International equity joint ventures in China : operations and potential close-down
Vanhonacker, Wilfried R.
Pitts, Robert E.
|Summary||Despite an impressive increase in the number of foreign equity joint ventures (EJVs) in China since 1979, many foreign managers are generally dissatisfied with the performance of their ventures. A high level of dissatisfaction might signal and eventually contribute to failure of EJVs in China. From the standpoint of foreign management engaging in joint ventures as well as the PRC government actively pursuing foreign direct investment, it is important to detect and identify early signs of potential failure in existing EJVs. Early warning signs of potential failure could lead to, depending on the nature of the signs, corrective action by either the JV management or the government and avert the drastic decision to close a venture. In this study, we explore various operational issues foreign managers have suggested as being problematic in managing EJVs in China. We are particularly interested in identifying which of these concerns weigh heavily in the decision or thought of closure. The foreign general managers of 73 operating EJVs in China were interviewed about operational issues as well as whether they had considered or are considering closing down the operation. Based on these personal interviews, we identified areas of operational concern and linked those to potential closure considerations. Where the magnitude of the perceived problems is difficult to analyse systematically across the ventures, significant differences in the nature of the problems can be interpreted. Our results indicate that closure considerations are not uncommon, and are prevalent in domestic-market oriented ventures where the foreign partner is non-Asian and has a substantial equity stake. Those considerations are based on not only more aggravated perceptions of operational difficulties commonly identified with EJVs in China, but also on issues related to cost and quality control, adaptability of transferred technology, and management conflict.|
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