Transferring Ownership-specific Advantages to a Joint Venture in China

In 1994, a Sino-Italian joint venture was established in Foshan (China) to manufacture and sell motorcycles. The Italian parent company perceived important ownership-specific advantages in investing directly in China. These included its state-of-the-art production process, its marketing and distribution network, and its organizational and work concept. Indeed, it was intended to virtually ‘replicate’ these features of the parent company in China. This study explores problems experienced in attempting to reproduce these features of the parent company's European operation during the start-up phase of its Chinese affiliate. One problem was that core suppliers were reluctant to relocate part of their operations to China, making it difficult for the parent company to ‘replicate’ its production process abroad. There were also major difficulties in transferring the principles of its marketing and distribution network and its organization structure and work concept to China. While it is possible that many of these preliminary problems would be overcome and the parent company would realize its vision for its Chinese affiliate over time, this case-study not only highlights the complexity of harnessing ownership-specific advantages of foreign direct investment (FDI) in China, but also raises important issues about the expansion of FDI from low technology to medium technology enterprises in the circumstances prevailing in China.