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Businesses tend to relocate to countries where the production costs are low. Low prices give business the edge over their competitors, in simple words it is about gaining comparative advantage. China does not only have lower production costs but is plenty of cheap labor. However the government of China requires foreign companies to enter a joint-venture with a Chinese company for several reasons. As mentioned in the article “Joint-Venture In China : A Risky Undertaking ?” It is about control of foreign investors, know-how transfer but also the fact that foreign companies are not acquainted with the Chinese market and its characteristics. Famous cases like the French producer of dairy products “Danone” failed in doing business with his counterpart “Wahaha Group” becoming a model for what can happen when entering a foreign market with differences that you are not familiar with.
Who Are The Key-Stakeholders ?
Businesses should always know their stakeholders and their intentions, in other words, they should know what the stakeholders want and how to satisfy them. There are enough famous cases of how a business can fail because of a stakeholder preventing it from success. A simple example would be a company that has lost a project due to the actions of Greenpeace operations for not being environmentally sustainable. In this case Greenpeace functions as a shareholder.
Key-Stakeholders And Their Interests
|American Stakeholders :|
|Chinese Stakeholders :
|- low costs|
- high profit
|- high employment
- high revenue
Obviously the Key-Stakeholders have different interests which can be conflicting at times. High revenues means high costs for American companies. Everybody is motivated by something different, the challenge lies in creating a situation where both parties win. Most conflicts between companies arise because of conflicting interests.
Besides of not trustworthy partners, joint-ventures fail because of conflicting interests. If you want to understand the problems of joint-venture in China from legal and cultural perspective, read the following article (click here)