Ownership Strategies for Japanese Manufacturing Companies in China

Event details
Speaker : Mr Alexander Wollenberg
               PhD candidate, Department of Japanese Studies, NUS
Date      : Friday, 18 April 2008
Time      : 10:00am – 11:15am
Venue    : AS4/03-28 (JS Meeting Room)

Abstract

This dissertation addresses the issue of ownership choice for Japanese manufacturing companies in China based on technology transfer and the acquisition of complementary local assets.

The process of setting up a stable subsidiary in China requires the foreign company to overcome its liability of foreignness by gaining access to local tangible and intangible assets through partnership with a local company. The potential partner company and government in China, on the other hand, are interested in obtaining capital, technology and management knowledge from the foreign company. These have frequently been obtained through mandatory Joint Ventures (JV) in the past. JVs have often been viewed as susceptible to the involuntary leakage of the foreign partner's proprietary technology and knowledge, thus causing foreign companies to increasingly set up wholly-owned subsidiaries (WOS) after restrictions on ownership were eased.

Even from the perspective of the foreign partner, JVs can be most suitable in obtaining the required locally-owned tangible and intangible assets at the lowest transaction cost. This is despite the negative implications of shared ownership with regards to the leakage of technology and proprietary knowledge. A quantitative study conducted on Japanese manufacturing subsidiaries in China suggests that a certain degree of shared ownership can raise technology-based productivity beyond what wholly-owned subsidiaries can achieve and reduce instability, thereby decreasing the chances of failure of the subsidiary. The findings suggest that WOS are not necessarily the best entry mode and that there is an optimum ownership structure at which JVs can achieve a greater rate of acceptable knowledge transfer and achieve greater efficiency, despite the possibility of the leakage of proprietary technology and knowledge.

This study uses the economic concept of growth accounting which measures the extent to which productivity growth can be attributed to technical progress in the subsidiary.

This study was conducted on Japanese manufacturing companies' subsidiaries in China using Toyo Keizai data and interviews conducted on site with relevant managers.