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The Role of Joint Ventures in The Technology Transfer in China

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Type
of
Models

Sales
(units)

Price
(dual

vechic syste
Manufacturer Price (Yuan le
m)

Ford Focus

189,000 Changan Ford Maz 74,000 158,

Hyundai Elantra

191,000 Beijing Hyundai M 79,800 146,

Xiali

196,500 Tianjin FAW Xiali 31,500 55,900

Chevrolet Sail

197,900 Shanghai GM

39,800 82,300

Santana

204,000 Shanghai Volkswa 61,800 79,800

Volkswagen Bora

207,000 FAW-VW Automo 82,800 157,80

Volkswagen Jetta

217,900 FAW-VW Automo 63,800 98,800

Chevrolet Cruze

221,200 Shanghai GM

99,100 169,90

V ol kswage n Lavi da

247,500 Shanghai V ol kswa 92,300 169,80

Buick Excelle

253,500 Shanghai GM

70,900 130,80

Sagitar

196,293 FAW VW

141,800-185,80

Volkswagen Passat

233,321 FAW VW

252,800-342,80

Nissan Sylphy

131,023 Dongfeng Nissan 99,800 - 169,00

Haval H6

112,262 Great Wall

95,800 -141,800

QQ

143,974 Chery

37,900-50,900

Geely Emgrand EC7

Volkwagen Tiguan

146,516 Geely
173,062 Shanghai VW

69,800-101,800
199, 800-315, 8

1
2

1
2

Honda CR-V

169,037 Dongfeng Honda 193,800 - 262,8

Hyundai ix35

108,241 Beijing Hyundai

169,800 - 242,8

Chery Tiggo

105,553 Chery

86.800 -115.800

Volkswagen

Dongfeng Fengxing

74,451 Dongfeng

97,900-133,800

Buick GL8

64,001 Shanghai GM

209,000-399,90

109,800

83,800Haima Freema

20,653 FAW Haima

Hyundai Elantra Yu

213,974 Beijing Hyundai

99, 800-146, 80

Hyundai Verna

201,746 Beijing Hyundai

73,900-106,900

Audi Q5

90,157 FAW VW

383,600-358,50

Buick LaCrosse

57,076 Shanghai GM

259,900-319,90

China possesses many cultural traditions and habits that are much different from the ones
of the Western countries. It is a well known fact that cultural differences highly affect the
business practices of a country. Therefore, it is extremely essential for foreign companies to
recognize and try to understand these differences when investing in China. It is very important to
Social/Cultural Environment
be empathized on the fact that, the Chinese society is strongly influenced in its commercial
activities, business ethics and organizational behavior by the Chinese concept of relationship11
called guanxi and is completely different from the Western concept of relationship. What is
more, companies can gain competitive advantages by developing their networks of guanxi
Guanxi is regarded as the central notion of understanding the Asian society and its business
behaviors. 16 The formation of guanxi in the Chinese society involves complex social and

affectionate networks within peers, families or friends and these networks comprise of three
main elements, which are mianzi, affect and reciprocal favor.17 Guanxi as one of the main
dynamic characteristics in the Chinese society. It does not merely refer to a very special
relationship between two people, but implies an endless exchange of favors too.
Therefore, the existence of guanxi relies on three elements: 1) sharing identities and status
with others in a group or mutually having an association with the same person; 2) actual
connections and frequent contact between people and 3) getting close to someone by direct
interpersonal interaction. Gunaxi is also regarded as interpersonal networks of reciprocal bonds.
According to the descriptions above, it can be concluded that interpersonal relationships in China
are very abstract and are established by cultural-rooted criteria.18 Therefore, guanxi is considered
byas a general and important element of culture and society. Of no less importance is the fact
that, guanxi is the central power which promotes relationships between people or organizations.
Guanxi is closely tied to life with regard to these Chinese organizations.
16

Luo, Y 2002, Contract, Cooperation and Performance in International Joint Ventures, Strategic
To sum up, the development of guanxi can be viewed as a major competitive advantage
Management Journa, 23(10), 903910.
17
Kipnis, A. B. 1997, Producing Guanxi: Sentiment, Self, and Subculture in a North China Village, Duke
with
the help of which competition can be faced and resource shortage can be overcome. It
University Press, Durham, USA.
18
Tsui, A. S. and Farh, J L 1997, Where Guanxi Matters: Relational Demography and Guanxi in the
therefore
becomes,
in the
society,
the
vital source of social capital and commercial
Work
and Chinese
Occupations
24, 56
Chinese Context,
79.

activities. It is thus very wise of the foreign investors to consider finding local partners when 12
initiating a business in China. Joint venture is therefore considered as the right entry mode
strategy by many of the multinational automobile manufacturers not only due to administrative
and political reasons, but what is more important, due to cultural differences.
But for gaining access to joint venture you have to understand business culture as well.
M.Dunne (2011) claims that business in China is like a Las Vegas Casino or the New York
Stock Exchange.19
Beijing Auto Show was an example of this quicksand ground. British design engineers
from General Motors had to wait hungry and hot for 4 hours for meeting the minister of auto
industry, and meeting the minister was a key factor in creating a joint venture. Not only British
engineers did this, representatives of Honda and Nissan didnt dare to leave as well. But the most
interesting in this business culture is that nobody forces you to do so and nobody gives you any
guarantees. The only information you have is that the minister did not say that he was not
coming and the condition that if you leave, reentrance is impossible.

Technological Environment

encouragement
policies
implemented with
to the automobile
sectorheld
in China
This isThe
done
in order Chinese
car manufacturers
to beregard
independent
from the patents
by
have
ledcompanies
the domestic
car are
manufacturers
huge
investments
with regard
toregard
the to
foreign
which
guaranteed to
bymake
the new
legislative
implications
with
improvement
of the production
facilities, safety testing systems and new technologies in the
intellectual property
rights.
design.
Withare
thisthree
initiative
is making
an effort
towards
the creation
of partnership
its own standards.
There
majorChina
motivations
driving
Chinese
automakers
to start
with
19
foreign
automakers: 1. Gain profits; 2. Learn skills and transfer knowledge; 3. Enhance the
Dunne, p.17

capability of the whole industry. Basically, Chinese automotive industry can be better developed
13
through technology transfer. It is beneficial for training skilled personnel in the Chinese
automotive industry. From both the enterprises and government perspective, they put priority on
how to earn profit. In the early year, the trade inspection showed a vast number of Chinese
customers purchased foreign brand cars. However, it was a big challenge for China to produce
their own cars in the 1980s due to the limited capability and high cost. The government permits
joint ventures in order to learn skills to produce world standard cars and gain profit. After
collaborating with foreign firms, the sales of car increased and then China started to build our
own brands.
Another part of Chinese auto industry which is too underdeveloped is safety. In spite that
China has pretty well equipped polygons for testing cars (better then Russian)20, there has been
very few official crash tests of Chinese cars, but in all of them Chinese automobiles are doing
very poor. For example, Russian company Auto Review conducted crash test for Cherry
QQ/Sweet and compared it with its original Daewoo Matiz. It is well-known that Cherry QQ is
made in the image and likeness of a good car Chevrolet Spark, or originally Matiz, produced by
General Motors South Korean branch Daewoo. This car was due to be sold in China by 2003, but
all of aSosudden
Cherry
its car
QQ, a total
copy oftoSpark
year earlier.
When
GM wanted
after crash
testreleased
which was
conducted
according
EuroaNCAP
method,
Cherry
to sue Cherry
least 3out
times,
they
demonstrated
that doors
in which
both models
QQ/Sweet
hadfor
4,9atpoints
of 16,
compare
with Daewoo
Matiz
has 12 are
out easily
of 16.22
21
interchangeable.
This case proves well that technology transfer or simply getting blue-prints doesnt work.

China has to educate engineers and renew equipment.

20
21

Leonid Golovanov http://www.autoreview.ru/archive/2006/01/CheryQQ/

The example of out-dated equipment is when the Volkswagen
Anderson, 5

delegation, during

discussions of establishment of JV brand was given a tour to Shanghai Auto factory in Anting. 14
Germans were horrified by the antediluvian conditions of the factory: they simply couldnt
produce their cars there.
Chinese auto industry, apart from technology transfer per se, also needed transfer of skills

and intensive training from their foreign partners. It is part of technology transfer, but in a
broader sense.

Strategy Market for Technology in technology transfers.

Since open reform policy, China is eagerly looking for new technologies. Chinese workers
and engineers lacked experience and knowledge in this sphere, so the aim of Chinese
government was foreign companies, which would share some technologies.
With a population that exceeds 1.3 billion people and a land mass larger than the United
States, China's sheer size and scale presents challenges uniquely distinct from any other market
(including other Asian markets such as Japan and South Korea). While it is true that China
represents a huge potential market for foreign manufactured goods and services, it is also the
case that understanding where these opportunities lie and how to access them can be extremely
shapes and sizes often find their China success stymied through insufficient lack of local
challenging. Whether it be the large Western multinationals with an established China presence
understanding.23
or the first-time market entrant with no previous China experience, foreign companies of all
The first realization that foreign companies often need to make is that China is in no way a
uniform and homogenous market. Although China is unified in the geo-political sense, socially
22

Leonid Golovanov http://www.autoreview.ru/archive/2006/01/CheryQQ/

and economically the picture is much more disparate and fragmented. Uneven rates of economic
growth in different parts of China over recent years have served to exacerbate many of the

15

economic and social differences that already existed between different provinces. For example,
there are huge variations between different provinces in terms of population levels, per capita
GDP, average income levels, consumer spending habits, education levels, literacy rates,
lifestyles and so on.24 As such, it is certainly no exaggeration to state that rather than
representing a single, unified market, China is actually a collection of individual sub-markets
defined by vastly differing demographic, economic and cultural characteristics.

The nature and make-up of markets in different parts of China also varies considerably,
which means that foreign companies should think carefully about which geographical location
offers the best vantage point to target the broader China market. In the past, foreign businesses
have often been drawn to coastal provinces such as Zhejiang, Guangdong, Jiangsu and Shanghai,
due to higher populations and incomes in those areas. In particular, foreign companies involved
in consumer markets have tended to focus their attentions on these higher income coastal regions.

Officialy, since 2001 China is prohibited to demand technology transfer, but it didnt
decrease Chinas desire to get and modify foreign technology. And if in 80th and 90th foreign
auto makers reluctantly shared out-of-date technologies, now competition to enter Chinas
23

Chinese Market Entry. B2B International. Accessed June 6, 2014.

http://www.b2binternational.com/publications/china-market-entry/.
24

Ibid.

16