Content area
Full Text
Drawing on a Chinese management perspective, this article examines factors that contributed to the
failure of Faith Oriental, a Hong Kong-Sino -Japanese joint venture (JV). The JV involved a
quarry provided by the Chinese partner that was vertically integrated for 60% of its planned sales
to the Japanese JV partner. The JV began operations in April 1996 with an investment of US$10
million. By December 1996 it was legally bankrupt. Factors contributing to the failure include the
lack of attention given to: (1) the alignment of partner strategies; (2) unanticipated costs due to
PRC government and foreign exchange events; and (3) weak management controls. The findings of
this study have significant implications for Sino-U.S. joint venture management.
Since reforms were initiated in the People's Republic of China (PRC) in 1978, growth in foreign investment has been dynamic. Foreign investment in 1995 was $US38 billion (China Statistical Press 1996). International Joint ventures (IJVs) between overseas companies and domestic state-owned enterprises (SOEs) have been the dominant mode of entry. However, many JV investments have been less than successful. Much has been written about the problems faced by foreign companies who joint venture with SOEs in the PRC (Allen et al. 1995; Yan and Gray, 1994; Beamish and Wang, 1993; Child and Markoczy 1993; Child, 1994; Shan, 1991; Shenkar 1990; Eiteman 1990). A recently published report on Chinese JV performance (Andersen Consulting 1995) is consistent with the academic literature findings of mixed IJV success. They found that among surveyed companies, only 44% reported meeting profit targets. The report concluded that predominant problems included: (1) business vision and strategy; (2) strength of relationship with Chinese partner; (3) choosing the right partner; (4) cost controls; (5) human resources; (6) product quality; and (7) product pricing.
Given the mixed success of IJVs in China, the question arises as to what challenges are facing managers and what solutions are available for foreign investors who joint venture in China. This study directly addresses this issue through a detailed case analysis of the failure of a Hong Kong-PRC-Japanese IJV (hereafter, JV). In particular, we posit that one of the main challenges facing managers is the attention given to: (1 ) the alignment of partner strategies; (2) the competitive cost structure under various...