From the Edge: Bar None (China Version)
From the Edge is the collected memories and experiences of an old China hand and will run in an irregular series of articles on this site over the next couple of months.
By I.B. Bogard
Nov. 27 – I would like to take the reader into the backroom and a little of the dark side of China’s expat bar scene, the machinations and ups and downs and sideways movements that happen from time to time, to ensure that the appropriate shareholder gets his profit margins correct, or more appropriately gets a wedgie regardless of whether this is deserved or not.
Several years ago, and in the course of my white stick forays into the vagaries of business here, I came across an expat business contact (businessman “X” for these purposes) in the process of opening his own bar and venturing into this industry, that continues to remain fraught with problems and dangers in China. This is not to say that bar ownership in the rest of Asia is not without similar problems, and the failures, still outweigh the successes by maybe three to one.
X was not known for his expertise in the food and booze industry, and had an international corporate finance background. However, his Chinese wife had the necessary credentials due to extensive experience gained managing bars around China, and it was assumed that she acted as the “éminence grise” behind the throne.
This new venture would not be cheap, being located in a rather expensive and up market part of town. To add to it, both the land and building was owned by the local government. The combination of both rent (the equivalent of perhaps US$30,000 per month) and fit out costs (estimated at US$150,000), guaranteed that this venture would cost a pretty penny. X realized that to make this work he would need financial assistance and this would require sourcing a mug or two, opps sorry shareholders, to share this burden.
Joint venture partnerships (which are basically all about shareholders) in China are – to the wise here – known for their three stages:
- The joint venture – big launch party, gallons of Maotai, KTV and related entertainment sessions and gambei’s etc etc ad nauseum
- The joint adventure – roller coaster time, lots of dosh sloshing around, mostly in the direction of the JV partner
- The joint misadventure – recriminations, legal writs, lost dosh (and probably IPR), normally culminating with the arrival of the heavy boys; this must end in tears, with the odd broken nose
In the course of his dalliance around the nether regions of China, X had met up with more than a few fellow expats who were also looking to make a few bucks from the new generation of hostelries and western-style drinking holes in the rapidly expanding and little regulated dark side of the food and drink industry here.
Through these contacts X found three fellow expats with similar ideas, and offered them a partnership through a shareholding deal (fortunately for X, they lived in a different city, about three hours courtesy of China Eastern or China Southern, when flights were on time). After several site visits, discussions over several beers and a little financial shape-shifting, an agreement was drawn up by X’s legal adviser (subsequently discovered to be a business associate of Mrs. X) for the three prospective shareholders, duly signed and witnessed by all concerned.
X required an investment of approximately 60 percent of the fit-out costs and initial rent payments; in return the three shareholders would receive an appropriate share of the profits, proportional to their investment. The opening party was planned for three months hence. Funds were deposited into a company account (that was later discovered to be controlled by Mrs. X and the legal adviser) and work began, as did other nefarious activities.
Roughly two months into the build and fit-out, X discovered that funds were running low – costs had accelerated and plans had changed. The situation was urgent if the opening was to follow plans, and surprise, surprise, X asked his three partners to cough up extra dosh. Inquiries were made to take a look at bank statements etc. These were unfortunately unavailable, as it was claimed that the bank in question was unable to issue statements for a week or two. In the meantime, trust me said X, we need the extra cash now to maintain the opening schedule.
Lo and behold, the three stooges coughed up, albeit a wee bit reluctantly as they were unsure whether X had also contributed his share.
Around this time, X’s email language changed radically from a friendly, jokey, matey style to a terse, aggressive, accusative style – blamed at the time on an obvious male menopause activation, or a bloody long hangover surmised the three stooges.
Bar None opened, eventually, and a massive piss-up ensued with flocks of expat vultures descending to take advantage of the free flow booze, scoff, and ogle the decorative, smiley waitresses and sundry bar staff. Bar None was declared an unqualified success in the local expat rags. Business had begun and the money rolled in!
Much to the three stooges chagrin, X’s aggressive rhetoric continued unabated. His darker side came to the fore and he began to demand more funds to invest in Bar None, claiming that the three stooges were cheapskates and that he and Mrs. X had borne the brunt of all the work, investment and design. He began to demand additional investment, on penalty of the three stooges losing their shareholder status, be disqualified as investors and loose all that they had previously invested, with no return – obviously a pretty poor return on investment.
The three stooges insisted on a return to the negotiating table; much rejected by both Mr. and Mrs. X, who referred them to their legal adviser, mysteriously on an extended holiday. They further discovered that access to the company bank account was only permitted by both Mrs. X and the legal adviser. Ouch!
After further rather acrimonious exchanges and a variety of threats, from both sides, the now impoverished three stooges came to the conclusion that there was no option but to walk away and take up further action through the Chinese courts. X grinned to himself. He had Bar None to himself and the build fit-out and initial rents had been paid thanks to the generosity of the three stooges. The true course of commercialization had been followed, in accordance with current beliefs.
Over the course of the following year, the three stooges made many attempts for some form of recompense, which was totally scorned and ignored by X. Bar None continued to flourish and X found that he could now sublet parts of the build to other expats who wanted a slice of the bar action. This ensured that his rent was paid in full, the rest was gravy. After about a year or so, the three stooges managed to scrape a court decision that awarded them about 20 percent return on their original investment. The original contracts were judged to be null and void under Chinese law as they were not in accordance with approved contracts. Due diligence had not been applied!
X still owns Bar None to this day, and has effectively retired to play golf, leaving Mrs. X to maintain the mama-san role that has become second nature to the lady. The three stooges apparently invested in a bar from whence they came, thus saving on China Eastern/China Southern three-hour flights and airfares. More importantly, they are now able to be on top of things, and on sit, so to speak.
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