Management and Marketing - Theses

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Subject: management × Author: WANG, YUE ×

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    Contractual joint ventures in China: formation, operation, and performance
    WANG, YUE ( 2002)
    Most of the academic literature on foreign direct investment (FDI) in China has focused on equity joint ventures (EJVs) and wholly foreign owned enterprises (WFOEs). Contractual joint ventures (CJVs) have been neglected. However, CJVs were the major form of FDI in China until the mid-1980s, and have remained one of three principal forms available for foreign investors throughout the reform era from 1979 to 1999. In south China province of Guangdong, Hong Kong manufacturing firms and their local Chinese partners have relied on CJVs as the most important form of investment. Unlike EJVs that have a separate legal entity from parent firms, CJV may or may not be a legal entity. CJV contracts also vary from one situation to another as long as the arrangement is acceptable to both parties. International business scholars often find it difficult to study CJVs because of the ambiguity of their legal status and flexibility of their contractual arrangements. This thesis analyses the complex character of CJVs between Hong Kong firms and their local partners in Guangdong. Drawing on data from 73 structured interviews for 65 Hong Kong-Guangdong CJVs, the thesis studies the nature of CJVs as a relational subcontracting arrangement, lying between quasi-market type processing and assembling (P&A) arrangements and internalised EJVs and WFOEs. CJVs are hybrid contractual arrangements that possess aspects of both long-term subcontracting and an equity-based hierarchy. This thesis demonstrates CJVs' advantages in reducing the costs of contracting compared to EJVs and P&A contracts, including flexibility, quick return on investments and low adjustment costs to market changes or technical upgrading. For Hong Kong firms the CJV allowed high levels of managerial control analogous to a WFOE. CJVs were analysed as a path dependent dynamic process, which remained an efficient governance structure over time with increases in asset specificity of the subcontracting operation. The thesis shows how trust, learning and dispute resolution strategies had a positive role in maintaining the efficiency of CJV contracts under changing circumstances. In this pioneering study, the complex character of CJV partnerships is revealed and the managerial behaviour of CJVs analysed.