International Joint Ventures in China
International Joint venture in china
In promising economies like China, international joint relationships are still the most general basis on which collaboration between host country and foreign partners is established. Some international companies have opened business in China through joint venture with Chinese companies. All of them are not doing well though; there are pros and cons of some joint ventures. In the previous years, China has emerged ‘as international economic powerhouse’, becoming more attractive as a joint venture partner for international companies in order to get access to the Chinese market. Overseas companies can profit from Chinese information of the Chinese market, their contacts to main government institutions, their knowledge of the Chinese techniques to do business and Chinese regional characteristics. Low priced production opportunities and an already existing group of workers can also be a massive benefit for them. In addition to that, the companies can keep money and decrease their risks should a particular project fail during resource and capital distribution. For example the German carmaker Daimler AG has newly been occupied in a joint venture with china’s BYD Co Ltd to manufacture electric cars. That means they are sharing a car on high cost of production. The overseas business partner generally contributes to the cooperation with knowledge about production procedures and techniques with outstanding distribution strategies and managerial skills. Moreover, joint ventures provide minor companies the possibility to work with better ones to enhance sales.
What is international Joint Venture?
There is no single definition of a "joint venture." The word is best defined by the existence of definite characteristics, understandings and measures. A multinational joint venture is often described as the combination of multiple business partners coming from separate jurisdictions to replace property, divide risks and share rewards from a joint enterprise. Generally, but not always, one of the partners is actually in the jurisdiction of the particular joint venture in consideration. An IJV has fundamentals of a partnership, but is usually formed for a specific purpose or particular project and therefore, is generally limited in scope, time period and purpose. The share of the joint venture partners is often different and tends to be particularly based on the specializations and capabilities of every partner.
While legal agreements can be essential to create and maintain international joint ventures to grow. IJVs must be realistic, living and developing relationships. Sustained positive relations and dialogue between the business decision-makers after the development of the joint venture is critical. Conditions can change. The management and the joint venture in question must be competent of changing with the new conditions.
What special considerations exist for entering into an IJV in China?
A thought that influences the difficulty of the Chinese macro-environment is the high control level to the capitalistic system regulated by the government particularly in opening markets. In order to manage market mechanisms, the Chinese government has preserved the socialist system. It is slowly developing market institutions more willingly instead of using the "Washington Consensus" technique used by many Eastern European countries. In this technique, a market is opened by quick and extensive modification in the mechanisms of the market (e.g. infrastructure, legal code, etc.). From an IJV viewpoint, the importance on control should be a caution that government might be involve in business transactions and dealings.
China is a country that built relationships and partners are often selected for their "Guanxi.” Guanxi actually refers to the non-institutional framework of Chinese society that holds Chinese society collectively. Guanxi consist of obligations between people who belong to the similar group (family, friends etc.) and obligations among two persons by means of a third person who has Guanxi with both persons (e.g. a friend of a friend). In China Guanxi provides belief when legal framework and particular investments fail to do so.
There are some cultural problems in operating joint ventures in China. These need to be fully understood by an overseas manager on ground. Otherwise, such matters could be exploited. Like for example, workers that have migrated in a factory living distant from their homeland may be permitted to extra leave in the vital annual holidays for the Chinese New Year based on the time span it takes them to reach home. This can count to five to six extra day’s compulsory leave if they do exist in China’s hinterland. In a situation where this is not the case, it can go in front to conflict. Cultural differences are a much part of the Chinese business life. They are not undefeatable, but they are more evident in a JV. Devoted executives on the ground can manage your JV. They will help manage both with cultural relations and developing confidence and common respect. This results in a business that is better run. If a JV denies that operating a business in China has cultural issues and barriers, it ignores the human factor involved in running a successful business in China – relations with your Chinese employees and partners.
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