Problems of Managing Joint Ventures in China's Interior: Evidence from Shaanxi

By Qiu, Ying | SAM Advanced Management Journal, Summer 2005 | Go to article overview

Problems of Managing Joint Ventures in China's Interior: Evidence from Shaanxi


Qiu, Ying, SAM Advanced Management Journal


For several decades foreign firms have been locating in China, often through joint ventures with indigenous firms and usually in the more developed coastal regions. Now, however, the vast resource-rich interior is beckoning, and the central government is encouraging investment there. Given the interior's poor infrastructure, less educated population, and scant exposure to market economy concepts, firms locating there--even through joint ventures--face many challenges. Fifty-four interviews with managers in 24 joint ventures in the interior Shaanxi province reveal the potential pitfalls as well as ways to increase the chances of a successful joint venture.

Introduction

As more foreign investors have entered the Chinese market, the management, successes, and failures of their firms have attracted attention (e.g., Ahlstrom et al. 2003; Beamish, 1993; Child, 1994; Goodall and Warner, 1999; Peng, 2000). It is well known that in the past 25 years most foreign firms over 85% have been located along China's coastal belt (SSB, various years). Since late 1990s, the Chinese central state has focused on the development of the vast underdeveloped interior areas as a way to bridge regional disparities. In 1999, "the Great Western Development Strategy (xibu da kaifa)" was launched, which is an ambitious top-down effort to steer domestic and foreign investment into the parts of China most in need but least likely to attract aid on their own. Under its influence, more and more foreign firms and joint ventures have stepped into the unexploited hinterland. By 2002, 31,822 foreign enterprises had been established in China's 18 interior provinces and one municipality (SSB, 2003, p.678).

China's interior is important. Under the Seventh Five-Year Plan (FYP) (1981-1985), China's regional economies were divided into three belts--the Eastern, Middle, and Western regions (Linge and Forbes, 1990, p.68 and Chen, 2000, pp.9-10; Wei. 2000, p. 1). Traditionally, the Middle and the Western regions have been regarded as one big area, the interior (Chen, 2000, p. 10 and Wei, 2000, p. 1). According to the demarcation in the Seventh Five-Year Plan, the coastal region consists of nine provinces and three centrally administrated municipalities; while the interior region consists of 18 provinces and one centrally administrated municipality (see Figure 1). It is noteworthy that the interior accounts for 84% and 56% of the country's land and population, respectively. It also supplies China with a significant proportion of the raw materials required to create manufactured products. The rapid economic growth of the coastal belt over the last 20 years has relied heavily on the interior's energy and mineral supplies (Chen, 2000, p. 143). Despite of the importance of China's interior, research on the day-to-day management problems faced by foreign firms in that region and how foreign and Chinese managers have perceived and reacted to these problems is rather limited. This paper is motivated by the absence of research into the managing problems of foreign firms in the region.

China's interior is known for poor physical infrastructure, inadequacy of human resources, lack of business philosophy, and an ailing environment (Sims and Schiff, 2000). Compared with the country's coastal belt, it seems likely that managers will face more obstacles and challenges in running foreign firms. What are the major managing problems of foreign firms in the region? This paper attempts to explore this question.

The focus of this paper is on joint ventures (JVs), including contractual joint ventures (CJVs) and equity joint ventures (EJVs). This paper explores the major problems of managing joint ventures in China's interior by presenting some evidence from Shaanxi province. Major management problems identified by interviews with 40 Chinese and 14 foreign business executives in 24 joint ventures in Shaanxi fall into four areas: recruitment and training, dismissal, energy supply, and development agenda. …

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