Development of Sino Foreign Ventures
In the recent past, the development of joint ventures between the Chinese and Western countries has become an increasingly popular trend.
However, many questions arise as to why this trend has become so popular. One of these questions concerns the reasons why investors gravitate towards this type of partnership despite the slowing Chinese economy, changing labor costs and the high-intensity scrutiny to foreign countries. In addition, there are challenges that these sino-foreign ventures have to deal with in their day to day business. These challenges have a negative impact on communication and organization between these ventures, reducing their level of effectiveness in the process. Therefore, it is important for multinational companies to consider various ways through which they can improve the current situations of Sino-foreign ventures with respect to communication and organization.
Reasons Why Sino-Foreign Ventures are Developed
A report by PwC (PWC is a multinational professional services network headquartered in London, United Kingdom. PwC ranks as the second largest professional services firm in the world behind Deloitte, and is one of the Big Four auditors, along with Deloitte, EY, and KPMG..2015) shows that the main reason why foreign investors partner with businesses in China is to meet the legal threshold(some basic rules) for doing business in that country. It is easier to get permits and documentation for businesses run by Chinese nationals than it is for other nationalities. The reason is that the state gives priority to the promotion and protection of domestic enterprises. As a plus, partnerships help pool together resources and workmanship skills.
While PwC focuses on the legal frameworks governing Chinese business, Pan and Zhang (2004) suggest the increasing rate of globalization as the main cause for proliferation in the number of Sino-foreign ventures in China’s business space. The world has metamorphosed into what scholars and intellectuals commonly refer to as a global village. With the larger space and huge fiscal potential of the Chinese market, many companies in the Western world are finding the country the most ideal destination for their expansive business models (Pan & Zigang, 2004). Foreign investors are keen on reaching this wide population with their products to increase their sales, expand their product portfolio and improve their profit margins. The Sino-foreign ventures are able to obtain access and control of distribution networks of the products they deal in. Firms that have embraced sino-foreign ventures are able to use domestic firms to distribute their product across China successfully (Cox & Chan, 2000). This was achieved by partnering with domestic firms and then using their already established distribution channels to distribute their own product. With the Chinese population, a firm that can master a market for their product and maintain it is way up the success platform already.
In addition to the legal framework surrounding Chinese business space, Sino-foreign ventures are established as a means to bridge the cultural and communication gap between the western and the Chinese. Chinese has a culture that gravitates towards collectivism while Americans have a culture that leans towards individualism (Jin, 2010). According to Jin, the Chinese prefer rational and ethical social and economic systems with strict norms that stress loyalty to those with tools of power. On the other hand, Americans focus on individualistic norms based on liberality and independence. The pivotal factor for Americans is their personal goals, which take priority over allegiances and loyalties. These two cultures contrast sharply with each other and undermine communication and organization for foreign business operating in the Chinese space. Therefore, if sino-foreign joint ventures want to achieve better development, they should seek common ground while reserving differences and pursue common interests.
Challenges Facing Sino-Foreign Ventures and Development of Sino Foreign Ventures
Even though sino-foreign ventures have been in existence for many years, there are still certain shortcomings that impact their level of effectiveness. First, the success of these ventures may suffer from divergent objectives and goals from foreign and Chinese investors. Most of the time, foreigners are simply focused on penetrating the Chinese market with their products. On the other hand, the Chinese are more interested in expanding their business internationally. These divergent interests are caused by different economic systems between China and the west (Fan & Zigang, 2004). Both partners, therefore, have to be open and receptive to each other’s interests and work towards achieving both without an inclination towards one objective than the other…
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