Introducing “Little Smart” into Mongolia
Targeting low-to-medium-income cellphone users, “Little Smart” experienced tremendous success after entering the Chinese market. In the year of 2003, “Little Smart” added more than 20 million users. Its affordability, practicality and its appeal to the average person ensured its popularity in China. If such a product could succeed in china, it must also have great potential in Mongolia, where the level of consumption was still low but the economic prospect was good and the future demand for communication devices could be high. The great market potential of “Little Smart” immediately caught the eye of one communication equipment company in Zhejiang, Company A, which was in good relations with the developer of “Little Smart,” UTSTARCOM, and already had other businesses in Mongolia.
In the second half of 2004, Company A shared its plans with UTSTARCOM’s Mongolian partner Company L, which expressed great interest in the project. Company A and UTSTARCOM then flew to Mongolia to investigate the market and the business environment. The three companies preliminarily affirmed the feasibility of such a project and signed a letter of intention for cooperation to establish a joint venture.
After they returned, Company A came to our firm for professional legal advice. After looking into the Mongolian joint venture law, company law etc. as well as the facts of the case, our lawyers, from the perspective of Chinese lawyers, analyzed the feasibility of investing abroad and warned our client of the legal problems that might arise, including contribution arrangement, board of trustees, general manager, shareholding transfer, land, labor, termination of contract, liability for breach of contract, applicable law, dispute resolution etc. Our lawyers then went to Mongolia to investigate the local regulations, the opinions of the government, the basic conditions of Mongolian joint ventures, its state of operation and financial situation, Mongolian government’s approval criteria for investments etc. with due diligence. According to the above investigations, our lawyers drafted the due deligence report. In the report, our lawyers listed the key points of the project and the various risks associated with the project. Based on the result of the investigation, our lawyers examined the joint venture contract template provided by the partnering Mongolian company and offered them our legal opinions.
Through the work of our lawyers, Company A fully grasped the progress and the key issues of the project. Together with our lawyers, Company A went to Mongolia for a second time to further negotiate with the local government and the partnering company. Our lawyers drafted the official joint venture contract and articles according to the content of the negotiations and then rewrote the draft several times based on how the negotiations unfolded. In order to establish the joint venture quickly so as to seize the market, all sides speedily reached an agreement and signed the contract on January 18th, 2005 to launch the operation of the “Little Smart” project.
In the spring of 2005, the first group of engineers flew from Beijing to Mongolia. Not long after, the intense signal of “Little Start” began to spread across the vast prairies of Mongolia…