Control of international joint ventures in China - A case study investigation.

Changes in the world economy and industrial structures have transformed the patterns of international competition (Porter, 1986). The trend indicates that most firms prefer to take the short route when approaching overseas markets and present themselves directly through foreign direct investment (FDI) (Julius, 1991; Turner, 1991; United Nations 1991).Following the FDI development, a second wave of change in the 1980s and 1990s was the surge of strategic alliances and joint ventures (JVs), the so-called new forms of organisations. The rapid growth of the new forms is at one level a response to the threats and opportunities presented by the shift in patterns of competition, and a driving force which accelerates further changes at the other level. These developments have inevitably raised new contracting and management control issues. The rise of China is another feature highlighting the world economy in the later part of the 20th century (The World Bank, 1997, 1997a). Since China opened up in 1978, the country has undergone a major transformation and changed from "being an economic backwater to a hot spot of investor interest." The nation has captured one third of all FDI flows to developing countries between 1970 and 2000 (Independent, 11/11/2001), the majority of which arrived in JV form and from the sources of overseas ethnic Chinese. All these changes and features have added further questions and requirements to contracting and management control of international JVs (IJVs1). Both the topic (IJV control) and the location (China) are of paramount importance to practitioners and academics alike. This study has made two major contributions to knowledge of IJV control in China. The first contribution is the use of a middle-range thinking research approach (Laughlin, 1995) and the case study method. Control is seen as a wider package, which consists of four contingency factors (environment, UV mission, ownership and bargaining power structure, and control in terms of focus, extent and mechanisms), that is used to articulate strategies and achieve the desired results. Control as a holistic concept is empirically examined in this study.The empirics revealed a web of complex interactions and delicate relationships between the hard/economics and soft/behavioural elements underlying a holistic control package. The analysis also discovered that the contingency variables comprising a holistic control package are influenced by, and at the same time influence, other variables through changing the enacted settings that other factors created. This process is circular and creates multiple layers of interactions between the environments and different contingency elements. The in-depth understanding and the establishment of an integrative theory of UV control highlighting the unique environments in China at the current stage of development is the second major contribution that this research has made. Moreover, this case-based study is set out to fulfil a middle-range role in changing some aspects of the status quo by informing managers and fellow researchers of the significant subject of UV control in China. In summary, these are the main contributions of this research.