Competitive Advantage of Sino-British Joint Venture

Inhaltsverzeichnis

Chapter-1: Aims & Objectives
1.1. Background Context
1.2. Research Question
1.3. Research Objectives

Chapter-2: Literature Review
2.1. International Production
2.2. Host Country Conditions
2.3. Inter-firm Cooperation & Joint Ventures
2.4. Competitive Advantage & Strategy

Chapter-3: Case Studies on Sino-British Joint Ventures
3.1. The Positioning Perspective
3.1.1. Industry
3.1.2. Positioning & Competitive Advantage
3.1.3. Partnership
3.1.4. Locational Factors
3.2. Resource Based View.

Chapter-4: Discussion & Conclusion
4.1. Discussion
4.2. Conclusion
4.3. Limitation of Research
4.4. Recommendations for Future Studies

Chapter-5: Refrences

Abstract

This report is written on the topic named “Competitive Advantage of Sino-British Joint Ventures in China”. This study has examined five Sino-British Joint Ventures (one company each from the Chemical, Telecommunication & Environmental Consulting Sectors). In general the large number of Multinational Enterprises (MNEs) and domestic companies operating in China are increasingly becoming competitive. In this regard, Joint Ventures based on Sino-British orientation are facing tough competition in the Chinese territory. Majority of studies conducted on the International Joint Ventures (IJV) are seems to focus more on partnership and with its related issues (Ownership & Control, Cultural Differences, Cross-Cultural Management, Strategic Goals & Formation, Technology Transfer & Performance). It has been determined that competitive issues are appeared to be neglected. This report is aims to discuss the Joint Ventures’ competitive success & failure from the perspective of Resource-Based View (RBV) and Strategic Positioning by taking into consideration the significant factors (Partnership & Locational Specific Factors).

Different Case Studies are examined on the basis of following concerns: (i) Distinguished Traits of each Joint Venture (ii) Configuration of Activities involved in the Value Chain process with Positioning Strategy (iii) Partnership in accordance with configuration of Resources and Capabilities with the Operational activities (iv) Significance of Locational specific factors and (v) Sources of Sustainable competitive advantage. Moreover, the report also discusses the implications of this study on the concept of Joint Ventures on the general basis. The implications are based on certain aspects (appropriate boundary for the brief understanding of International Strategic Alliance, Development of critical & valuable resources within the context of Organisational & Local context and the exploitation of vertical linkages across the value chain processes.

Keywords : International Joint Venture, Competitive Advantage, Competitive Strategy, Positioning Perspective, Resource-Based View, Locational Factors and Activities Configuration.

Chapter-1: Aims & Objectives

1.1. Background Context

With the increasing investment opportunities presence within the Chinese Business Environment, the increasing number of Multinational Companies is entering Chinese Markets with the intension of improving their operations. This factor has been resulted in making the Chinese Markets more intensive and competitive. China is regarded as most attractive market but in some ways it’s a packed market. From the past few years, the strong competition among the leaders of certain industries has been become true particularly after China got green signal from the World Trade Organisation (WTO). At the same time, Chinese firms are constantly becoming strong in term of competitiveness as many of them are teamed up with the MNC’s (Multinational Companies). Many industries have experienced this fact of intense competition between foreign MNC’s (Multinational Companies) and also between MNC’s and local companies. In this regard, Sino-Foreign Joint Ventures are no longer remains an exception in this regard and is frequently representing complicated and competitive relationship existing between the local Chinese firms and MNC’s and between MNC’s as well. From the perspective of overcapacity in price war industry, Government is taking initiatives to leash investment there which could be resulted in putting more competitive and intense pressure on the operating firms. For these MNC’s operating through Joint Ventures as well as for domestic firms operating through Joint Ventures with the MNC’s, it has been becoming critically important for them in managing through the operations strategically which matters a lot to their performance and sustainable long term growth.

1.2. Research Question

The Joint Venture is dominated as the type of strategic alliances which offers great deal of interest for the scholars and practitioner to study the concept of Foreign Direct Investment (FDI) in relation to the business strategy within the context of Chinese markets. Like the other parts of world, strong competition within the context of Joint Venture is not a new thing, This phenomenon is increasing experienced with the extent of some industries which characterised with intensive features (Telecommunication, Pharmaceutical and other consumers product producing sectors. Hence, the factor of competitive issue within the context of Joint Venture will not discussed in depth in this report. Usually, the concept of Joint Venture is studied in regard to various themes which are directly related to Partnerships. The common themes of this research are: The Overall process of Joint Venture, Joint Ventures’ Ownership and Control, Cross Cultural Issues and Cooperation Strategy.

Therefore, the Joint Venture is not all about doing a partnership but also about the accomplishment of goal with respect to the superior company performance. It has been observed that the study of competing within China through the Joint Venture would consider to be worthwhile attempt and also would shed different light on the given concern of Joint Venture.

1.3. Research Objectives

The study presented in this report will investigate five Sino-British Joint Ventures existing in China. The names of these companies are: AstraZeneca China, ERM China, Shanghai Marconi, GSK Chongqing and YARACO. These all companies are operating in different industries (Pharmaceuticals, Environment Consultancy, Telecommunications and Chemicals). The report aims to explain the fact that why or why not a particular joint venture has attained competitive advantage along with the superior performance. This report seeks to draw similarities between those who are successful ones & unsuccessful ones.

The structure of this report is as follow. The next section will review literature on certain aspects (Specific factors of Host Country, Competitive Strategy and Alliance Partnerships). The third section will contain findings generated from the multiple case studies. And in the fourth section, theoretical implication of the researched topic (Joint Venture) will be discussed along with the conclusion part which will summarise the important points this report and will also incorporates some recommendations for the future course of studies.

Chapter-2: Literature Review

There are many theoretical approaches (Transaction Cost, Organisation Theory, Theories of International Production & Cooperative Strategy) in the field of Economic & Strategic Management have been applied to study the form of strategic alliance known as International Joint Venture. These approaches are concerned with several aspects of International Joint Venture and are instrumental in providing different insights. In this chapter, theories on Cooperative Strategy, International Business and Competitive Advantage will be reviewed. Exclusively the discussion would be based on certain models: Eclectic Paradigm (Dunning, 1988, 2001), Alliance Theory, Host Country Conditions, Strategic Positioning (Porter, 1986, 1996), Resource Based View (Wernerfelt, 1984; Grant, 1991; Barney, 1991) and Cooperative Strategy.

2.1. International Production

The literature on this particular concept covers the certain aspects of Multi-national Enterprise (MNE), Foreign Direct Investment (FDI) and International Trade. From all the given perspectives, the approach of internalisation is useful in studying MNE and FDI. It can also be regarded as the foundation of concept called Eclectic Paradigm.

2.2. Host Country Conditions

Eclectic Paradigm incorporates certain location specific factors and thus could extend the focus of given analysis to the Host Country Conditions. Dunning (1988) has introduced Eclectic Paradigm which incorporates firm specific factors as well as country specific factors which are critical for the explanation of industrial and geographical composition of (Foreign) production undertook by Multinational Enterprises (MNEs). More specifically the activities of International Production are determined through the interaction of three variables (Internalisation Advantages, Locational Advantages and Ownership Advantages) which are Interdependent. The competitive edge of enterprise is linked to its engagement in Foreign Direct Investment (FDI) which is more specific to the aspect of ownership of investing company. The greater the extent of competitive advantage, more would be the likelihood that company would able to engage itself in the foreign production. Dunning (2001) ascertained the significance of Local Advantages and also naned as the Major Determinant of foreign production. More precisely it has been determined that more the aspects of natural or created endowment supports the existence of foreign localtion, more the companies are willing to exploit the ownership specific advantages through the engagment in Foreign Direct Investment (FDI). In this regard, the framework developed in the result of United Nations Conference on Trade & Development (UNCTAD) is of great importance. This framework incorporates certain host country determinants (Business Facilitation, Economic Determinant & Policy Framework) which thus support the factor of FDI flows & stocks (UNCTAD, 1998, 2003). It has also been inclined that FDI is a complicated venture as they are mony host country factors are included in it. The relative significance of several location specific determinants could also be dependent on various factors (motive of making investment, the size of Investors and the sector of Investment). Whereas the significance of other economic factors are relied upon the motives of Multinational Enterprises (efficiency seeking, resource seeking & market seeking).

2.3. Inter-firm Cooperation & Joint Ventures

Inter-Firm Cooperation is becoming a significant concern in Strategic Management & International Business. A large number of International Joint Ventures (IJV) are forming each year. The theory of transaction cost is extensively utilised in the given alliances where the focus is on reducing cost and enhancing the operational efficiency. The theory of International Strategy perceived IJV as a strategic choice in overcoming the entry barriers and gaining competitive advantage. The theory of Strategic Management draws attention towards the need of prospective partners which could make possible to accomplish compatibility between their respective strategies and also would be a positive contribution towards the accomplishment of each partner’s strategic objectives (Child & Faulkner, 1998). The Resource Based View (RBV) inclines the alignment of partner firms’ resources, the potential of value creation (Das & Teng, 2000) and the Inter-organisational competitive advantage (Dyer & Singh, 1998).

In relation with the perspective of International Strategy, some studies depicts the distinction among traditional joint ventures based on foreign investment and the current partnership wave. The traditional Joint Ventures were made between Senior partner headquartered in Developed (Industrialised) country and a junior partner is based in under-developed country. The primary aim was to gain access in new market for the existing product. Local companies could access to new market offering (products) and often acquire knowledge from the senior partners. In difference to the traditional approach, the scope and motivation of International Joint Ventures (modern concept of strategic alliances) is seemed to be broadening. The main characteristic of modern form of strategic alliance is that it is used to be forged during the period of Industrial transitions when the competitive positions is shifting and also proved to be a defined situation for the purpose of building & sustaining competitive advantage (Bartlett & Ghoshal, 2000). The main motive behind the establishment of Inter-Firm Cooperation is the maximisation of profits through the expansion or the enhancement of competitive positions.

The mode of Market Entry is strongly attached to the extent and the kind of control which the company can exercise. Multi-National Enterprises (MNEs) can exercise the control of higher degree and entirely own by subsidiary than the equity-based joint venture. The motive for making alliances is faced with certain constraints (External or Internal). The firms has to deal with these constraints in relations with its current collaboration with the other company in achieving its strategic objectives. The external constraints are related to the country or locational specific factors: i) The entry barriers set by the foreign country’s government and ii) The risk stemmed from the local markets (Lu & Burton, 1998). The internal constraints are more precisely known as firm specific factors: i) lack of significant resources and ii) lack of critical capabilities (management skills, knowledge and technology).

Lu & Burton (1998) asked for more elaboration on the available fact of internal relationships with the context of alliances outlined in international strategy theory. In relation to competitive advantage, the cooperation strategies could offer valueable opportunity to the collabrating companies to enhance their market power. (Porter & Fuller (1986) highlight that coalition signify an important strategic choice within the context of International competition. An international alliance makes possible for the companies to enjoy benefits (shaption the industrial competition in the favour of ventured firms and economies of scale) but also sometime resulted in increasing fixed cost as well as making the process involved in the global coordination more compalicated. Companies in weak position postion could sustain & survive themselves against strong players in the industry through the coalition (Child & Faulkner, 1998). The challenging firms (in the form of alliance) could take necessary steps (obtaining resoutces, market access, technology or other strengths) to compete with the industry’s leader. Alliance in the form of International Joint Venture (IJV) create possibilities for the collaborative companies to develop competitive and sustainable edge over the major players hence it would be resulted in making the given collaboration more competitive.

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