The High Failure Rate of International Joint Ventures
Interestingly, by the end of May 2000, the contractual FDI in China had totalled $623 billion in 349,500 investment ventures (Ping, 2001). Moreover, the influx of FDI fuelled rapid economic growth, creating jobs and technological change to the country. The figures in 2000 coupled with China’s desire to close the economic gap with other developing nations led to the Government driven “Western Development Strategy” as part of the tenth five-year plan (2001-2005) covering six provinces.
Notwithstanding the economic policies favouring commerce and FDI. the OECD, in particular, have regularly reported on challenges facing FDI in China’s regional development. The focus of this paper is to critically evaluate company strategy in international joint ventures to minimise the risk of failure. It is submitted at the outset that international ventures in China provide a prime example of the risks associated with international joint ventures, which will be considered contextually with practical examples. Examples of other territories shall also be considered.
Whilst foreign investors are ultimately autonomous on the mode of entry into the Chinese Market from equity joint ventures (EJV), wholly foreign-owned enterprises (WFOE) and contractual or cooperative joint ventures (including licensing and technology transfer agreements) joint exploration, and co-operative development. it has been submitted that the reality of entry into the market has been challenging in practice, particularly with international joint ventures (Ping, 2001). Since, the late 1980s the predominant mode has been EJVS and WFOES (Ping, 2001). Between 1993 and 1997, the actual use of WFOEs in China grew at an annual rate of more than 25 per cent while EJVs grew by only 6 per cent (Rugman &. Hodgetts, 2003).
Various problems have been associated with the Chinese EJVs, namely joint ownership, which often involves management by at least two parent firms (Grant, 2007).