Knowledge Transfer, Knowledge Replication, and Learning in Non-Equity Alliances: Operating Contractual Joint Ventures in China

By Wang, Yue; Nicholas, Stephen | Management International Review, January 2005 | Go to article overview
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Knowledge Transfer, Knowledge Replication, and Learning in Non-Equity Alliances: Operating Contractual Joint Ventures in China


Wang, Yue, Nicholas, Stephen, Management International Review


Abstract

* Knowledge transfer and learning within non-equity strategic alliances is an under-researched area. Based on interview data, this paper studies knowledge transfer, replication and learning in contractual joint ventures (CJVs), a major form of foreign investment in China.

* Using a quasi-hierarchical organization structure, CJVs replicated part of their Hong Kong parent's know-how, which depended on local Chinese managers' learning intent and learning ability. Hong Kong partners also learned from managing the CJV and operating in China's local environment.

Key Results

* The paper identified collective learning (as opposed to competitive learning) between the CJV's Hong Kong and Chinese managers, which was largely built upon character and process-based trust.

Introduction

Strategic alliances and organizational learning have been a focal point of recent international business research. Research on organizational learning has been diffuse, focusing both on internal knowledge creation (Tripsas/Gevetti 2000, Holbrook et al. 2000) and learning by independent firms in mergers and acquisitions (Bresman/Birkingshaw/Nobel 1999), joint ventures (Inkpen/Beamish 1997) and non-equity alliances (Simonin 1999). The emerging literature on alliance learning has studied the process of knowledge transfer and replication from different perspectives, including how knowledge is transferred between alliance partners (Appleyard 1996), how knowledge is acquired from the parents by the JV itself (Lyles/Salk 1996) and how knowledge about alliance cooperation per se (i.e. collective learning) develops new competencies and impacts on collaborative outcomes (Doz 1996, Simonin 1999). Despite this growing research on how strategic alliances work and alliance partners learn, Simonin (1999) found the area empirically under-researched. According to Inkpen (2000), part of the problem has been the absence of a clear focus on any one particular type of alliance. Analyzing contractual joint ventures (CJVs), the dominant non-equity alliance form in China, this paper provides an empirical study of how partners transfer knowledge and learn in one type of alliance form.

Alliances, including non-equity alliances, are alternatives to firms for structuring international production (Casson 1979, 1990). CJVs in China are a complex type of non-equity cooperative alliance, with many of the attributes of subcontracting. It refers to a relational arrangement where the Chinese and foreign partners work together on a range of projects, which are often vaguely specified and involve no equity stake (Casson/Zheng 1992). Unlike wholly foreign-owned enterprises (WFOEs), CJVs resemble equity joint ventures (EJVs) with the joint subsidiary separate from both parents. However, unlike EJVs, most CJVs do not have an independent legal status. Operational control and profit share are negotiated between the parties and are flexible over time, which contrasts with EJVs where control and rights to profits are based on predetermined, fixed equity shares. In legal terms, CJVs can be likened to a quasi-partnership, whereas EJVs represent corporations with a legal personality (Easson 1989, Plasschaert 1993).

Until the mid-1980s, CJVs generated more investment than EJVs or WFOEs, the other two major forms of foreign invested enterprises (FIEs), in China (China Statistical Yearbook 1987-2001). While the relative share of CJVs in foreign investment in China declined from the late 1980s, they still account for 30 percent of investment in Guangdong (Guangdong Statistical Yearbook 1987-2001), the province adjoining Hong Kong. The foreign party of a CJV is most commonly a small-to-medium sized Hong Kong manufacturing firm and the Chinese side is usually a township and village enterprise (TVE). TVEs are collectively owned rural enterprises that are encouraged by township and village governments as an important channel to achieve industrialization in rural areas (Chen 1998).

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