Academic journal article Journal of Small Business Management

Small Firms in International Joint Ventures in China: The New Zealand Experience

Academic journal article Journal of Small Business Management

Small Firms in International Joint Ventures in China: The New Zealand Experience

Article excerpt

The opening of the Chinese economy has attracted considerable foreign investment, much of it in the form of joint ventures. Indeed, joint ventures have become the dominant form of market entry utilized by multinational enterprises (MNEs) in less developed countries (LDCs) (Vaupel and Curhan 1973, Beamish 1985). The number of joint ventures with China increased from 1,394 in 1987 to 3,900 in 1988 with a total value of almost $2 billion (U.S. dollars) in 1987 and more than $3 billion in 1988, respectively (Statistical Yearbook of China 1990). Interestingly, in spite of the dramatic increase in number of contracts, the average size of joint ventures actually decreased. In 1987, the average investment size of joint ventures was about $1.40 million; however, in 1988, the average size dropped to $0.80 million (Statistical Yearbook of China 1990). This may indicate the growing importance of smaller investors in the China market. Therefore, it is important to study the experience of smaller international firms since their motives as well as performance may differ from those of the large international firms which are currently the subject of most research in the area of joint ventures with China.

The purpose of this research is to examine the experience of a sample of smaller, relatively inexperienced New Zealand investors in China. The results are relevant to small businesses in other developed nations.

Research Method

A total of 13 joint ventures involving New Zealand companies were identified. These ventures represented the whole population of New Zealand joint venture investments in China according to the Statistical Yearbook of China 1991.

Data were collected through two mailed questionnaires and follow-up telephone interviews with two companies. The first survey was conducted between July and August in 1989 while the second survey was undertaken between December 1991 to January 1992. The first survey was mailed because the number of joint ventures was uncertain. Questions covered New Zealand investors' perceptions of their Chinese operations and the performance of the joint ventures. In the first survey, 10 of 13 companies, responded. Three were excluded panies, responded. Three were excluded from the study when they said they had no joint venture operations in China, although two of the three reported some other form of business connection with China. The follow-up survey in 1991-92 focused on the seven remaining respondent companies. They were again asked about New Zealand investors' perceptions of investing in China to determine whether there had been a change in attitude and to report on the performance of the joint ventures. Six companies responded to this round of the survey. Three companies were reported to have ceased operations in China. One refused to participate. Therefore, only two questionnaires were usable. Because of the small number of respondents in this second round of the survey, a telephone interview with these two companies was conducted.

Background of Investments

Three of the seven of New Zealand's joint ventures in China are in the agriculture, hunting, forestry, and fishing industries.. Four of the seven respondents started their first contract with the Chinese after 1985. However, the earliest one dated back from 1982. Six investments reached fruition from 1987 onwards, with total negotiation time less than two years. None of the New Zealand joint ventures is located in any of the five Special Economic Zones (SEZs) in China. Five of the seven New Zealand parent companies employed fewer than 150 people with the remaining two employing 500 and 900 people, respectively. The results suggested that "long-term profitability" and "local market penetration" were the two major objectives for New Zealand joint ventures. These motives are consistent with other research on the internationalization of New Zealand business (Akoorie and Enderwick 1992) which highlights the limited growth and profit opportunities within the small domestic market. …

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