The Sustainability of Joint Ventures between State Owned Enterprises and Global Firms for Car Making Business in China

Byunghun Choi
(Kongju National University, Korea)

Abstract: Since 2009 China has kept the first place globally at the automobile production and the sales volume. The practical growth engine for China’s automobile industry is Joint Venture (JV) makers between State Owned Enterprises (SOEs) and global makers which having concentrated on passenger car making business. The JVs’ role at the passenger car business of China has been expanded continuously since early 1990s. Chinese government has strictly prevented a foreign maker from holding above 50% of whole equity of a JV at vehicle making business. It means that the strategic alliances like non-equity alliances, equity alliances or JV have been feasible options for global makers to take for entering China’s vehicle making business. Therefore this study took a deep interest in how much sustainable the JV contracts in China, and tried to access the issues through industry based view and institution based view. At industry based view, this study analyzed which strategy is more desirable among three types of strategies; non-equity alliances, equity alliances and acquisitions. To do so this study applied the framework suggested by Dyer, Kale & Singh (2004) for deciding which strategy is relatively more suitable than others according to five factors; types of synergies, nature of resources, extent of redundant resources, degree of market uncertainty, and level of competition. At the institution based view, Chinese local governments’ plans, governance structures of SOEs and JVs, policy regulations for automobile industry were examined. As a result acquisition turned out to be more suitable than equity alliance or nonequity alliance for vehicle makers in China under current development condition. But the sustainability of a type of equity alliances, JV will be maintained so long in future due to the institutional factors of China.

Key words: China’s automobile industry; China’s car making business; joint venture of China; strategy selection framework; Shanghai Auto (SAIC); First Auto (FAW)

JEL code: M16