The management of joint ventures is risky. 30-70% of the joint ventures had the problems of inefficiency and bad performance, and about 50% of the ventures had failed due to high cost (Kogut, 1988; Bleeke and Ernst, 1993). Some scholars have, however, established that share ownership as well as non-ownership control was one important factor in the successful management of a joint venture (Tsang, 1994; Park and Ungson, 1997).

In recent years, cultural differences have been used to explain the success rate of joint ventures (Child, 1994; Neelankavil, Mathur and Zhang, 2000). But the conclusions drawn from these studies are inconsistent. Thus, it is necessary to examine the relationship between cultural differences and the success of joint ventures (Gibson, Zellmer-Bruhn and Schwab, 2003). Studies that have been done in the context of China in this area have often been based on the information provided in the Almanac of China’s Foreign Economic Relations and Trade. However, the yearbook has not published any information about joint ventures since 1997. Hence the data base of the study is limited to what was published before 1996 (Pan, 1997; Chadee, Qiu and Rose, 2003). A few studies were conducted using questionnaire surveys in certain regions of the country. But it is difficult to guarantee the objectivity and comprehensiveness of the conclusions due to sampling bias (Zhao, 2002; Zhou and Tse, 2002). Some other studies are mostly descriptive and focus on the comparison of the cross-cultural practices. They lacked convincing examples though.

For the purpose of this study, a new data set about joint ventures was prepared, and the internal relationship between share ownership structure and business success was examined in support of the Killing theory postulated for joint ventures in developing countries. Hypotheses posited for empirical tests and the rationale are presented next.

Hypothesis 1: Compared with joint control, monopoly-controlled Chinese-foreign joint ventures may be more successful.

Partners of the Chinese-foreign joint ventures have different strategies. The objectives of the Chinese partners are usually to earn foreign exchange through exporting new products, learn advanced management and technologies from foreign partners and obtain the independent manufacturing ability without import as quickly as possible. In contrast, the foreign partners usually focus on grabbing the Chinese market so as to increase profits and market share. As a part of their global strategy, the foreign partners will usually not put all of the manufacturing process in China. They will try to procure the parts and materials from abroad within the scope given by policies and contracts so as to ensure the high quality of products and maximize their profits through tax transfer. Whether a partner’s strategic tendency will be accepted by the Board of Directors depends on how strong this partner’s management control power is, of which the most important element is share ownership structure. Therefore, we may deduce the following hypothesis:

Hypothesis 2A: The greater the share ownership a foreign partner of a Chinese-foreign joint venture possesses, the better the import performance the joint venture will have.

Hypothesis 2B: The greater the share ownership a Chinese partner of a Chinese-foreign joint venture has, the better the export performance the joint venture will give.

Cultural differences have a strong influence on the business achievements of joint ventures (Shenkar and Zeira, 1982). They have been shown in areas such as work values (England, 1975), knowledge framework (Lord and Foti, 1986), physical appearance and conduct (Gudykunst and Ting-Toomey, 1988) and language (Church, 1982). The cultural differences are not limited to the variety of cultural backgrounds of the individuals in a management group, but also can be more precisely demonstrated through the concept of cultural distance (Hambrick, Davision and Scott, 1998). Generally, the greater the cultural differences were, the more difficult it was for the group members to communicate and the more unfavorable it was for the organization’s success (Blau and Deb, 1977). Group members with different cultural backgrounds had different ideas about conflicts and solutions to the conflicts (Hofstede, 1993) and a heterogeneous group might face fiercer organizational clashes.

Hypothesis 3: The greater the cultural differences in a joint venture are, the worse the overall achievements of the joint venture will be.

The above hypothesized relationships have been examined using the SAS software for data analysis.

In Model 1, the correlation between the dependent variable (GR) and the control variable (investment amount) is examined. Table 1 shows that the greater the investment amount, the higher the position an enterprise will have in the ranking. The relevance is very clear.

In Model 2, the correlations between the dependent variable (GR) and independent variable (monopoly-control) is examined. According to the result, the greater the degree of monopoly-control, the better the position an enterprise will have in the ranking. This provides empirical evidence to support Hypothesis 1 that monopoly-controlled joint ventures have better business success, which is in conformity with Killing’s analysis.

In Model 3, the correlation between the dependent variable (GR) and independent variable (cultural distance) is examined. It may be seen that the greater the cultural distance, the higher the position an enterprise will have in the ranking. The results fail to support Hypothesis 3. That is to say, the greater the cultural distance between the two partners in a joint venture, the better the business success of the venture. Therefore the following two propositions for better business success with greater cultural distance in a foreign-Chinese joint venture are proposed. On the one hand, a joint venture culture includes organizational culture and social culture that can all affect the success of the organization. According to surveys conducted by Pothukuchi, Damonpour and Choi, et al (2002), the heterogeneity of the organizational culture has more apparent impact on the organization’s achievements than the heterogeneity of the social culture. Those countries with greater distance from the Chinese culture are mainly the Western developed countries, usually with higher management and technical levels and high performing organizational cultures. On the other hand, some scholars believe that the cultural heterogeneity is good for a joint venture because a group with heterogeneity has more diversity and stronger organizational ability than a group with homogeneity (Larkey, 1996). After more than 40 years’ study, Sundstrom, Meuse and Futrell (1990) are convinced that a heterogeneous group usually performs much better than a homogeneous group in solving complex problems creatively.

In order to examine the potential relationship between the foreign share ownership and the import or export orientation of a joint venture, the sample enterprises were divided into two categories: import and export, and two groups of patterns were established as shown below:

Model 1 and 2 are examined with the data of the export group while Model 3 and 4 are examined with the data of the import group. The (CD*FC) in Model 2 and 4 is meant for analyzing the effect of the interaction between the cultural distance and foreign share ownership on ranking.

In Model 1, the correlation between the dependent variable (export ranking) and independent variable (foreign ownership) is examined. Table 2 shows that, the higher the proportion of Chinese ownership, the higher the position an enterprise will take in export ranking. Hence, Hypothesis 2B is supported. With the influence of traditional Confucianism, the Chinese managerial personnel in joint ventures usually place more importance on the "loyalty" and "honor" of their country and nation than to safeguarding their enterprises’ interests. Therefore, they (including some local government officials) usually set the amount of foreign exchange they have earned through export as the criterion for a successful joint venture. In a joint venture controlled by the Chinese party, product export will become an important objective for its strategy.

In Model 2, the correlation between the dependent variable (export ranking) and the interaction between foreign ownership and cultural distance is examined. It may be seen that there is a strong interaction between cultural distance and foreign ownership (when the proportion of foreign ownership is relatively high, usually the cultural distance between the two sides is also great). Such an interaction is in inverse proportion to the export ranking and its relevance is quite obvious.

In Model 3, the correlation between the dependent variable (import ranking) and independent variable (foreign share ownership) is examined. It may be seen that a high proportion of foreign ownership will not necessarily guarantee a better position in the import ranking. Their relevance is not obvious. There are many factors that influence a joint venture in selecting an import strategy. Besides the customs barrier, the bureaucracy examining and approving system for importing commodities and the inconveniences derived from the planned economy (such as designating a seller of specific products and monopolizing the purchase and distribution) will also reduce the import efficiency. As a result, there will be no correlation between foreign shares and import strategies.

In Model 4, the correlation between the dependent variable (import ranking) and the interaction between cultural distance and foreign ownership is examined. It may be seen that the relevance is not clear.

Using the Database of Joint Venture Contracts and the Database of Import and Export Ranking, this article has analyzed the impact of share ownership structure and cultural distance on the business success of joint ventures in China. The results show that the higher the proportion of Chinese ownership, the more an enterprise will lean toward adopting an export strategy and the higher the position it will take in export ranking. The more an enterprise is characterized by a monopoly-controlled ownership structure, the better its general success will be. Thus, the findings of this study are in line with Killing’s conclusion about the developed market environment. Since cultural heterogeneity is good for decision quality, the greater the cultural distance, the better the business success of a Chinese-foreign joint venture. The findings of this study not only provide a deeper understanding of the discrepancies in the objectives of both parties of a Chinese-foreign joint venture, but also provide a deeper explanation for strategic choices prompted by such discrepancies. These conclusions have instructional value for making appropriate policies on introducing foreign capital and management and are also good for fully excavating foreign invested enterprises’ abilities and encouraging them to play active role in China’s economic construction.