gearbox. The Long-term Business Plan of the joint venture company was also developed around the R&D center. According to the provisions in the joint venture contract, without the approval of all directors, the business plan shall not be arbitrarily changed. In order to develop the full gearbox research and development capabilities, Technology License Agreement also provided detailed training plans and arrangements.
As for automotive parts manufacturing, the commercial operations of Chinese enterprises and German companies are not the same. After realizing such difference, our lawyers in the negotiation helped the client to enhance the communication in terms of the products, businesses operation and other aspects of the other party and to understand the commercial operation mode of both parties based on the document information and feedback information exchanged by all parties. Based on the mutual communication and understanding of both sides, our legal team helped the negotiating parties to reach agreement and developed feasible cooperation clauses according to our client’s requirements.
In addition, this joint venture is the second joint venture company established by GETRAG in China. Therefore, both parties discussed the cooperation and coordination among affiliated companies in China market, and the resolution mechanism in case of conflict of interest. Both parties have discussed on the plan of Joint Venture Company to join the big family of Dongfeng Group; the joint venture company will develop and adapt DTC gearboxes for the self-owned brand vehicles model of Dongfeng Group.
Chinese law does not explicitly prohibit the auto parts company from establishing more than three joint venture companies, but both parties have discussed the “non-completion” clause. This is a must-point which shall be address by both parties of joint venture in order to maintain a long-term partnership.
Lawyers’ remarks:
Negotiation on the joint venture company has enhanced the understanding of both shareholders and laid a good foundation for the future cooperation. The lawyers participated in the negotiation shall find gaps between the understanding of both parties as soon as possible through their own experience and understanding of the both parties, further help both parties to enhance communication and deepen understanding, and then create feasible legal documents for clients.
The follow-up communication and ongoing exchange after the establishment of a joint venture company is also the prerequisites for future successful operation. Lawyers may consider advising clients establishing regular ongoing communication mechanism, in order to help the joint venture company implement the visions of all parties upon the setup.
