Kro's Nest values its Chinese partners. Photo: Courtesy of Kro's Nest

When Yuan Jie and Olav Kristoffer Bauer started Kro's Nest, a pizza restaurant, in Beijing in 2006, neither of them knew that four years later a dramatic fallout would break their business as well as their friendship apart.

According to an interview in the Global Times in October 2010, Bauer said their dispute started when Yuan refused to show him their accounting books, and later when Yuan asked to buy him out "at a very low price."

The conflict climaxed with Yuan's detention by the police after he physically assaulted Bauer at the restaurant near Worker's Stadium.

"It's a very publicized event but not something we would like to dwell on," said Marty Handley, current vice president of Kro's Nest. Handley joined the business as a new partner later in the same year, aiming to rebuild the restaurant and turn it into a profitable chain.

Ugly breakups between foreign and Chinese partners in the food and beverage industry happen a lot. The Stone Boat, Luga's, Veggie Table, Fubar, Grinders and the Taco Bar are other examples of deals gone bad. Despite of all the heartache, some of the foreigners involved in such disputes interviewed by Metropolitan did not come away with a permanent distrust of or aversion to working with Chinese partners. In fact, most went into business with Chinese people again - but with a clear contract from the start.

Kenneth Bermel, the owner of the Local, formerly known as Brussels, had a dispute with his Chinese partner that he worked with providing IT services to restaurants and bars. The dispute was over payment for work completed. It ended the friendship between Bermel and his partner.

"This experience made me cautious and even suspicious," Bermel said, noting that he used to enter into business with people he considered friends with only a hand shake. "But now I would never enter any business agreement without a contract, even with my best friend," he said. "If I married, maybe I would need a contract with my wife [when we do business together]."

Inside man

It is almost an aphorism that a Chinese partner is required for expats to do business here in order to grease the wheels of an opaque bureaucracy and a business environment with as many exceptions as rules.

In Handley's view, Chinese partners are compulsory. "All business in China is done based on guanxi," said the Kro's Nest vice president, using the Chinese word for connections. "If you don't have that, you will face a very difficult time getting your business open and operating that business."

Handley explained there is a burdensome amount of red tape that must be done for the fire safety, sanitation and outdoor beautification bureaus. He added, "Although we have similar things in America, in China, it's an ever-changing map."

Despite the fallout with the previous Chinese partner, the new team at Kro's Nest brought five new Chinese partners on board. Handley noted that the partners have great networks.

Bermel has a Chinese partner helping him take care of the red tape at the Local. "Having a Chinese partner would make me not worry about all the legal issues myself," he said. "It's easier to be legitimate with a Chinese partner. So I don't need to know Chinese law."

"It's very difficult for foreigners to open up a business on their own in Beijing - just getting the business license, hygienic inspection and fire inspection," he said, noting that these issues are easier to handle for Chinese than for foreigners.

Consequently he has to share the profits with his partner.

Trevor Metz now has a highly paid assistant instead of a full business partner. Photo: Li Hao/GT

Plan B

Trevor Metz, the Canadian owner of Plan B bar in Shuangjing, has skipped having a Chinese business partner. He instead hired a Chinese manager, whom he calls the backbone of his restaurant and bar business.

As a restaurant owner, Metz often has to deal with building management and street management officials who intervene in his business from time to time. "One day it is OK that we cook food, and one day some officials said it is not okay," he said.

"I have a very good assistant who basically understands how to talk to the officials and management," he said. "Otherwise, I would have no idea."

Metz's first business partner in his first bar and restaurant, Grinders, was his Chinese wife. When they later got divorced, his wife took over their bar, which specialized in hoagies.

"Her business is still doing OK and still uses my recipes," he said. Metz is unwilling to talk more about it, noting it is quite personal.

At his new pub, Plan B, instead of having a business partner he instead hired a girl at a high salary to deal with the red tape. "If you have to do business here, then try and find somebody you can trust," he said.

Culture clash

When managing Kro's Nest, Handley finds disputes often stem from misunderstandings based on culture and language.

"I don't speak Chinese so I'm relying on a translators to help me communicate with the investment group and also the upper level management team," he said. "Sometimes it proves frustrating."

For example, once he was preparing for a large, important event. "Since people were starting to arrive, I turned on the air-conditioner to make the room cool down in advance," he said.

The indoor temperature was still hot. "I later found that somebody cut the air-conditioner off so I turned it on again, but later somebody turned it off again," he said. That somebody turned out to be a Chinese partner. "It was just a misunderstanding."

Just like marriage

Learning from experiences, Bermel's suggestion to budding business owners here is to have partners, but not too many. "I have seen what happened if there are too many partners involved and everyone has their own ideas. It just ruined the business," he said.

Bermel noted that the business partners are more reliable if they are former colleagues and friends.

He met his current partner this way. "Because they trusted her, I can trust her as well," he said.

Handley compares a business partnership to a marriage.

"What you often see is these foreigners and Chinese relationships fall apart because both sides are unwilling to listen and trust and compromise," he said.

"On the other hand, always remember that there is no perfect relationship just as there is no perfect business."