Technology Transfer: The Joint Venture In China
Authors: Cole Douglas 
Published: March 2010

Technology transfer is often cited as the key factor to obtaining a successful joint venture in China. Owing to the international complexities of Sino-Canadian joint ventures, a thorough understanding of the risks and hazards is required to ensure success of a project. Three case studies have been analyzed in order to identify common risks and hazards of joint ventures in China and the results of analysis are presented. Strategic management planning for joint ventures in Chinaare discussed in a generalized framework.

Introduction

Since the start of China's open door policy in 1976 several Canadian companies have attempted to conduct business in many of China's industrial sectors. While much of this activity comprises commodity and product sales, some activity has also been in the form of joint ventures. China has looked to Western sources for assistance and technology to develop its industries and in some cases, joint ventures have been formed to bring the necessary financial and technological resources to effect development. The purpose of this paper is to discuss factors critical to the success of Sino-Canadian joint ventures.

The author draws upon three case studies to demonstrate problems and alternatives facing Sino-Canadian joint ventures as they proceed through the initiation and start up phases. However, as each case is still in the early stages of development, confidentiality must be preserved. Hence, background information for the cases has not been provided. Nonetheless, these examples serve to show some problems encountered as Canadian and Chinese companies approach a joint venture. These examples will be augmented by other published cases to present a paradigm for joint venture success in China.

Why Joint Venture in China?

Joint ventures between Canadian and Chinese firms must deal with problems caused by differences in cultures as well as differences in legal and political systems. These factors, combined with logistical complications of overseas operations, can create a difficult business environment. Thus, it is worth examining the rationale behind a company considering business on an international scale.

Several macro-economic theories have been postulated, including the comparative advantage theory and its subsequent modifications (Korth, 1985). This theory is inadequate to explain a company's global involvement in exploration and production of primary commodities, such as raw minerals and crude oil. Dunning (1988) presents a more plausible theory for such situations. He argues two factors can give rise to international production; factor endowments and market imperfections.

Differences in factor endowments, such as natural resources, labour and technology create a situation where international production can become mutually beneficial for both the host country and the foreign company. This model holds true for the Sino-Canadian situation. China has substantial amounts of undeveloped natural resources and a supply of low cost labour while Canadian companies hold a supply of technology and financial resources. These differences in factor endowments can provide sufficient motivation for Canadian firms to consider exploration and production of primary commodities in China.

The second strand of Dunning's theory explains why manufacturers would consider production in China.