Identifying key factors for successful joint venture in China

Identifying key factors for successful joint venture inChinaJiaqin YangDepartment of Management, Georgia College and State University, Milledgeville,Georgia, USAHuei LeeDepartment of Finance and Computer Information Systems, Eastern MichiganUniversity, Ypsilanti, Michigan, USAKeywordsInternationa l trade, Joint ventures,China, Analytic hierarchy processAbstractChina has become one of the topthree nations for attracting foreigninvestment in the internationalmarket since 1990. Hundreds ofinternational corporations arecurrently competing for businessopportunitie s in China in the formof joint venture or directinvestment. Both successfu l jointventures and failed investmentshave been reported. Research,addressing issues of the conflictsbetween different cultures,traditions, as well as valuesystems, has appeared recently,but few focuses on identifyin g thekey factors and their managerialimplication s for foreign investorsto successfull y enter China’smarket. This paper presents anapplicatio n of analytic hierarchyprocess (AHP) in such an effort,through a case study of ChinaMotorola. This study shows thatfor foreign investors, by identifyin gkey success factors and thenincorporatin g those factors intofirm’s long-term businessstrategies and policies canenhance their businessopportunitie s in China for a longtime to come, even under China’scurrent complex economic andmarketing conditions .Industrial Management &Data Systems102/2 [2002] 98±109# MCB UP Limited[ISSN 0263-5577][DOI 10.1108/0263557021041964 5][ 98 ]IntroductionWith the fastest growth rate in last twodecades, China has become one of the largestmarkets for international business.Hundreds of international companies havebeen competing for business opportunities inChina in the form of joint venture or directinvestment ± since the Chinese Governmentopened its market in the 1980s. As itseconomic reform continues, China’sperennial economy expansion scale and hugemarket potential have been continuouslyattracting the attention of internationalbusiness giants (Ma, 1997). By the end of June1997, it was reported that over 200,000business joint ventures had been registeredin China, with a total foreign investment of$204 billion ($15.7 billion from US companies)(China National Statistics Bureau, 1997). TheInternational Monetary Fund (1997) predictthat if China can sustain its current growthrate, its GDP will reach the total GDP of theEuropean Union and the USA in ten years.The World Bank (1997) indicate that amongthe world’s five largest developing countries± China, Russia, India, Brazil, and Indonesia,China has the most potential for growth andbecoming one of largest markets forinternational business.The adjustment of government policy alsoplayed a role in the recent increase of foreigninvestment in China. For example, in orderto provide foreign investors more freedom incurrency exchange, two governmentguidelines were published in 1996 regardingopen foreign investment ± IntroductoryIndustrial List for Foreign Investment andCurrent Regulations Against ForeignInvestment in China. As a result, after July1997, foreign investors were allowed to maketheir bank transactions based on aninternational currency or free exchange fromThe current issue and full text archive of this journal is available athttp://www.emeraldinsight.com/0263-5577.htmChina’s $RMB to international currencies.More importantly, a new government policywas established to provide foreigncorporations with more flexibility inselecting investment alternatives amongrelated industries, such as: the joint stockholding companies (e.g. investment in themanufacturing industry), the investmentcompany (e.g. banking and bond industry),the mutual fund institutions (e.g. financialmanagement industry), and foreign tradebusinesses. Consequently, many foreigninvestment joint ventures in internationaltrade, global air transportation, banking andfinancing, business insurance, as well asprofessional accounting and legal consultingservice companies had opened their firstoffices in Shanghai, Beijing, and Shenzheng(three most important cities in China)recently (Yuan, 1997). The Chinese NationalStatistics Bureau (1997) annual reportstrongly supports recent policy changes byshowing that the 1997 national tax revenuewas increased by 17.2 percent, while incomparison, 1997 tax revenue from jointventures and foreign investment companieswas increased over 55 percent ± three timesmore than the national average.International corporations have exploredtheir business opportunities in China duringthe last two decades. Both successful jointventures and failed investments werereported with mixed feelings and evaluations(Miller et al., 1997). Research addressing theissues of the conflicts between differentcultures, traditions, as well as value systemshas appeared in the recent literature, but fewfocuses on identifying the key factors forforeign investors to successfully enterChina’s market under its current politicaland economic systems ± because there are somany factors involved (economic, political,social, cultural, etc.) and many factors areinteractive with complex relationships. Infact, such a problem should be viewed as atypical multi-criteria multi-attributedecision-making problem. In the current

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109literature, one of the most preferredapproaches to such multi-criteria multiattributeproblems is the analytic hierarchyprocess (AHP) (Satty, 1988, 1990, 1994).AN AHP approachThe AHP has been proposed in recentliterature as a solution approach to large andcomplex real-world multi-criteria multiattributeproblems (see Albayrakoglu, 1996;Tavana and Banerjee, 1995; Weiss and Rao,1987). The AHP has been applied in a widevariety of complex decision-makingproblems, as in Dyer (1990), Gass (1986),Korhonen and Wallenius (1990), Perez (1995),Satty (1980), Sun et al. (1996), Tversky andSimonson (1993), and Yang and Lee (1997). Anearlier survey provided over 200 knownapplications of the AHP (Zahedi, 1986). Thesoftware package that implements theoriginal AHP (Satty, 1980) ± Expert Choice ±has been also promoted in a recentpublication (Expert Choice, 1992).Identifying key success factors for jointventures in China is a typical multiattributesmulti-criteria problem. Theproposed AHP model for identifying keysuccess factors is depicted in Figure 1. Asshown in Figure 1, after managerialobjectives are defined, the AHP model startswith identifying pertinent factors. Thesefactors are then structured into a hierarchydescending from an overall objective tovarious importance criteria and subcriteriain successive levels. In the AHP, organizingfactors in a hierarchy serves two purposes:1 it provides an overall view of the complexrelationship inherent in the situation; and2 it helps decision makers assess whetherthe issues in each level are of the sameorder of magnitude, so homogeneity incomparisons is preserved.The AHP approach is thus selected in thisresearch to analyze the multi-criteria multiattributeproblem ± identifying key successfactors for foreign investors to successfullyenter China’s market under its currenteconomic and political systems. This AHPapplication is illustrated through a casestudy of Motorola, China Incorporated.Influential factors for jointventures in ChinaLarge multi-national (MN) corporations arethe major source of international capitalinvestment. One recent trend for those MNcorporations is to globalize their operations.In order to be competitive in the globalFigure 1AHP process of identifying key success factorsmarket, those MN corporations have adoptedmore aggressive operations strategies whichcan often be characterized as ``to bring thehighest quality products with the lowestprice to enter new markets’’ (Rhinesmith,1996; Sundaram and Black, 1995). Two majorfactors used by those MN corporations inselecting new market targets are:1 internal strength, including operationalcapability, technology advancement,competitive edge, and potentialprofitability; and2 external conditions and opportunities ±such as: the stability of political andeconomic systems of the nation underconsideration, as well as its technicalconditions, labor availability and quality,and potential market size (Mann, 1997).As more MN corporations entered China’smarket and run their businesses withinChina’s economic system, their successesand failures have attracted research interestsin recent publications (Davis, 1997; Lin, 1997;Wang et al., 1997). For example, a fieldresearch selected 475 foreign investors (fromthe USA, Japan, South Korea, Europeannations, Singapore, Taiwan, and Hong Kong)in three major Chinese cities ± Beijing,[ 99 ]

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109[ 100]Tianjin, and Shanghai. A total of 60 percent ofinvestors surveyed, indicated that theircompanies would expand future investmentin China, 30 percent would at least maintaintheir current investment levels, and only 10percent would reduce their futureinvestment to some degree. Almost allsurveyed were optimistic about theperspective of future investmentopportunities (Yuan, 1997). In this survey, allinvestment environment factors were firstgrouped into six categories, then each wasfurther expressed in several subfactors asshown below:1 Basic infrastructure conditions:Local transportation system.Telecommunication capacity.Safety and social work system.2 Labor and quality of life:Prevailing wage rates.Labor availability.Labor skill levels.Community attitude.Ambiance/cost of living.3 Government policy flexibility:Stability of government policy.Efficiency of local government.Cooperation of local governmentalagency.4 Market potential:Location of competitors.Local market potential.5 Economic law and legal system:Community attitude.Local environmental regulations.State/local governmental legalprotection.6 Supportive service facility:Local communication channels.Local information processing centers.Supportive living facilities forforeigners.Church and schools for foreigners.Entertainment facilities for foreigners.Another research examined over 200 foreigncompanies (which have joint venture inChina) about the key success factors. Twoimportant factors identified were culture andinformation- and networking-related asshown below:1 Culture-related factors:Developing interpersonal relationships.Familiar with the Chinese negotiationprocess.Understand Chinese thinking process.Apprehend traditional Chinesemanagement styles.Acquainted with Chinese criteria foremployee evaluation and workassessment.2 Information and networking-relatedfactors:Effective communication with Chinesefirms from overseas.Effective communication within China.Efficient and legally collect businessand industry information in China.Recruiting technical personnel locally.Develop regular contacts with ChineseGovernment agencies.Understand Chinese governmentalpolicy.Understand the relationships betweenChinese partners and correspondinggovernment agencies.Recognize the real authority (ordecision makers) within Chineseorganizations and local governmentalagencies.In order to evaluate the risks andopportunities involved in doing business inChina, Germany Federation of Commerce(GFC) surveyed 74 German companies ±which had joint ventures or direct investedmanufacturing plants in China. A total of 70percent were ``very satisfied’’ or ``satisfied’’with their cooperation from their Chinesecounterparts and indicated that theircorporations would increase theirinvestment and production capacity in thenear future. While over 90 percent surveyedwere confident that their products would becompetitive not only on China’s domesticmarket, but also on the internationalmarketplace. Finally, a research, focusing onhigh-tech industries, surveyed 800 jointventures, which were located in China’s neweconomic development zones to investigate thedifferent expectations from the joint venturesbetween foreign investors and their Chinesepartners (Lin, 1997). The survey resultsrevealed that those different expectationscould be compensatory to both sides and havea positive affect on the success of the jointventure (as illustrated in Tables I and II).For example, while the primary objectivefor MN corporations to invest in China is to``overcome potential trade barriers’’ withlocal production plants so as ``to open China’shuge market’’, their Chinese partners areseeking foreign investment for a jointventure business so that their MNcorporation partners will bring in the``production technologies which normally arein relative more advanced stages’’ and thus to``improve the local plants’ R&D capability’’through system installation, maintenance,and employee training programs. Theseexpectations from the two sides of a jointventure business are evidently compensatoryto both sides, as illustrated in Table I

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109Table IDifferent expectations between foreign investors and Chinese partnersExpectations Foreign investors Chinese partners1 Open China’s market for its products Adopt advanced production technology2 Overcome trade barriers Improve R&D capability3 Take advantage of low cost labor and materials Open more information channels4 Expand existing techniques from home facility Looking for allies for international competition5 Reduce financial risks Add new financing source6 Protect copyright for intellectual products Increasing firm reputation from famous brand7 Reduce capital input in investment Utilize current and available resources8 Access natural resource Reduce operational risksTable IICompensatory factors between foreign investors and Chinese partnersFactors Foreign investors’ needs Chinese partners’ needsAdvanced technology Promote its technologyProtect copyrightIntroducing new technologyUpgrade current equipmentChina’s market Overcome market barrierIncreased demand from continuing growthIncrease market sharesLabor resource High skilled labor with low cost and good More employment and job opportunitiesethicsCapital resource Investment diversity and high return options More capital for facility and technologyupgradingInformation channels Have established global informationchannelsNeed connection with global businessinformation networkGlobal alliance New partners to expand international Initialize toward globalizationnetworkIncentive policy Gain tax and all other governmentalincentivesSupport from governmental incentivepoliciesGlobal market Expand new market and improvecompetitivenessEnter international market and participatecompetitionReduce riskDiversify investment and share potential risk Improve management system and controlinvestment riskIncrease profit Invest in fast growth area for high returns Experiencing fast growth and need capitalinvestment(expectations 1 and 2). Another recognizedmotivation for those MN corporations to``expand their current productiontechniques’’ into their newly-built Chineselocal facilities is to prolong thecompetitiveness of their existing productiontechnology, while ``reducing the financialrisks’’ through diversifying their productionfacilities over worldwide locations. Suchefforts are just what their Chinese partners``looking for global allies (who have`sufficient financial sources’) in theworldwide competition’’ (expectations 4 and 5in Table I) expect. Similarly, somecompensatory factors between foreigninvestors and their Chinese partners arequite attractive, as revealed in Table II. Thebest illustration is about ``labor resource’’(the third factor in Table II). During the lasttwo decades, China’s abundant laborresource has provided a great amount of highskilled labors at a relatively very low cost tothese MN corporations and their Chineselocal plants. On the other hand, thoseemployment opportunities have been highlydesired during the current on-going China’seconomic reform process; in most cases, theyare rare high-pay jobs competitively soughtby the Chinese general public. Anotherrevealing example is in relation to``information channels’’ (the fifth factor inTable II). After being isolated from theoutside for over 30 years, Chinese companies,large or small, are all strongly in need ofconnection with the global business worldand international business informationnetworks. In a win-win situation match,strong international business connectionsand established global information networksare the distinctive strengths of most MNcorporations and just what those companieshave used in their joint venture negotiationsin China.In summary, there are essential differencesbetween China and Western countries interms of cultures, traditions, social value[ 101 ]

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109[ 102]norms, and political and economic systems.Those differences do prescribe the issues andchallenges for the MN corporations tosuccessfully operate their businesses inChina (Davis, 1997). It is expected that thecompetition among large MN corporationsfor entering China’s market and thecompetition between foreign joint venturesand Chinese local companies will be furtherintensified in the coming years (Miles, 1995).The research directed to identify key successfactors for foreign investors in China ± aspresented in this paper ± will make insightfulcontributions to the business practice andthe related literature.In order to apply the proposed AHP modelon a real-world example, five major factors(political, economic, cultural, societal, andmanagerial) are summarized and discussedbelow, as key influential factors forinternational corporations to enter China’smarket and operate successfully as jointventures.Political factorsSince 1949, there has been numerous powerstruggles within China’s political system ±which, in turn, had affected China’seconomic system each time to a differentdegree. Not surprisingly, political factorssuch as: the stability of government and itspolicies, the trend of political reform, thedevelopment of economic and legal systems,and the efficiency of governmental agencies ±all will have an impact on the decisions andoperations of foreign investors and theirjoint venture businesses.Economic factorsAfter economic reform started in the early1980s, China’s economic system has been in atransition period from an ``old’’ centralizedplanning economy to a more open anddecentralized market economy. As a result,the linkage and interaction between China’smarket and economy and the internationalmarket and economy, have increaseddramatically. Most economists believeChina’s economic reform has reached thepoint of ``no return’’ (Ma, 1997). For foreigninvestors, however, the stability of China’seconomic policies, the establishment of abusiness legal system, the consumerconfidence level and actual income increase,the development of industrial infrastructurecomponents (e.g. energy, transportation, andcommunication), and the growth rates ofChina’s economy and market all require aclose watch for their further investment andoperational decisions (Yuan, 1997).Cultural factorsWith 5,000 years of civilization history,Chinese culture, tradition, and its valuesystem have a significant impact on theoperations of all Chinese businesses, as wellas those joint ventures in China. As thelargest country in population, China has 50plus different minority groups of people ±each has its own culture, custom, norm,tradition, even unique holidays andlanguages. Also, as one of the top threenations in land size, China ± isgeographically divided into many regionalcenters across the nation ± each has uniquecultural aspects in terms of tradition, value,social norm, belief, and organizationalfeatures. For example, the cities of Shenyang(in the northeastern Liaoning Province),Nanjing (in the eastern Jiangsu Province),and Xian (in the northwestern ShanxiProvince) become specific regional politicaland cultural centers largely due to theirhistoric roles ± which have some carry-over``negative traditions’’, such as the lack ofcompetitive nature in business practice. Incomparison, the cities of Shanghai, Tianjin,Guangzhou, and Wuhan ± have beendeveloped into regional business centers,mainly due to their geographic locations ±now displaying a more modern businessorientedculture. Those unique culturalfactors will present numerous challenges toforeign investors and international jointventure managers.Societal factorsThere are many important societal factorswhich will have an impact on the success ofan international joint venture in China. Forexample, building a good relationship withrelated government agencies sometimes maybe a key in solving a critical production andoperational problem. Fully understandingthe structure of governmental chain ofcommand and the exact functions of differentagencies might help firms obtain importantinformation and a good business deal. Activeparticipation in public activities andassistance to local educational and economicdevelopment projects would enhance thedevelopment of a company’s businessreputation and good public image ± which, inturn, could bring more long-term businessopportunities.Managerial factorsA business joint venture is an attempt ofcooperation between two or more businesspartners. For a foreign investor, the firstchallenge is how to choose a Chinesebusiness partner in the selected industrywithin a preferred geographical area. After

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109an initial period, the accomplishment ofbusiness objectives is more dependent on thequality of the cooperation between themanagers of two partners. To some degree,for the CEOs who represent foreign firms,their managerial styles, methods, andapproaches should be adaptive to fit Chineseculture, tradition, and the existing system inorder to make certain that their decisions areacceptable to their Chinese counterparts. Forinstance, US managers are trained to makemanagerial decisions followingconsiderations in the order of legal, logical,situational, and personal. In contrast,Chinese managers will try to solve problemsfollowing an order of personal, situational,logical, and legal considerations. That is, intransferring their original corporationculture into Chinese plants, the manager ofthe international joint venture should followa slow, graduate, and step-by-step process ±with appropriate adjustment according to itssuitability and acceptability to Chineseemployees.The five factors discussed above are thusused in the proposed AHP model in thispaper. Each factor is disaggregated intoseveral subfactors ± which are furtherdescribed in detailed characteristics thatapply to each one. These five factors and theselected 27 subfactors (in two levels) are thenstructured, as shown in Table III, into adecision hierarchy. (Note: The degree ofdetail and the number of levels can certainlyvary with the complexity of the situation, theamount of available resources, and the desireof decision makers.) From Table III, two setsof data are needed for the proposed AHPmodel:1 specific data of each factor and subfactor;and2 estimated ratings about relativeimportance among factors and subfactors.A questionnaire survey was conducted forthis purpose over a six-month period[1] inwhich over 300 international joint ventureswere selected from five major Chineseregional economic centers:1 Beijing;2 Shanghai;3 Guangzhou;4 Tianjin; and5 Dalian.Those firms were chosen from a variety ofindustries: electronics, automobile, foodprocessing, chemicals, and the like. Based onthe data collected from the survey, thepriority weights of all factors and subfactorswere determined using pairwise comparisonbetween each factor at a particular level.Composite weights of factors were decided bymultiplying the weight of the subfactor bythe weight of the factor directly above in thehierarchy. The result of composite weightscomputation can be seen in Table III.A case study: Motorola ChinaIncorporatedMotorola Incorporated is one of the pioneersamong the MN corporations who targetedChina’s huge market for its products sincethe early 1980s. After its first branch office ±the Motorola, China Incorporated ± opened inBeijing in 1987, it has become the top foreigninvestor in China with one full ownershipand seven joint venture corporations acrossthe country, plus five undergoingcooperative business projects involving atotal of $1.5 billion. By the end of 1998, thecompany’s annual sales reached 23.6 billionof Chinese $RMB. Its investment primarilyfocused on the semiconductor industry suchas cordless phones and pages ± which hasbecome very popular in China in recentyears (Zhou and Wang, 1997). The companynext targeted the satellite communicationequipment industry as its new investmentdirection with a total of $2.5 billion by theyear 2000. The growth of Motorola, ChinaIncorporated has been exceptional andviewed as a great success. Recognizing thebenefit of several key external factors (suchas: government incentive policies, rapideconomy growth, and favorable investmentenvironment), the success of Motorola ChinaIncorporated could be attributed to itsmanagerial effort in terms of:Promote key strategic policies, such as:investment in manufacturing along withproper technology transfer; recruitmentof local professionals; and a continuingeffort to increase local part supplies.Reinvest profits earned in China intoChina’s rapid-growing capital-hungryhigh-tech industries, and sharing both therisks and problems with its Chinesepartners.Developing a trust between the two sidesof cooperation, building trust and respectbetween management and local employeesand develop an effective benefit andincentive system which reflects bothWestern management principles andpopular Chinese traditions.Improve product design according to theneed of local market, make commitment totheir Chinese partners and localemployees for their success.Persisting in effective communicationwith government agencies and Chinesepartners.[ 103 ]

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109Table IIIKey factors and subfactors and composite prioritiesFactorFactorpriorityCompositepriorityA: Political factor 0.4214 0.4214A1 ± Stability of government 0.6919 0.2917A2 ± Determination of leadership 0.2308 0.0973A3 ± Efficiency of government agency 0.0769 0.0324B: Economic factor 0.3210 0.3210B1 ± Stability of economic policy 0.1738 0.0557B2 ± Incentive to foreign investors 0.0391 0.0126B3 ± Annual income growth of household 0.0887 0.0285B4 ± Labor cost 0.0607 0.0195B5 ± Fitness to domestic industry 0.0447 0.0143B6 ± Economic reform perspective 0.2335 0.0750B7 ± Market growth and potential 0.3111 0.0999B8 ± Energy/transportation infrastructure 0.0288 0.0092B9 ± Telecommunication development 0.0198 0.0084C: Cultural factor 0.0768 0.0768C1 ± Local business environment 0.0578 0.0044C2 ± Local corporation culture 0.2818 0.0216C3 ± Compatibility of involved culture 0.5212 0.0396C4 ± Local labor skill and supply 0.1454 0.0112D: Societal factor 0.0468 0.0468D1 ± Relationship with government agency 0.2839 0.0133D2 ± Information channel and availability 0.0718 0.0034D3 ± Participation in public activity 0.0473 0.0022D4 ± Protection from legal system 0.5970 0.0279E: Managerial factor 0.1339 0.1339E1 ± Technology appropriateness 0.4053 0.0543E2 ± Acceptable management approach 0.1623 0.0217E3 ± Attractiveness to skilled labor 0.1092 0.0146E4 ± Part supply localization 0.0442 0.0059E5 ± Middle managers localization 0.0296 0.0040E6 ± Compatibility of incentive system 0.0745 0.0100E7 ± Support to quality/technology/services 0.1750 0.0234And, more importantly, adjustingbusiness policies accordingly based on afull understanding about governmentpolicies and regulations and local cultureand traditions.The effort described above can be furtherillustrated with the following facts. Theproportion of parts and components thecompany ordered from China’s domesticsuppliers had increased from less than5 percent in 1990 to near 50 percent by 1997(valued over $200 million) and was expectedto reach 65 percent (over $1.2 billion) by theend of year 2000. Furthermore, a detailedreport revealed that, in 1996 only, thecompany ordered parts and components from130 local Chinese companies located in 50different cities and valued at $262 million ±which, in turn, resulted in subcontractorders (indirectly) of raw materials andprocessing services from more than 600 otherlocal firms valued at $213 million. During theprocess, the company consistently provided asignificant assistance to their local suppliersin improving their management regardingproductivity and quality. In terms ofsupporting local communities, the companyhad purchased hundreds of residentialapartments for their local employees,donated a $100 million to help local suppliersupgrading technology and equipment, andoffered financial support to both localelementary school systems and several localuniversities with special scholarships namedas: ``Motorola Scholarships’’.Motorola China Incorporated was selectedin this paper to illustrate the proposed AHPmodel. To simplify the calculation, 17subfactors were selected from the 27subfactors under five key factors (from TableIII) ± and then structured into a two-leveldecision hierarchy (as shown in Table IV).With the help of the company’s topmanagement, 20 managers (middle level orabove) of Motorola China Incorporated[ 104]

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109Table IVMotorola China Inc. key factors and composite prioritiesFactorFactorpriorityCompositepriorityA: Operational factor 0.4436 0.4436A1 ± Effective long-term business development strategy 0.5126 0.2274A2 ± Well-defined operational policies 0.2160 0.0958A3 ± Careful selection of investment location 0.1605 0.0712A4 ± Part supply localization 0.0413 0.0183A5 ± Employment localization 0.0696 0.0309B: Managerial factor 0.1582 0.1582B1 ± Employee-oriented management approach 0.6333 0.0968B2 ± Compatible benefit and incentive system 0.2605 0.0398B3 ± Comprehensive employee training 0.1062 0.0162C: Cultural factor 0.0892 0.0892C1 ± Integrating Western and Chinese culture into company’s policy 0.6333 0.0565C2 ± Strong company background, reputation and corporation culture 0.2605 0.0232C3 ± Attractiveness to high quality professionals and high skilled laborers 0.1062 0.0095D: Societal factor 0.0526 0.0526D1 ± Good relationship with government agency 0.6333 0.0333D2 ± Active participation in public activity 0.2605 0.0137D3 ± Assistance to China’s economic reform policy study 0.1062 0.0056E: Technological factor 0.2618 0.2618E1 ± Technology appropriateness 0.6333 0.1658E2 ± Techniques and process design satisfying Chinese industrial needs 0.1062 0.0278E3 ± Leading in new product development 0.2605 0.0682actively participated in a face-to-facequestioning procedure to rate the relativeimportance of each selected factor andsubfactor. The result of composite weightcomputation is also presented in Table IV.Managerial implicationsManagerial implications can be learned fromTable IV. For example, ``an effective longtermbusiness development strategy’’ (A1), asexpected, played a key role in the success ofMotorola China Incorporated (indicated bythe highest overall composite priority of0.2274), followed by the factor of ``technologyappropriateness’’ (E1) (an overall priority of0.1658). The first (A1) demonstrates, again,that for any business to be successful intoday’s competitive marketplace, the firm’sstrategy must be developed based on its longtermstrategic objectives for a specificmarket. From the beginning, Motorola ChinaIncorporated established its long-termstrategic objectives based on a carefulresearch regarding China’s market, supply,labor and technology, as well as economic,social, and political development. Thecompany’s strategic objectives were thusfocused on the long-term market share andthe development of positive, trustworthy, andcooperative relationships with the Chinesepartners and government agencies. Thecompany’s decision of reinvesting all earlierprofits into the further expansion andproviding the best technical support to thelocal partners were made consequentially tosupport the company’s long-term strategicobjectives. The second (E1), ``to introduce themost appropriate technology’’ (from adeveloped nation into a developing nation)was here reinforced by its importance forinternational business establishments (froma developed nation) ± to transfer thetechnology which fits the local partners’need, financial capacity, skill level ofworkers, and the development direction ±when they expand their operations intodeveloping countries.In fact, based on the feedback of thisresearch as well as other related factors, theMotorola China Incorporated has establisheda research unit (named ``the Institute ofMotorola China’’) in Beijing, November 1999± which has a total of 18 R&D centers acrossChina with more than 650 high-levelresearchers on an annual budget of $2,200million. The primary objective of thisresearch institute is to study and investigatethe issues from the technology transfer andto identify the most appropriate technologieswhich will fit the needs of the company’sChinese local partners in the targetedindustries ± such as: semiconductor industry,cordless phone and communication devises,and satellite equipment (Wu, 1999). The[ 105 ]

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109[ 106]company believes ± while all its majorcompetitors agree ± that the effort ofenhancing technology cooperation andtechnology transfer processes by MotorolaChina Incorporated has put the company in amuch advantageous position for futurecompetition (Wu, 1999).Additionally, Table IV reveals that ``thewell-defined operational policies’’ (A2) and``the employee-oriented managementapproach’’ (B1) were also believed tocontribute greatly to the company’s success(next two highest priority weights of 0.0958and 0.0968). Similarly, the contributions tothe company’s success in China, if ranked bythe overall priority weights (Table IV), willfollow an importance order of ``carefullyselecting investment location’’ (A3 ±0.0712),``keeping a leading position in new productdevelopment’’ (E3 ±0.0682), and ``the effort ofintegrating Western and Chinese culturesand traditions into a consistent company’spolicy’’ (C1 ±0.0565). Localization andbuilding cooperation have attracted theattentions of those MN corporations in recentyears, as indicated here in Table IV by thecorresponding overall priority weights of``employment localization’’ (A5 ±0.0309),``good relationship with governmentagencies’’ (D1 ±0.0333), ``techniques anddesign satisfying Chinese industrial policy’’(E2 ±0.0278), ``part supply localization’’(A4 ±0.0183), and ``comprehensive employeetraining’’ (B3 ±0.0162). Finally, the company’spublic image and reputation are also showingthe long-term importance in some degree, asindicated by ``a strong company backgroundand reputation’’ (C2 ±0.0232), ``itsattractiveness to high quality employees’’(C3 ±0.0095), ``active participation in publicactivity’’ (D2 ±0.0137), and ``assistance toChina’s economic reform policy study’’(D3 ±0.0056).The management of Motorola ChinaIncorporated has responded to this researchresult very positively. In terms of ``partsupply localization’’ and ``techniques anddesign satisfying Chinese industrial policy’’,through extended cooperative research effortwith Chinese local research institutes andmore technology transfer projects, theMotorola China Incorporated had furtherexpanded its local supplier network with 200more new added local part suppliers. For theimportance of ``carefully selectinginvestment location’’ and ``keeping a leadingposition in new product development’’, thecompany recently selected the city ofChengdu ± the capital city of SichuangProvince, the largest state of the nation,which serves as the economic and businesscenter covering China’s huge Southeastregional market ± as the location for thecompany’s new ``mobile communicationnetworks research center’’. This is anattempt to keep the technological leadingposition in the new communication productdevelopment, while placing its force at thelocation of an important economic andbusiness center of a huge potential market topreempt any serious potential competition inthe near future.Specifically, the following points can besummarized from the analysis of theproposed AHP model for successfulinternational joint ventures in China:The stability of government, politicalstructure, and governmental policies havebeen viewed by internationalcorporations as essential preconditionsfor their future investment in China. Themanagerial implication here is that whileinternational corporations should actpositively toward government stabilityand policy and prepare for the bestoutcome, they should also be prepared incase of unexpected events ± with acontingency business plan.The market potential with the expectedgrowth rate in a foreseeable future hasbeen ranked as the second most importantfactor for future investment in China ± byalmost all international corporations.Currently, all published reports predict apositive trend in China’s market growth.The managerial implication ± ``beprepared so that you are always one stepahead of your competitors’’.The appropriateness of transferredtechnology and techniques in relation totheir local Chinese partners’ needs,technological base, financial affordability,skill levels of engineers and workers willplay a key role in the success of aninternational joint venture in China ± asthe success of Motorola ChinaIncorporated demonstrated. This pointhas been well justified in this research.``Understanding the local culture andtraditions’’ has been well addressed in theinternational business literature forinternational corporations operating theirglobal operations ± especially indeveloping countries. Integrating Westernand Chinese cultural elements andtraditions into a company’s businesspolicies and operational procedures andensuring those policies and proceduresare protected by local legal systems ± hasemerged as another key success factor foran international joint venture in China ±as demonstrated in the case study ofMotorola China Incorporated described inthis paper.

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109A comprehensive technical supportnetwork with sufficient employee trainingand a strong corporation culture will alsomake a significant contribution to thesuccess of an international joint venturein China. It is partially explained by thefact that a weak technical foundation inChina’s industries and a lack of disciplinein Chinese workers ± inherited from the``old’’ state-owned era. The MotorolaChina case offers an excellentdemonstration to this point.Like in most developing countries,China’s Government policy favors aninternational corporation whoseinvestment is in the direction of nationalindustry development ± that is just whatMotorola China has wisely selected fortheir investment during the last decade.One managerial implication from thispoint is ± there is an intangible benefitside of an investment decision whichcould place a company in a favorableposition with the related governmentagency and building cooperativerelationships with both local and centralgovernments.The ability to attract high quality localprofessionals and highly-skilled laborersis certainly another key success factor foran international joint venture business,especially for high-tech industries. As inmost developing countries, low-skilledlabor will never be in short supply, buthigh-quality professionals (e.g. engineersand technicians) and highly-skilled labormarket is very competitive. A competitivebenefit and incentive program isnecessary to keep high-quality employees,as the Motorola China case suggested.Finally, for an international corporationto successfully operate as a joint venturein a developing country (like China),increasing the proportion of parts/components provided locally by localizinga company’s parts/components suppliernetwork is such a key factor ± because itwill not only result in a direct reduction inmaterials costs, but also in improvementon several key business performancemeasures ± including reductions inmanufacturing leadtime, reducedinventory level, revenue stability (againsta foreign currency exchange ratefluctuation) and, perhaps moreimportantly, solidifying theirrelationships with local government andcommunity.Summary and future researchThis paper presents an AHP application ±identifying key factors for successfulinternational joint ventures in China ±through a case study of Motorola ChinaIncorporated. The result shows that byidentifying key success factors andincorporating those factors into firm’s longtermbusiness strategies and policies, foreigninvestors could greatly enhance theirbusiness opportunities in China ± even underChina’s current complex economic andmarket conditions.Developing new market territory throughbusiness joint ventures in China will becomemore competitive for foreign investorsduring the next decade. An early preemptivebusiness with successful operations will gainfirms invaluable advantageous positions inthe future competition. Identifying keysuccess factors and incorporating thosefactors into firms’ long-term strategy andpolicy will certainly contribute to the successof international business joint ventures inChina for the time to come.In a recent published survey published byFortune magazine, the Motorola ChinaIncorporated was ranked second as the mostwelcomed foreign investors in China. Citedby its local Chinese partners, the majorcriteria for Motorola China on its highregard in the ranking include the:international corporation which fullyunderstands China’s economic andpolitical systems and consistentlyrespects China’s culture and traditions;international business giant which insistson sharing both the benefits and riskswith its Chinese local partners; andinternational joint venture which alwayssearches for a win-win solution approachto both sides in handling its businessdecisions, even under some difficultconditions (Wu, 1999).A well-known example is about its dealingregarding the possibility of China to beofficially accepted by the World TradeOrganization (WTO) as a member. ManyChinese local businesses have worried aboutthe potential that international businessgiants will pour in their products to China’smarket to take full advantage at the expenseof less competitive Chinese local businesses ±after China becoming a former member ofWTO. To overcome those negative concernsand create a win-win situation, as suggestedin this paper, the Motorola China hasre-enforced the company’s policy ofdeveloping local part suppliers (at an annualrate of 170 new local plants in year 2000),[ 107 ]

Jiaqin Yang and Huei LeeIdentifying key factors forsuccessful joint venture inChinaIndustrial Management &Data Systems102/2 [2002] 98±109[ 108]increasing the proportion of parts/components produced by local suppliernetwork (reached to 60 percent in year 2000),and promoting the company’s globalpurchasing from China (reached a total of$6.7 billion in year 2000). Positive news to thecompany came from the 2nd InternationalJoint-Venture Business New Year Forum ±held in Tianjin, China, 1-3 January 2001. Inthis conference, the Motorola China wasrecognized as the best internationalcorporation in China ± which always seeks awin-win solution approach for both sides(Cong, 2001).This research was initiated by an internalrequest from Motorola China Incorporated tolook for an analytical model which canstratify numerous factors/subfactors into ahierarchy and analyze normally complexrelationships among factors for large-scaledproblems. 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