International management joint venture in China

Contents

Introduction. 2

Overview of IBM-China Great Wall Computer venture. 2

Performance of IBM-China Great Wall Computer joint venture. 3

Overview of the joint venture between Volvo and Dongfeng Motor Group. 3

Performance of the Volvo-Dongfeng joint venture. 4

The nature of climate for foreign investors in China. 4

References. 6

Introduction

In the recent past, many joint ventures have occurred between Chinese companies and foreign firms. These ventures are being sought at a time when China’s economy continues to grow at an alarming rate. This is an indication that the business environment in China is becoming increasingly favorable to the operations of foreign companies. This paper explores two joint ventures between foreign multinational companies and Chinese firms.

The first joint venture is between IBM (International Business Machines), a US-based computer company and China Great Wall Computer Corp, a Chinese information technology firm. The second joint venture is between Volvo, a Swedish automobile company that manufactures big trucks and Dongfeng Motor Group Co., a Chinese company that manufacturers trucks of the same category. The paper discusses the business climate within which these joint ventures are undertaken as well as their performance in China.

Overview of IBM-China Great Wall Computer venture

In the joint venture between IBM and China Great Wall Computer Corporation, IBM’s objective was to promote its server market presence within China as well as the greater Asia-Pacific region. The new venture was given the name International Systems Technology Company.  The manufacturing facility to be established in the country would make IBM servers for sale in the Asia-Pacific market. IBM would own 80 percent stake at the company while Great Wall would take up ownership of the remaining 20 percent. In this co-operation deal, Great Wall agreed to IBM’s aim of providing services to enterprise customers within all industries and undertake business activities that constitute IBM’s competitive advantage.

Performance of IBM-China Great Wall Computer joint venture

Since the IBM-Great Wall Computer deal was sealed in 2004, the two companies have continued to operate together to increase their leverage in the Chinese market. In May 2011, the two companies even entered into a strategic cooperation plan involving a center solution for cloud computing. In this plan, Great Wall was allowed to adopt IBM’s cloud computing infrastructure to set up its own corporate cloud center in the Asia-Pacific region.

Overview of the joint venture between Volvo and Dongfeng Motor Group

The joint venture between Volvo and Dongfeng Motor Group came at a time when the Chinese big-truck market was struggling. In essence, Volvo, a Swedish company, had bet almost $1 billion in the struggling market by entering into a joint venture with Dongfeng Motor Group. Following this partnership, Dongfeng hoped to benefit from a major boost in its efforts to sell trucks abroad. Volvo, the company that makes Mack and Volvo trucks, counted a great deal on the 45 percent stake it would acquire in this deal. The new venture took up the name Dongfeng Commercial Vehicles. Its primary focus was on China, which is the leading market in the world for heavy trucks on the basis of vehicle sales.

Through this joint venture, Volvo has gained a unique opportunity of entering the Chinese market.  The number of heavy trucks sold in China is equivalent to a combination of all the heavy trucks sold in the North American and European markets. This demonstrates the great significance of this joint venture for Volvo. For Dongfeng, the greatest benefit was in the form of capital injection in the company’s truck operations. Moreover, the company benefited from Volvo’s technology as well as distribution channels. These benefits were in line with Dongfeng’s ambitions of becoming a global competitor in the area of heavy trucks as well as a global brand.

The Volvo-Dongfeng deal resembles a strategy that China has recently been pursuing in other business areas, particularly passenger cars. In these areas, the country lets foreign companies gain access to China’s rapidly-growing commercial and consumer markets in return for the creation of joint ventures with local companies and the sharing of technology. In this strategy, foreign companies end up teaming up with potential rivals to promote technical know-how and marketing capabilities. At the same time, these joint ventures do not prevent the foreign companies from pursuing research and development in such a way that their competitive advantages are maintained.

Performance of the Volvo-Dongfeng joint venture

The Volvo-Dongfeng deal, which was entered into January 2013, is still in place. Operations are set to begin early 2014. The delay in executing the deal is justified given the large magnitude of the deal, whose negotiations continued for seven years. When operations finally begin, these two companies will be working together to start developing new heavy trucks jointly. So far, Volvo remains supportive of the commitment demonstrated by China with regard to improved infrastructure construction and sustainable development.

The nature of climate for foreign investors in China

China has in recent years opened its doors to foreign investors. Since 1978, the country has been making concerted efforts to create administrative, judicial, and legal framework that is friendly to foreign direct investment (Chong, 2012). The country has also been establishing the necessary infrastructure with the aim of attracting long-term foreign investors. These changes have taken place largely because China has since 1978 been endeavoring to transform its centrally planned economy to one that is market-oriented (Chong, 2012). The Chinese government reverted to the market-oriented business environment in order to open up the country to foreign investors such as IBM and Volvo.

 

References

Chong, L. (2012). The China Venture: Business Environment and Strategic Considerations. Beijing: University of St. Gallen Press.