Softbank, Chinadotcom In $100M Joint Venture

HONG KONG (03/21/2000) - Chinadotcom Corp. and Cheung Wah Development Co. Ltd.

(soon to be renamed Softbank Investment International (Strategic) Ltd.) are preparing to invest US$50 million each in a technology consulting joint venture.

The joint-venture agreement will be signed at the end of this month, company officials said. Each corporation will receive an equal stake in the new company, which aims to provide services to Asian firms looking to go online, they added. The companies signed a memorandum of understanding last week.

Softbank said Internet consultancy WebConnection, a wholly owned subsidiary of Chinadotcom, was a principal attraction for Softbank when considering the joint venture agreement with Chinadotcom.

"Chinadotcom's WebConnection has about 200 people working for them in China, and we believe that they would be helpful for us to expand to China," said Joseph Tong, associate director of Softbank China Investments.

"We could employ our own guys, but overhead would be expensive, … with outsourcing, quality cannot be guaranteed," explained Tong, who said that Chinadotcom was a more reliable partner.

"We need people to help turn our investments from offline into online companies," Tong said, declining to reveal which Softbank-invested companies he was referring to.

According to Chinadotcom officials, the new joint venture will also enable that company to establish a market presence in Japan.

"Softbank has been successful in taking their U.S. models, adapting them, and localizing them in content and management, particularly in Japan," said Peter Yip, CEO of Chinadotcom.

The alliance would require an initial contribution of $5 million from each company, rising to $50 million each, depending on the progress and cash requirements of the joint venture, according to a Chinadotcom spokesman. No specific timeline has been set as to when the US$100 million will be reached.

Yip said the company is looking to appoint a CEO for the joint venture who will be responsible for coming up with the business plan and budget for the new union.

"We are looking in-house (within Chinadotcom and Softbank) as well as looking externally. … (We're looking for) someone with a business consulting and re-engineering background to help companies move from the offline to online world," said Yip.

Analysts welcomed the Chinadotcom-Softbank deal. "It makes perfect sense, benefiting both," said Juliette Chow, head of Internet and market research at Lehman Brothers, in Hong Kong.

"Chinadotcom will now have access to the Japanese market, which is one of the most exciting Internet markets in Asia, giving Chinadotcom the network relations they need to get in (to Japan)," she said.

Chow added that Softbank could also leverage Chinadotcom's "first mover" advantage in Greater China "to expand their own coverage outside their home country."

Recent alliances, including the Pacific Century CyberWorks Ltd.-CMGI Inc. partnership and the Internet Capital Group-Hutchison Whampoa Ltd. deal, are similar to the Softbank-Chinadotcom alliance in that they all use the local partners' expertise to understand the local market, business environment, culture and regulatory environment to roll out services, according to Chow.

"It's basically speed to market," she said. "In terms of risk, it has a lower failure rate, hopefully, given that you know the local partner very well."

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