SINO-FOREIGN JOINT VENTURES : AN EMPIRICAL STUDY

Abstract

This study investigated several key aspects of Sino-foreign JVs the ownership-control-performance relationship, the contributions of the Chinese partner, the commitment of the foreign partner, the right of foreign partner to appoint positions, the mechanisms used by the foreign partner to exercise control over the JV, the inter-partner relationship, the problems surfaced during the JV operation, the performance of the JV and the strategies employed by the foreign partner. In-depth interviews and a questionnaire survey were used to collect the data. 39 managers and Chinese government officials were interviewed. Out of the 1400 JVs surveyed, there were 201 usable responses. Some important findings of this study were • A positive correlation existed between the level of foreign control over the JV and the level of satisfaction of both Chinese and foreign parent companies with the overall JV performance. • The greater were the Chinese parent contribution and foreign parent commitment to the JV, the more satisfied were the Chinese and foreign parents with the overall performance of the JV. • Foreign parents with different degrees of shareholding varied in their mechanisms exercised to control the JV. ''Right to appoint the general manager", "majority shareholding" and "right to appoint personnel to critical functional areas" were major control mechanisms for foreign parents with majority ownership; "board meetings", "right to appoint the general manager", and "right to veto" for foreign parents with equal ownership; and "board meetings". "auditing'', and "right to appoint the general manager" for foreign parents with minority ownership. • More than half of the foreign parent companies had the right to appoint the general manager in the JV, and the majority of the general managers had the right to appoint financial, purchasing, personnel, production and marketing managers. • Chinese partners were more satisfied with the overall performance of their JVs when their foreign partners had the right to appoint financial, personnel and production managers, while foreign partners were more satisfied with the overall performance of their JVs when they had the right to appoint general manager and financial manager. • Overall, Chinese and foreign partners maintained good relationships. Furthermore, the better the inter-partner relationship, the better the overall performance of the JV. • The severity of the problems in JV had lessened. Meanwhile, the less serious were the JV problems, the more satisfied were both parents with the overall performance of the JV. • "Conduct a thorough feasibility study", "show early profits in the JV", "keep the operations costs under control", "produce products with satisfactory quality", "send experienced expatriate managers to manage the JV", "recruit and retain good high- and middle-level PRC managers", "invest in familiar projects", "confer sufficient autonomy to the general manager in managing the daily operation", and "adapt to the Chinese way of doing business in the JV" were positively associated with the foreign parent's level of satisfaction with the overall performance of the JV. Based on the findings of the study, we discussed the managerial implications, and offered recommendations for both Chinese and foreign partners of Sino-foreign JVs.