Problems of Managing Joint Ventures in China - Essay Example

"Problems of Managing Joint Ventures in China" Introduction: As the world is making a rapid progress in the economy and modern technologies are introduced, it has become important to share these technologies and innovations. The enterprises introduce their new and improved techniques, products and services all around the world. There are two reasons of introducing their products in other countries; one is to get a maximum benefit and second is to aid the people of those countries, who may be in need of it. Today, all countries want to take a great part in the competitive world market. The enterprises are busy in making their products and services more and more attractive for the consumers all around the world. They make changes in their products and services in order to meet the requirements of their culture and society. Joint Ventures in China and Its Cultural Problems: The cultural changes, throughout the world, act as a strong challenge to the enterprises. Efficient cross culture management can guarantee flourishing worldwide operation of international enterprises in the multi-culture and region. The worldwide business dealings are also flourishing in Chinese enterprises. Chinese enterprises have made it an aim to progress and make their name all around the world. Chinese enterprises are making progress in their fields of expertise to promote their abilities and talents throughout the world market. Foreign companies have been working in China for many years, frequently by joint ventures with local firms and usually in the more developed coastal areas. Nowadays, however, Government is now developing the areas with poor infrastructure and encouraging investment in those areas. The poor infrastructure, illiterate public and employers with less knowledge about market economy concepts made it very difficult for the firms existing there and even for the firms making joint ventures to progress. In the central Shaanxi province, fifty four interviews were planned with the managers in twenty four join ventures clearly shows the prospective hazard in the way of a thriving join venture. As Chinese market is becoming the centre of attention of more and more foreign investors the pitfalls of Chinese market, management and hurdles in its way to success are given proper thought and suggestions are made to solve these problems (Ahlstrom et al. 2003; Beamish, 1993; Child, 1994; Goodall and Warner, 1999; Peng, 2000). It is already known that in the previous twenty five years, almost 85 percent foreign firms, located in China, are sited along the Coastal belt of China (SSB, various years). Since late 1990s, the Chinese government is busy in the developmental process of the areas with weak infrastructure and poor growth rate in order to get rid of the local regional differences. "The Great Western Development Strategy (xibu da kaifa)" was commenced in 1999 with a motive to encourage local and international investment in the country. It was a categorical effort to increase investment in those regions of China, mainly in need but least likely to attract support on their own. Under its persuasion, an increasing number of foreign firms and joint ventures entered in the underdeveloped hinterland. In 2002, 31,822 foreign ventures had been set up in China's 18 interior districts and one municipality (SSB, 2003, p.678). All the regions carry some importance. In the same way, China's interior is of great importance, without development of those regions China wouldn't be able to progress in the international market. All facilities and technologies must be equally provided in the underdeveloped regions. For this reason, under the 7th Five Year Plan (FYP) (1981-1985), China's economies were separated in to three regions, namely, the Eastern region, the middle region and the Western region (Linge and Forbes, 1990, p.68 and Chen, 2000, pp.9-10; Wei. 2000, p. 1). Traditionally, the Middle and the Western areas have been considered as one large part, the interior (Chen, 2000, p. 10 and Wei, 2000, p. 1). As stated in the 7th Five Year Plan, the allocation was made in a way that the coastal region has 9 provinces and 3 centrally administrated towns; whereas the interior region consists of 18 provinces and only one centrally administrated town. It must be noted that the interior of China consists of 84 percent of the country's total land and 56% of the total population. The coastal region of China provides a major quantity of raw materials necessary to make manufactured products. The fast economic development of the coastal belt, since the last 20 years, has dependent greatly on the interior's power and mineral supplies (Chen, 2000, p. 143). Regardless of such significance of China's interior, the attention on the everyday problems faced by the management of the local and foreign firms in that region is inadequate. The researches made to identify problems of that region and the efforts of the foreign and Chinese managers to solve those problems are also limited. The problems of the coastal regions of China have to be solved as those areas carry a heavy amount of recourses which are essential for the development of a country in the world market. China's interior is identified for awful transportation facilities, insufficiency of communication ways, shortage of business thinking, an ailing environment and lack of human resources. (Sims and Schiff, 2000) These problems need to be solved so that the foreign investors feel comfortable with the environment and make China their first choice to introduce their product or service. In the same way, Chinese businessmen, due to the good reputation of China in the world market, would be welcomed in countries to invest. The center of attention of this essay is on joint ventures, consisting of contractual joint ventures and equity joint ventures. This essay investigates the main problems of organizing joint ventures in China's interior by offering some confirmation from Shaanxi province. The interviews of 40 Chinese and 14 foreign business managers in twenty four joint ventures in Shaanxi spot the management problems in 4 different areas: employment and training, dismissal, energy supply, and growth agenda. The inspection of these problems recommends strong and cooperative relationships with the local partner. The relationships of the partners decide the future of Joint Ventures. In the areas, like coastal region of China, the foreign partners have to face many problems due to the difference of their cultures and traditions. They face problems in launching their product due to the lack of demand of their in a particular country. This lack of demand may be due to the weather, culture or trends of that country. Foreign firms face difficulties in the marketing of their product without the help of local firm managers. They need proper guidance about the needs and desires of the public. A foreign firm, while establishing a joint venture in a country, carries an aim to attain the trust of the public and increase the demand of their product in that country. Necessary changes are made the product, to create the desired and acceptable product for the people according to their culture. Before a product is launched, the partners in the joint venture make necessary amendments and proper marketing of that product. As stated before, the problems occur in the joint ventures due to the differences between Foreign and Chinese top managers or between the joint ventures and their parent firms. The success of joint ventures depends upon the selection of the right partners, establishing a friendly and honorable behavior with them and making proficient use of personal relations and political associations. To make a prosperous joint venture with China, foreign countries must examine the problems other foreign firms faced at the time they created joint venture with China. After examining the problems, solutions made by the foreign firms must be considered and a proper plan to make rapid progress in Coastal belt of China must be created. Joint ventures have been preferential since many years to enter in a foreign market (Hill and Jones, 1992) because joint ventures balances the weaknesses present in one country's businessmen with the strengths of the other. It aids the foreign investors with the knowledge of local businessmen (Contractor and Lorange 1988). Joint ventures are the most famous mode of choice among the multinational enterprises to start business with transitional market such as China (Luo, 1997; Sanyal and Guvenli 2001). China unbolted its doors for foreign firms in 1978. Since 1978, more and more investors took interest in China's market and soon it became the most striking choice for the foreign direct investors in the world. During 1980s and 1990s, almost 70 percent of direct investments took the shape of joint ventures (MOFTEC, various years). Foreign firms also start their business without any help from the local companies. Such business is known as Wholly Foreign owned Ventures i.e. WFVs. As compared to wholly foreign owned ventures, joint ventures carry two positive points, when talking about China. The first advantage of joint ventures over WFVs is that when foreign investors enter the market of China, they have inadequate or no knowledge about the culture, political, economical and legal systems of China. This inadequacy of information may lead to differences between the public and the investors. In this case, supportive partners may be very helpful. The local partners, having all the information about their culture, legal and political issues and economic condition of the country, may stop the troubles as they occur. The second advantage of joint ventures instead of wholly foreign owned ventures is that it may reduce costs. In a joint venture, the partners offer the best possible way to invest their available resource. Commonly, the foreign investors offer cash, machinery, technology and techniques; whereas, the local partners offer their land, building, knowledge, skilled workers and machinery. Together, they may establish a firm having all the strengths and a prosperous future. By starting such a partnership, both partners make the most of their available resources and decrease the cost to a certain extent (Volhancker, 1997). Regardless of these benefits, there are many barriers when organizing joint ventures and a lot has been written about the difficulties in establishing a joint venture in China (Bjorkman and Lu, 2001; Luo, 1997; O'Connor and Chalos 1999; Zhang and Keith, 1999). One important topic is that local partners play a vital role in observing the success or failure of joint ventures. Luo's (1997) stated that the organizational behavior and strategic character of the local partners are significantly related with some individual proportions of the joint venture performance. Zhang and Keith's (1999) study showed that starting business with state owned enterprises in China is problematic for joint ventures because the state owned enterprises belong to a different cultural background and have different concepts of living, thinking and observing matters. They are also slow and inefficient at decision making. They have too many employees and quiet old and outdated equipments and hence the pace of development of such enterprises is very slow. Joint ventures face another challenge during the decision making process about the management, employment, production process and other issues as foreign partners have to cooperate with the local partners, which shows that there is less management freedom (Tsang, 1994; Luo, 1997). The aim of the local partner is dissimilar than that of its local partner (Wong et al, 1999). Conclusion: The way of living of an individual or a group can be described as culture. Today culture is an important part of a country. People living in different countries belong to different classes and cultures. At present, culture has become an essential part in the business environment too. For a company, to establish it has to cope up with the culture and the way of living in one country. Companies, before establishing themselves in some foreign country, analyze their culture and way of living. This helps the company to adjust its policies and rules according to the standards and culture of the country it is establishing itself in. Many companies which have established themselves in different countries have not proved to be successful because of their ignorance about this factor. China is known to be traditional and the people of China do not compromise with their values and traditions. The interior of China consists of a large population and the literacy rate is comparatively low. This fact creates hurdles in the way of a successful joint venture. Foreign investors find it difficult to compromise on each and every decision. The joint ventures need to explain each step due to lack of economic knowledge in the employers of those areas. The inflexible behavior of the foreign or local partner causes the failure of the joint venture. In order to make a joint venture successful, the partners should behave politely and there must be flexibility in their decisions and thoughts. While making a decision about the firm, they must suggest and consider each others' opinion. They must not ignore the needs of the people. The local partner should guide the foreign partner about the tradition of his country. In this way, the firm would be able to prove its standards and may get the positive response from the country. For a prosperous relationship between the partners, they must set up a list of rules to be followed during their business partnership. Bibliography: Bartlett, C./Goshal, S. (1991): Managing across borders: The transnational solution. London. Zhen Xiong Chen and Anne Marie Francesco Employee demography, organizational commitment, and turnover intentions in China: Do cultural differences matter Human Relations, Jun 2000; 53: 869 - 887. Ingmar Bjorkman and Yuan Lu Institutionalization and Bargaining Power Explanations of HRM Practices in International Joint Ventures - The Case of Chinese-Western Joint Ventures Organization Studies, May 2001; 22: 491 - 512. Schneider,S.and Barsoux,J.L.(2003) Managing Across Cultures,2nd edn(Harlow:Pearson Education) Read More