The Exogamic Nature of Sino-Foreign Joint Ventures

Abstract

The paper suggests that Sino-foreign joint ventures areexogamicpartnerships. Three hypotheses were formulated: (1) partners pool differentiated sets of idiosyncratic and non-substitutable resources into their joint ventures; (2) they establish cooperation to gain access to resources provided by their counterparts; (3) the younger the partnership, the less the partners contribute with idiosyncratic resources. A questionnaire investigation was conducted into 67 Sino-foreign joint ventures. The test for H1 clearly demonstrated that each partner pools very different resources into the joint venture. H2 was also clearly supported by the data collected. However, H3 was weakly supported. Copyright Springer Science + Business Media, Inc. 2005

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Asia Pacific Journal of Management, 22, 285–306, 2005
2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.
The Exogamic Nature of Sino-Foreign
Joint Ventures
DOMINIQUE R. JOLLY Dominique.Jolly@Ceram.fr
CERAM Sophia Antipolis, BP 085 – 60, rue Dosto
¨
ıevski, 06902 Sophia-Antipolis C
´
edex, France
Abstract. The paper suggests that Sino-foreign joint ventures are exogamic partnerships. Three hypotheses were
formulated: (1) partners pool differentiated sets of idiosyncratic and non-substitutable resources into their joint
ventures; (2) they establish cooperation to gain access to resources provided by their counterparts; (3) the younger
the partnership, the less the partners contribute with idiosyncratic resources. A questionnaire investigation was
conducted into 67 Sino-foreign joint ventures. The test for H1 clearly demonstrated that each partner pools very
different resources into the joint venture. H2 was also clearly supported by the data collected. However, H3 was
weakly supported.
Keywords: inter-firm alliances, management of international JVs, resource-based strategies, learning through
alliances, relatedness between allies profiles, Chinese business
Research on Sino-foreign joint ventures has been very prolific. Many papers have been
published over the last few years. The literature has dealt with issues such as the roles of
government (Osland & Cavusgil,1996; De Bruijn & Jia, 1997), trust, control and governance
(Yan & Gray, 1994; Child, 1998; Luo, 2002; Goodall & Warner, 2002; Jolly, 2002b; Yan &
Child, 2004), partner selection (Luo, 1998; Yan & Duan, 2003), knowledge transfer (Zhao,
Bennett, Vaidyak, & Wang, 1997; Si & Bruton, 1999; Bruun & Bennett, 2002), guanxi
(Ambler, 1995; Farh, Tsui, Xin, & Cheng, 1998; Chen & Glen, 2004), and human resource
management (Tsang, 1994; Ding, Goodall, & Warner, 2000; Chen & Wilson, 2003; Wong,
Ngo, & Wong, 2003).
This paper focuses on the explanation of the nature of Sino-foreign joint ventures. The
Sino-foreign joint venture shares probably some similarities with the average pattern of
international joint ventures between a developed country and a developing country. Gener-
ically, the question for the foreign partner is to gain access to an acceptable understanding
of local settings (Beamish & Berdrow, 2003). But, these settings are very specific to the
country. In the case of China, fifty years of communism and planned economy in such a
big country, with such a long history, creates an idiosyncratic environment.
The overall aim of this paper is to demonstrate that Sino-foreign joint ventures are ex-
ogamic partnerships. Exogamies are inter-firm alliances between partners exhibiting unre-
lated resource profiles and pooling idiosyncratic sets of resources in the joint venture.Thanks
to the combination of differentiated resources, exogamies allow to gain some symbiotic ad-
vantages. By contrast, the accumulation of similar resources in endogamies produces size
or scale advantages. This paper raises questions such as:

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– What does each partner respectively bring to the cooperation? Sino-foreign joint ventures
are supposed to mix different resources: technology and management expertise from the
foreign partner and country-specific knowledge and assets from the Chinese. Is this true?
What does technology cover in these deals? What factors underlie this local knowledge
of Chinese companies?
– What are the determinants of these types of cooperation? What are the companies that
engage in these alliances looking for? What benefits can Chinese companies draw from
such alliances? And foreign companies? Are the expectations of each party different?
These issues have already been explored in the management literature. Nevertheless, most
of the writings rely on experienced-based, nonempirical works or on empirical studies that
use anecdotal information (such as, for example, press reviews) or qualitative studies such
as case studies. The existing research has produced very broad and interesting ideas. Yet,
these ideas have not been systematically tested. The aim of this research is to test these
ideas using a more powerful instrument. This should confirm (or refute) the validity of
these assumptions.
Another limitation of the current published research is that it frequently relies on data
collected with Western managers, which may not accurately reflect what is happening in
China and which can be assumed to create a bias. Very few contributions have been focused
on the hearts and minds of local managers in international joint ventures. For example, in
China, this has been done by Shenkar and Li (1999), and Hitt, Ahlstrom, Dacin, Levitas,
and Svobodina (2004) (and in Latin America by Kotabe, Teegen, Aulakh, Coutinho de
Arruda, Santillan-Salgado, & Greene (2000)). Collecting data from American or European
managers is much easier than collecting data from Chinese managers—at least for a Western
researcher. This study casts a new and probably more accurate light on the phenomena of
Sino-foreign joint ventures as it attempts to collect data from Chinese managers. This is
probably amongst the first studies to analyze these issues on an extended panel of Sino-
foreign joint ventures using data collected mostly with Chinese managers.
1. Theoretical background to sino-foreign joint ventures
The emergence of resource-based approaches and developments on the transfers in alliances
between firms, have shed new light on the question of knowledge transfers in international
joint ventures.
1.1. The resource-based theory
According to Barney (1991), “firm resources include all assets, capabilities, organizational
processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the
firm to conceive of and implement strategies that improve its efficiency and effectiveness”
(p. 101). It is traditionally assumed that each competing environment has its own key
success factors and that each firm seeks to develop resources allowing it to satisfy these.
Therefore, all the firms tend to develop the same portfolio of resources. Resource-based
strategies (Wernerfelt, 1984; Prahalad & Hamel, 1990; Grant, 1991; Stalk, Evans-Clark,

THE EXOGAMIC NATURE OF SINO-FOREIGN JOINT VENTURES
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& Shulman, 1992; Leonard-Barton, 1992; Prahalad, 1993—to quote only the first authors)
led to an inversion of this orthodox framework of strategic analysis. As stated by Mauri
and Michaels (1998), the “resource-based view argues that firm heterogeneity is significant
and persistent, whereas industrial organization suggests that industry effects dominate over
time” (p. 211). These new approaches hypothesize that the scarcity of a resource creates
revenue for theenterprise which holds it (superior R&D capability, patents, privileged access
to a natural resource, world distribution network, etc.); as a consequence, heterogeneous
portfolios of resources generate distinct performances. Likewise, imperfect mobility as well
as imperfect imitability and substitutability of resources impede the duplication of revenue
by competitors. In addition, it is assumed that there are economies of accumulation: those
companies that first manage to reach a high level of resource increase this level at a lower
cost than their competitors do.
Das and Teng (2000) have stressed the usefulness of the resource-based view for under-
standing alliances. They argue that alliances are essentially the result of resource integration
amongst firms which use cooperation to gain access to other firms’ valuable resources. Ra-
tional for alliance comes from the value creation potential of firms resources that are pooled
together.
The interest in resource-based strategies exacerbated the sensitivity towards these ques-
tions. The company that decides to enter or to expand its activities in a foreign country needs
to access specific resources: distribution channels, human resources, supply networks, local
ties, etc. The development of the Chinese economy also calls for the import of resources,
most importantly new technologies. Consequently, each side of a Sino-foreign joint venture
has a resource gap to fill. However, this cannot be done easily, because these resources
also have a competitive value. In this context of primacy of resources on the competitive
game, firms put the emphasis on having exclusive control of resources that are rare, tacit,
durable, not easily imitable, extensible, serving multiple fields, etc. As such, the resource
based framework helps better to understand why managers attach so much importance to
the control of the resources pooled into Sino-foreign joint ventures.
1.2. The learning theory in inter-firms cooperation
Beyond the well-known size and symbiotic effects resulting from cooperation, several
authors like Kogut (1988), Doz, Hamel, & Prahalad (1989), Hamel (1991), Richter and
Vettel (1995), Mowery, Oxley, & Silverman (1996) showed that working jointly makes
it possible for each partner to learn from the other. From this perspective, the alliance
is a mechanism through which knowledge, competences or technologies are transferred
while working with partners. A joint venture appears as an osmotic zone between two
organizationswhere elements of knowledgeare forwarded: this can be technological or other
knowledge (e.g. marketing information), expertise, know-how, competences in a given field
(e.g. manufacturing competences), etc. Through co-operation, a partner can appropriate a
particular type of intangible resource brought by the ally provided he possesses mechanisms
adapted to this transfer. Knowledge is, by nature, more or less easy to include/understand,
transfer and finally to duplicate (Inkpen, 1996). An alliance is a suitable vehicle for the
transfer of tacit knowledge, i.e. of inarticulate knowledge, difficult to formalize explicitly

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and, by definition un-codified or un-codifiable. Examples are intimate knowledgeof a market
(or a country), or expertise in a management method endogenous to an organization.
Because of the dynamics of exchange of intangible assets, knowledge, know-how, com-
petences, expertise, etc. that occurs in these joint structures, Chinese and foreign companies
are engaged in a fight to appropriate the counterpart resources; consequently, the victorious
ally is the one which is the first to capture the resource of the other. Consequently and
contrary to a widespread idea, Sino-foreign joint ventures are far from being an alternative
to competition; quite the contrary, competition is maintained even within the core of the
alliance itself, but this competition exists on different grounds from usual.
2. Endogamic vs. exogamic partnerships
In the interpersonal sphere, endogamy is the union of two partners coming from the same
social milieu; exogamy is the marriage of two people originating fromdifferent backgrounds
(e.g. different countries, different religions, different socio-economic groups, etc.). In the
application to business world, I suggest to replace the concept of social milieu by the
resource base the company is operating. This means that endogamic partnerships occur
between partners with similar resource bases. And, exogamic partnerships emerge from the
association of sufficiently distinct resource bases (Jolly, 2002a).
The distinction between endogamic and exogamic partnerships stems from Hennart’s
(1988) split between ‘scale’ and ‘link’ joint ventures, Roberts and Mizouchi’s (1989) dis-
tinction between ‘resource accumulation ventures’ and ‘resource complementing ventures,’
and more recently from Sakakibara’s (1997) dichotomy between ‘cost sharing’ and ‘skill
sharing’. Authors use different wordings: Hennart refers to ‘knowledge’, Roberts and Mi-
zouchi use explicitly the word ‘resource’ and Sakakibara talk about ‘abilities’. Nevertheless,
the underlying common thread to these definitions is the nature of the resources pooled into
the alliance.
I take the argument one-step further by looking not only at the resources brought into the
cooperation, but also to the resource profiles of the parent companies. In the early strategy
literature, Ansoff (1965) introduced the concept of capacity profile to assign four types
of resources (plants and equipment, people, structure, management) to four different areas
(finance, R&D, commerce and operations). A comparable objective was pursued by Porter
(1985) with his value chain where one SBU is split into different (primary and secondary)
value creating operations. Nickerson, Hamilton, & Wada (2001) offer the following defini-
tion of a resource profile: “The set and type (i.e. the degree of idiosyncrasy) of resources
and capabilities employed in the constellation of activities in a value chain [to produce a
good]” (p. 252). In summary, a resource profile should be understood as the specific set
of assets, capacities, abilities and expertises operated within a value chain and under the
control of one given company (or an SBU).
The contributions of one given partner to an alliance are related to the resources it pos-
sesses. When two allies exhibit different resource profiles, their contributions will differ.
However, when two allies have similar resource profiles, they can either pool similar contri-
butions (say R&D staff with homogenous experience) or diverse contributions (e.g. research
staff coming from one ally and development staff from the other); I assume that this second

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289
pattern produces limited benefits and, as a consequence, occurs less frequently than the first
one.
The endogamy/exogamy dichotomy allows differentiating different motives for entering
an alliance and different benefits to be gained. The most interesting feature of this split is
that it shows that all alliances are settled because partners want to benefit from complemen-
tarities between their resource bases. Two explanations of the word ‘complementarity’ exist.
Teece (1986), who was amongst the first authors to introduce the concept of ‘complementary
assets’, refers to assets of a different nature. Geringer (1988) differentiates compatibility
(when one partner’s skills and resources match those of its ally) from complementarity
(when one partner has the skills and resources that the other partner needs but does not
have). In line with this traditional view, Hill and Hellriegel (1994) suggest that complemen-
tarity occurs “only when the partners bring distinctive competencies that are different and
nonoverlapping” (p. 595). From this perspective, ‘complementing’ is opposed to ‘supple-
menting’. A similar distinction is made by Das and Teng (2000) when they refer to partners’
resource alignment, i.e. the pattern whereby allies’ resources are matched and integrated in
the cooperation: similar resources create a supplementary pattern and dissimilar resources
induce a complementary pattern.
There is another meaning given to the word ‘complementarity’. I prefer Chi’s definition
(1994): “complementarity exists between two sets of resources when a joint use of them can
potentially yield a higher total return than the sum of the returns that can be earned if each
set of resources are used independently of the other” (p. 275). In line with this definition
is the capability heterogeneity (versus homogeneity) amongst firms defined by Sakakibara
(1997) as “the breadth or diversity of technological capabilities that firms possess” (p. 147).
These definitions allow us to distinguish two kinds of ‘complementarities’: quantitative and
qualitative. If both sets of resources are related, we can refer to ‘quantitative complemen-
tarities’; on the contrary, if the two sets of resources are unrelated, we can use the term
‘qualitative complementarities’.
In contrast to much of the literature on alliances, I argue that all alliances are complemen-
tary: it is the nature of these complementarities that differs. Partners of an endogamy can
only pursue quantitative complementarities whereas exogamy can only deliver qualitative
complementarities. Looking for quantitative complementarities in exogamy is unrealistic;
the resources pooled are too different to produce scale effects. In the same vein, looking
for qualitative complementarities in an endogamy would be inappropriate, as the resources
brought by the partners are likely to be fully substitutable.
This dichotomy differs from the traditional split between horizontal and verticalalliances.
All vertical alliances are exogamic because the profiles of backward and forward firms are
necessarily different. However, not all horizontal alliances are endogamic. When companies
operate in the same business sector and if they share similar profiles, their alliance will be
endogamic. However, not all companies in a given business sector share similar profiles.
Two companies in the same industry might then enter into an exogamic partnership. Briefly,
the distinction between endogamy and exogamy does not come from the membership
to one industry or another, but it comes from the comparative profiles of the partners.
Related profiles induce endogamic partnerships and unrelated profiles offer opportunities
for exogamic partnerships.

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Figure 1. Endogamy vs. Exogamy.
One limitation of the dichotomy between endogamies and exogamies is that it is difficult
to define where does endogamy end and exogamy begin. As shown by figure 1, endogamies
and exogamies are two extremes of a continuum. I assume that the more related partners’
profiles are, the greater the potential scale effects (thanks to quantitative complementarities)
and the less related partners’ profiles are, the greater the potential symbiotic effects (thanks
to quantitative complementarities). I suggest that partnerships falling in a grey area between
these two extremes are not fully exploiting the potentials of either pure endogamies or pure
exogamies; it’s plausible that they will fail sooner or latter. The risk for managers is to be
stuck in the middle, with neither enough similar resources for scale effects, nor sufficiently
diversity in resources to generate a truly symbiotic relationship.
3. Sino-foreign joint ventures as exogamic partnerships
The core proposition of this paper is that Sino-foreign joint ventures are exogamic part-
nerships designed for assembling different types of knowledge and competencies. Three
hypotheses were formulated.
3.1. Resources brought by the partners in the joint venture
Parent companies of Sino-foreign joint ventures obviously come from unrelated environ-
ments (Ambler, 1995; Child, 1998; Liu & Vince, 1999). They originate from different
countries, with different histories, notoriously different economic, political and legal back-
grounds, different values (e.g. individualism vs. collectivism), profoundly different lan-
guages, distinct social norms, cultures and traditions,
1
etc. Even if they belong to the same
industry, it seems reasonable to assume that Chinese and foreign companies exhibit different
profiles as well as different expertises etc.
Because many plants were outdated, and technologies frequently needed to be upgraded,
and because management skills were weakly developed in Chinese state-owned companies,

THE EXOGAMIC NATURE OF SINO-FOREIGN JOINT VENTURES
291
the Chinese government decided more than twenty years ago to rely on foreign direct invest-
ment to establish an in-flow of technology and management expertise. Previous research
tends to demonstrate a specific pattern of resources distribution where each partner spe-
cializes in its own set of contributions to the joint venture. Foreign partner emerges as the
main contributor of technology (De Bruijn & Jia, 1993; Yan & Gray, 1994; Vanhonacker,
1997; Jolly, 2001). Big multinationals are exporting as well their marketing techniques
and concepts to China as well as a standardized brand policy (Liu & Pak, 1999). Chinese
firms contributed more with skills for dealing with the local government and other institu-
tional infrastructures, and other local knowledge such as distribution channels, relational
attributes (guanxi), market power and experience of the industry (Yan & Gray, 1994; Osland
&Cavusgil, 1996; Luo, 1998; Liu & Pak, 1999). Overall, we suggest:
Hypothesis 1. Sino-foreign joint ventures are established to pool differentiated sets of
idiosyncratic and non-substitutable resources that are distinctively under the control of
each partner.
(1a). Chinese partners are assumed to bring country-specific knowledge or assets, i.e. land,
buildings, access to utilities, access to work force, access to distribution networks, and
guanxi with the business community and government authorities;
(1b). Foreign partners are assumed to bring product technologies, process technologies,
managerial abilities, production equipmen, and capital.
3.2. Partner’s respective expectations
It is a common argument that China’s national strategy is to rapidly catch up with the
outside world in a range of advanced technological sectors. As a consequence, it is assumed
that primary motivations for a Chinese company in entering a joint venture are (1) to gain
access to advanced technology, modern plants and equipment and new product models as
well as (2) to gain access to modern management techniques, systems, styles and expertise
(Beamish, 1993; Yan & Gray, 1994; Osland & Bj¨orkman, 1998; Si & Bruton, 1999; Deng,
2001). According to De Meyer (2001), there is even an increasing expectation and demand
from Chinese authorities concerning technological transfers for transferring the latest, the
state-of-the-art (rather than established) technologies. It should be stressed that transferring
technologies might be a concern for foreign companies as soon as these technologies are
sources for competitive advantage. Transferring new management techniques from the West
is one way of improving practice in localcompanies. This point was demonstrated for human
resource management (HRM) techniques by Ding et al. (2000). Their case-based research
was conducted in sixty-two industrial enterprises—half state-owned, half joint ventures
with foreign investment. It shows that foreign investment has a positive impact on HRM
practices in Chinese enterprises.
Apart from the traditional argument of the cost advantage, less attention has been paid to
what foreign companies are looking for. A generic expectation for foreign companies is to
facilitate their entry and to learn how to do business in China—a complex, highly regulated,
volatile and uncertain environment. A survey conducted with 200 British companies by

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Zhao et al. (1997) shows that the compensation for technological transfers is gaining access
to the Chinese market. Research conducted by Calantone and Zhao (2001) hypothesized that
the foreign partners’ motivation for forming a joint venture in China might be summarized
in three words: efficiency, competition, and learning. Efficiency covers using the Chinese
partner’s resources, overcoming government restrictions, and reducing risk with unfamiliar
markets. Competition relates to enhancing market power. Learning is about knowledge of
the local market, culture, institutional characteristics and other site-specific information.
Tsang (1994) particularly emphasized what he considered the greatest challenge to expa-
triates working in China for foreigninvestors in Sino-foreign joint ventures: the management
of the Chinese workforce, including both workers and managers. The HRM functions are
well known (recruitment, remuneration, promotion, training, etc.) but the institutional and
cultural context of operation in Chinais notably different from that offoreign countries. Joint
ventures have to deal with the heritage of state-owned enterprises. In China, overstaffing,
unwillingness to take risks and egalitarianism were the rule in state-owned companies. Un-
til the 1994 labour law of the PRC, employees of state-owned enterprises were virtually
immune from dismissal thanks to the so-called ‘iron rice-bowl’ (tie fan wan) which ensured
jobs for life (Ding et al., 2000). Because of the considerable power of administrative bodies,
the labour market is still far from being free; and skilled managers and professionals are
very often in short supply.
In summary, the expectation of foreign investors is to gain market access to China,
to learn about the political and regulatory environment (which may well differ from one
province to another!), to learn to manage the Chinese workforce, to learn about cultural
differences between Chinese and foreign companies and to learn about the country itself
(there are tremendous differences between rural and urban areas, between the coastal and
inland regions, between Special Economic Zones (SEZ) and elsewhere, and significant
differences between the North and the South).
An opinion survey conducted on a panel of forty-two Chinese executives (Jolly, 2001)
discloses that there is symmetry between the advantages sought-after by one partner and
the contribution of the other to the joint venture. This suggests the second hypothesis:
Hypothesis 2. Sino-foreign joint ventures allow each partner to gain access to resources
brought by its counterpart. There is a symmetrical relationship between the objectives
of one partner and the resources brought into the alliance by the other: each one is trying
to gain access to what the other pools into the joint venture.
3.3. Learning objectives of each partner
Doz, Hamel, and Prahalad (1989), Hamel (1991) as well as Richter and Vettel (1995)
showed that inter-firm alliances could be a channel for transfers between partners. This
point is particularly interesting when these transfers relate to intangible assets such as the
use of complex technology, the intimate knowledge of a market or a country, the expertise
in product development, and the manufacturing know-how embodied in an organisation.
Contrary to tangible assets, such knowledge—and this is especially true for technology—
can be duplicated at low cost. In this context, alliances have more appeal than licences

THE EXOGAMIC NATURE OF SINO-FOREIGN JOINT VENTURES
293
or commercial transactions (Kogut, 1988). If adequate mechanisms exist, a partner can
appropriate one of these intangible assets carried by individuals through co-operation with
its ally. Basically, the transfer occurs through the in and out moves of personnel between the
joint venture and the parent companies (Inkpen, 1996). Mowery et al. (1996) have shown
that the formation of equity joint ventures is likely to promote the transfer of technological
competences—while the formation of non-equity joint ventures is weaker in this respect.
Not all joint ventures are built to give learning opportunities to the partners. Only ex-
ogamies allow partners to learn from each other. This cannot be the case in endogamies
because partners have similar profiles and, consequently, there exist few opportunities to
learn from each other. In this case, the only thing possible is to learn together, i.e. to produce
new collective knowledge. Endogamies do not favour learning from each other. Liu and
Vince (1999) made an argument about Sino-foreign joint ventures: differences between
partners are a source for learning. According to Luo (2002), joint ventures permit better
capability building than WFOE do as they allow learning from the partner.
When this learning process takes place inside an exogamy, each partner learns progres-
sively from its counterpart. I would like to suggest that over years of cooperation, partners
fill the knowledge gap that existed when the alliance was created. While allies’ resource
profiles in very early joint ventures exhibit significant discrepancies, companies that enter
into partnerships that are more recent—because of the knowledge they have been able to
acquire—exhibit fewer discrepancies in their respective resource profile. This gives the
third hypothesis:
Hypothesis 3. The younger the Sino-foreign joint venture, the less partners contribute
with their idiosyncratic resources.
(3a). The younger the Sino-foreign joint venture, the less the Chinese partner tends to be
the main contributor for country-specific knowledge or assets;
(3b). The younger the Sino-foreign joint venture, the less the foreign partner tends to be the
main contributor for product technologies, process technologies, managerial abilities,
production equipment and capital.
4. Research methods
4.1. Data sources
Data collection was based on interviews conducted during Fall 2001 with general managers
in Sino-foreign joint ventures employing a minimum of one hundred employees. A semi-
structured questionnaire was designed mixing closed and open questions. The questionnaire
wasdivided into six sections: (1)description of parentcompanies; (2) profile ofthe joint ven-
ture; (3) resources pooled by partners; (4) objectives of partners; (5) expected benefits from
cooperation; (6) management of the joint venture.
2
Experts on Chinese business were asked
to review the questionnaire. An English and Chinese version of the questionnaire was used.
3
Data collection was not implemented through a traditional and impersonal mailed ques-
tionnaire. As I wanted to collect most of the data with Chinese managers, I used a privileged

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access to a network of Chinese executives. These people attended a two-year executive MBA
program I headed. In order to ensure the quality of data collection, progress was controlled
throughout the work accomplished by executive students. This work was part of their final
assignment and was checked with their in-company supervisor (usually a senior executive).
As such, the sample composition came from the industries exhibited in the cohort of my
students. It is non-random but exhibits some diversity in activities as shown below.
4.2. Measures and variables
Resources pooled into the joint venture were described with twenty-one detailed items
split into six broad categories (Grant, 1991): financial resources, physical assets, human re-
sources, technologies, managerial skills, marketing abilities. Item used in the questionnaire
are reported in Section 5.1. Question was the following: “For each line, give the percentage
showing how much is brought by each partner. In each cell, the figure has to be between 0%
(if no resource of this type is brought by the partner) and 100% (if all the given resource is
provided only by the partner).”
Relying on the framework produced by Si and Bruton (1999), partners’ objectives were
described using fifteen different items, such as answering government pressures, building
relationships with local suppliers, gaining access to product technologies, etc. This is surely
not a list of all possible objectives but this is already an extensive list. Item used in the
questionnaire are reported in Section 5.2. Respondents were simply asked to tick if the
motive for setting a cooperation is (or not) one important objective for the partner.
Several control variables were also used: the type of activity accomplished by the joint
venture was evaluated through an open question; the size of the joint venture was measured
with two different approaches: the number of employees and its turn-over; the shareholding
distribution was measured with the share (in %) of the equity of the joint venture held by
each partner.
4.3. Sample and respondents
The major characteristics of the firms in the sample are depicted in Tables 1 and 2. 67
questionnaires were collected. As shown by Table 1, a large majority (86 percent) of the
Chinese partners of the joint ventures in this sample are based in the Shanghai area: 51
in Shanghai and 7 in adjacent provinces. As a result, the sample is not very diverse. This
means that this sample is not too reflective of regional differences (Child & Stewart, 1997).
It does not really mix too different cultures originating from various places (such as, for
example: Heilongjiang, Sichuan, or Xinjiang). On the other hand, and this is one limit of
this research, these data probably favours a Shanghainese point of view. Although Shanghai
represents a small cultural part of China, it represents also a large and significant part of
China’s economy. While Beijing is the political capital of the country, Shanghai is the
economic capital where many corporate headquarters are located. As such, this area and the
joint ventures we studied represent the forefront of the Chinese economy. Foreign partners
come mostly from North America and Western Europe, particularly France, Germany as
well as the United Kingdom. These countries represent a large part of the sample (77%).

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Table 1. Sample profile: Origin of partners, shareholding, companies size and age.
Categories n (%)
Origin of the Chinese partner Shanghai 51 .76
(n = 67) Adjacent Provinces Jiangsu, Anhui 7 .10
Beijing 7 .10
Other Provinces Hubei, Yunnan 2 .03
Origin of the foreign partner North America (USA, Canada) 19 .28
(n = 67) Western Europe France 19 .28
Germany 10 .15
United Kingdom 4 .06
Others 9 .13
Asia (Japan, Australia, Singapore) 6 .09
JVs equity distribution Chinese partner over 60% 5 .08
(n = 62) Chinese partner between 51% and 60% 6 .10
Balanced ownership (50/50) 12 .19
Foreign partner between 51% and 60% 23 .37
Foreign partner over 60% 16 .26
Size of the JV (n = 66) Small 100–500 39 .59
Medium 500–2000 18 .27
Large Over 2000 9 .14
Turn-over of the JV (per year) Small Less than 10 million euros 12 .21
(n = 58) Medium-Small 10–100 millions euros 28 .48
Medium-Large 100–1000 millions euros 13 .22
Large Over 1000 millions euros 5 .09
Date of creation of the JV Between 1983 and 1990 7 .11
(n = 65) Between 1991 and 1995 31 .48
Between 1996 and 2001 27 .41
They represent as well a large part of technological developments in the world. Only one
foreign partner is from Singapore; none is from Taiwan or Hong Kong. This means that this
sample is practically unbiased by overseas Chinese companies. But, unfortunately, there
are too few companies from Japan, Australia and Singapore in the sample for investigating
differences between partners from Western and Asian developed countries.
Equity distribution is presented here using Killing (1983) classification (share man-
agement, dominant partner, independent). Ownership is strictly balanced (50/50) in only
twelve cases in the sample. Most of the time, the foreign partner is the dominant one
(23+16 > 5+6). On average, the foreign partner holds 57% of the share (with 43% for the
Chinese partner). Nevertheless, more than one third of the joint ventures (5 + 16) exhibit
a significantly unbalanced ownership distribution, i.e. where one of the two partners owns
more than 60% of the shares.
Regarding size, there is no joint venture fewer than one hundred employees in this sample.
Most of the companies included are small (100–500) or medium-sized companies (500–
2000). The average staff is 907 employees—of whom 875 are Chinese and 33 expatriates,
i.e. only 3.8% of the staff comes from abroad. Similar results are shown by data on turn-over

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Table 2. Sample profile: Distribution by industry.
Businesses n (%)
Metallurgy 1 .01
Car manufacturers 2 .03
Car parts makers 11 .16
Chemicals 5 .07
Pharmaceuticals 3 .04
Household appliances 13 .19
Medical equipment 3 .04
Machine tools and equipment 10 .15
Telecommunications 3 .04
Electronic 3 .04
Agro-food 3 .04
Textile 1 .01
Transportation 1 .01
Unrelated business 4 .06
Non available information 4 .06
Total 67 1.00
(Pearson correlation =.643
∗∗
). The sample includes joint ventures from the very beginning
of the ‘Open Door Policy’ (1983–1990) as well as early followers (1991–1995). Some other
companies were also created more recently. The average duration of operationis seven years.
Not surprisingly, age is correlated with staff (Pearson correlation = .453
∗∗
). Significantly
negative correlations (at 0.01) were observed between the number of employees (total,
Chinese, Western, workers, engineers and technicians) and the year of creation of the
joint venture: the older the company is, the more employees it has. This means that these
companies have been able to increase the number of employees on the long term. This can
be interpreted as a positive dynamic for the companies of this sample. In summary, most of
the companies in the sample have significant experience of doing business with a partner.
As shown by Table 2, there is a wide range of activities in the sample. All joint ventures
come from manufacturing industries (except one that is in the transportation business). The
most significantly represented businesses in the sample are: household appliances (19%),
automotive (18%), machine tools and equipment (15%) and chemicals and pharmaceuticals
(11%). Almost all the joint ventures belong to the same business as their parent companies.
Information about businesses was missing for a limited number of cases (6%).
It is worthwhile noting that this data collection relies mainly on the perceptions of Chinese
managers (56/67) whereas most of the research done in the past has relied on the perceptions
of foreign managers. We will assume that Chinese representatives are a much more qualified
population because they understand their place better (compared to expatriates spending
afew years at a given position before returning their home country). Unfortunately, there
were a too limited number of foreign respondents for any serious and significant comparison
to be made with Chinese managers.

THE EXOGAMIC NATURE OF SINO-FOREIGN JOINT VENTURES
297
Table 3. Resources brought into the joint venture by the partners (H1).
Chinese Foreign Standard
Parent Parent Deviation t (0.5) Significance
Financial resources
∗∗
.41 .59 .24 −2.783 .008
Physical assets Land and real estate
∗∗∗
.93 .07 .22 15.520 .000
Research equipment
∗∗
.36 .64 .38 −2.837 .006
Production machinery .48 .52 .34 −.434 .666
Maintenance tools
∗
.61 .39 .34 2.584 .012
Warehouse facilities
∗∗∗
.87 .13 .25 11.701 .000
Human resources Workers
∗∗∗
.97 .03 .13 29.789 .000
Engineering staff
∗∗∗
.82 .18 .27 9.471 .000
Managers
∗∗∗
.71 .29 .30 5.568 .000
Technologies Process technologies
∗∗∗
.26 .73 .27 −7.262 .000
Product technologies
∗∗∗
.20 .80 .25 −9.538 .000
Information systems
∗∗∗
.30 .70 .32 −4.964 .000
Managerial skills Product development skills
∗∗∗
.24 .76 .25 −8.249 .000
Network of local suppliers
∗∗∗
.72 .28 .33 5.291 .000
HRM methods and techniques .44 .56 .32 −1.483 .143
Manufacturing know-how
∗∗∗
.25 .75 .25 −7.973 .000
Marketing abilities Knowledge of the market .54 .46 .26 1.390 .169
Marketing expertise .50 .50 .30 −.081 .936
Brand image
∗∗∗
.28 .72 .29 −6.098 .000
Distribution channels
∗∗∗
.64 .36 .33 3.350 .001
Guanxi with Chinese .75 .25 .28 7.016 .000
stakeholders
∗∗∗
Statistically significant at:
∗
p <.05,
∗∗
p <.01,
∗∗∗
p <.001.
5. Results
5.1. Hypothesis 1: Resources brought into the joint venture by the partners
The first two columns of Table 3 list the twenty-one different types of resources considered
in this research (split into six broader categories). The figures (percentages) of the two
following columns show where these different resources, pooled in the joint venture, come
from. These could be either from the Chinese or from the foreign partner. Endogamy
should exhibit balanced contributions (50/50). It is assumed that any significant departure
(such as e.g. 20/80) shows that the joint venture was established to pool differentiated sets
of idiosyncratic and non-substitutable resources. Cells exhibiting dominant patterns—i.e.
with significant differences qualified at p <.05—have been highlighted. The next column
gives the standard deviation. The two last give the t-test of mean difference at .5.

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Table 4.Targeted assets (H2).
Chinese Foreign Standard
parent parent deviation t (0.5) Significance
Answer to local or central government pressures .58 .42 .47 1.322 .192
Build relationships with local suppliers
∗
.38 .62 .44 −2.128 .038
Find channels for the distribution .62 .38 .45 1.989 .051
of products outside China
Gain access to distribution channels in China
∗
.27 .73 .75 −2.516 .014
Gain access to manufacturing know how
∗∗∗
.86 .14 .33 8.614 .000
Gain access to the knowledge of the market .48 .52 .41 −.466 .643
Gain access to labour market
∗∗∗
.19 .81 .39 −6.100 .000
Gain access to foreign suppliers
∗∗∗
.77 .23 .41 4.980 .000
Gain access to product technologies
∗∗∗
.87 .13 .32 9.155 .000
Gain access to production process technologies
∗∗∗
.90 .10 .27 11.346 .000
Gain access to new product models
∗∗∗
.83 .17 .34 7.528 .000
Learn about local context
∗∗∗
.12 .88 .30 −9.882 .000
Learn from the partner
∗∗∗
.70 .30 .29 5.383 .000
Learn HRM methods and techniques
∗∗∗
.78 .22 .31 7.071 .000
Learn to manage Chinese workforce
∗∗∗
.18 .82 .34 −6.848 .000
Statistically significant at:
∗
p <.05,
∗∗
p <.01,
∗∗∗
p <.001.
These data give strong support to Hypothesis 1. They show that each partner brings
very different sets of resources into the joint venture. Out of the twenty-one different
types of resources depicted in this table, seventeen are predominantly provided by one of
the two partners. Only four types of resources are provided equally by the two partners.
These are: production machinery, HRM methods and techniques, knowledge of the market
and marketing expertise. This can be understood as, for example, “HRM methods and
techniques” cannot be simply “cut and pasted” from foreign practices and approaches. The
imposition of foreign models onto the Chinese context must be questioned. These models
need to mingle an understanding of the local culture with some imported expertise.
5.2. Hypothesis 2: Gaining access to partner’s resources
Table 4 shows the empirical results for Hypothesis 2. For each of the 15 types of objectives
listed in this study, the next two columns give the average score for the Chinese partner
and for the foreign partner. The higher the score, the more important is the objective for the
partner. These data show three patterns.
Five items clearly relate to objectives predominantly pursued by foreign partners: they
want to learn about the local context, they want to learn how to manage the Chinese work-
force, they want to gain access to the labour market, they want to gain access to distribution
channels in China, and they want to build relationships with local suppliers. It is striking that
all these assets are precisely those resources pooled into the joint venture by the Chinese
partner. Similarly, when working inside a joint venture, managers from foreign companies

THE EXOGAMIC NATURE OF SINO-FOREIGN JOINT VENTURES
299
try to appropriate knowledge about the Chinese environment and this is embodied in the
staff of the Chinese partner.
On the other hand, eight items clearly relate to objectives that are predominantly pursued
by Chinese partners. They want to gain access to productionprocess technologies, toproduct
technologies, to manufacturing know-how and to new product models; this is not a surprise
as these points are known to be weaknesses in Chinese companies. Chinese partners also
want to learn HRM methods and techniques. They are interested in gaining access to foreign
suppliers. They are looking for distribution networks outside China; the joint venture is an
opportunity for gaining access to the foreigner’s distribution network abroad. Once again,
all these assets are exactly those brought into joint ventures by foreign partners.
Two items fall into an intermediate position: they show objectives that are pursued by
the two partners. Both are simultaneously interested in getting a better understanding of the
market; the Chinese partner is probably able to contribute to the joint venture an already
existing acquaintance with Chinese customers, but at the same time he will probably be
benefiting from market research techniques brought in by the foreign partner. Both Chinese
and foreign companies have to answer to local or central government pressures. This is
because the same constraints are imposed to both partners at the same time.
Local context, guanxi, access to distribution networks, relationships with suppliers, prod-
uct development skills, manufacturing know-how, etc. typically fall into the class of knowl-
edge we mentioned previously. This type of knowledge represents, at least partially, some
tacit understanding that is unarticulated and almost impossible to formalize. The joint ven-
ture is used here as the appropriate channel for each partner to acquire this knowledge in
the context of day-to-day activities and intimate, shoulder-to-shoulder contacts.
The results of this research give strong credence to Hypothesis 2. The Chinese and foreign
partners have significantly different priorities. They establish cooperation in order to learn
from each other: each one is trying to appropriate the resources, assets and competencies
which the other pools into the joint venture.
5.3. Hypothesis 3: Impact of learning effects
Results are presented in Table 5. The first two columns exhibit the same list of resources as
the one used for testing Hypothesis 1 (see Table 3). The list was reorganized so as to show
the resources brought mainly by the foreign partner at the top of the table, the resources
brought mainly by the Chinese partner at the bottom of the table, and resources brought
equally by the two partners in the middle of the table. Descriptive statistics are offered in the
following columns. Correlations between age of the joint venture and Chinese contributions
appear in the last column.
An interesting pattern emerges from this last column: correlations are more frequently
positive inthe top ofthe table (i.e. whenresources come mainlyfrom the foreigner)and more
frequently negative in the bottom of the table (i.e. when the resources are usually brought in
by the Chinese partner). Six out of eightresources that were previously (hypothesis # 1) iden-
tified as brought primarily by the foreign partner exhibit a positive correlation with age. Four
correlations are greater than +,10. This weakly significant, but homogeneous pattern tends
to give credence to H3b. It can be stated that the younger the partnership, the less the foreign

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Table 5. Impact of learning effects (H3).
Chinese Correlation (Chinese
averaged Standard average share X
N share deviation year of creation)
Product technologies 64 .2023 .24967 .216
Resources brought in by
the foreign partner Product development skills 67 .2440 .25399 −.045
Manufacturing know-how 65 .2500 .25280 .071
Process technologies 64 .2563 .26852 .170
Brand image 67 .2828 .29149 .135
Information systems 66 .3023 .32361 −.116
Research equipment 61 .3628 .37774 .122
Financial resources 51 .4081 .23571 .004
HRM methods and techniques 67 .4422 .31884 −.040
Resources brought equally
by the two partners Production machineries 62 .4811 .34246 .067
Marketing expertise 67 .4970 .30350 −.022
Knowledge of the market 67 .5440 .25930 −.137
Maintenance tools 62 .6118 .34060 .176
Resources brought in by
Chinese partner Distribution channels 65 .6362 .32769 −.141
Managers 67 .7055 .30204 −.112
Network of local suppliers 65 .7185 .33290 −.027
Guanxi with Chinese stakeholders 64 .7492 .28417 −.092
Engineering staff 67 .8166 .27362 −.197
Warehouse facilities 62 .8718 .25018 −.098
Land and real estate 61 .9316 .21721 −.120
Workers 66 .9736 .12917 −.035
partner is the main contributor for: product technologies (.216), process technologies (.170),
brand image (.135) and research equipment (.122). The more the joint venture is recent, the
more the Chinese partner contributes for these items. Regarding the nine resources mainly
brought by the Chinese partner, the opposite pattern can be identified: all correlations—
except one—are negative. Four correlations are less than −.10. This weakly significant, but
regular, pattern tends to give credence to H3a. The younger the partnership, the less the
Chinese partner is the dominant contributor for: distribution channels (−.141), managers
(−.112), engineering staff (−.197) and land and real estate (−.120). This means that foreign
partners tend to increasingly appropriate the resources that were traditionally local.
6. Discussion
6.1. Discussion/Hypothesis 1
Overall, Sino-foreign joint ventures clearly exhibit the resources features of an exogamic
partnership: each partner brings an idiosyncratic set of resources to the joint venture. The

THE EXOGAMIC NATURE OF SINO-FOREIGN JOINT VENTURES
301
Chinese partner tends to bring most of the physical assets, human resources and local
connexions; most of these resources are locally rooted or due to country specific knowledge.
The foreign partner is the main contributor for financial resources, technological resources
(hard and soft), managerial abilities and brand image—these can be more easily transferred
from one place to another. These results are consistent with the results of Child and Yan
(1999) which show that foreign partners tend to exert dominant control over the Chinese
partner for issues like technological innovation, production planning and quality control.
Other resources such as production machinery, HRM methods and techniques, as well as
marketing expertise, are provided equally by the two partners. Legal obligations might be
one of the explanations for this, for example, the obligation to purchase part of the essential
operating machinery from local suppliers.
6.2. Discussion/Hypothesis 2
One straightforward difficulty raised by the test of Hypothesis2 is that the two partners judge
the achievement of their respectiveobjectives from vastly different points of reference. Since
the partners do not havethe same objectives (theywant to learn different things), their criteria
for evaluating how far the joint venture serves their needs will probably not be identical.
This is a possible explanation of the dissatisfaction with exogamic joint ventures.
Nevertheless, the very process of knowledge acquisition is not without impact on the
stability of the joint venture. The learning by one partner of knowledge brought by the
other reduces the dependence of the learner, and consequently, the bargaining power of the
“teacher” ally (Inkpen & Beamish, 1997). The cement of the alliance, which is the mutual
dependence between partners, then tends to crumble. As soon as the foreigner acquires a
good comprehension of the public actors, local market conditions, supplier networks, cul-
tural traditions, standards, statutory values and other environmental characteristics through
intimate contacts with the local partner, its dependence on the Chinese partner is reduced.
This in turn reduces the foreign partner’s motivation to co-operate. It is reasonable to sup-
pose that the foreign partner may even be tempted to operate autonomously. Such situations
provide an explanation of the growth in WFOE (Deng, 2001). Similarly if the local partner
succeeds in appropriating thetechnologies andmanagerial abilities brought by theforeigner,
it will be tempted to duplicate those outside the alliance and to forsake the joint subsidiary.
The issue is thus foreach of theallies to show itself as efficient as possible in its knowledge
management process. A key element isthe absorption capacityof each ally. This isa function
of the level of education and the permeability of the people in place, of the technological
level of development, i.e. of the already existing knowledge bases, the resources available
to the firm (capital, infrastructures, equipment, etc.) and of the systems of management,
supports and incentives that were set up previously (Zhao et al., 1997). The existence of a
differential in the respective absorption capacities of the allies induces different learning
rhythms (Kumar & Nti, 1998). These variations explain, to a great extent, the interactions
between partners in the alliance and the trajectory it follows (stable, unstable, unilaterally
disputed relation, etc).
This last point testifies to the hybrid character of alliances: they combine, at the same
time, both co-operative and competitive dimensions. There is thus a true competition within

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the alliance as each ally strives to accelerate his own training while slowing down that of
the partner. In the last analysis, this can be seen as a race for the speed of learning.
6.3. Discussion/Hypothesis 3
Data presented in Table 3 (Hypothesis 1) show that each partner brings very different sets of
resources to the joint venture; this supports the argument for the exogamic nature of Sino-
foreign joint ventures.Nevertheless, a more careful analysis showsthat this distributionis not
static. This pattern of differentiated contributions tends to move towards a more balanced set
of contributions: contributions tend to be less and less specialized. For example, data show
that Chinese partners contribute more and more for technology, brand image and research
equipment in the most recent joint ventures. Chinese companies that were amongst the first
to partner with foreign companies (1983–1990) were very different from their counterparts.
This is because at that time they had just emerged from a planned economy and a communist
country closed to external influences. Chinese companies that came later (1991–1995 and
1996–2001) have reduced the gap. Compared to the first wave, they had enough time
to establish contacts with foreign companies, to be influenced by these contacts and to
implement some changes in their own organization. Consequently, their profile is closer
that of foreign companies.
This interesting pattern can be interpreted as a change in the nature of Sino-foreign joint
ventures. While this research has clearly established their exogamic nature, it also shows
that changes in the respective contributions of the partners might transform these exogamic
partnerships into endogamic alliances as partners learn more and more from each other and
simultaneously reduce the gap between their respective competitive profiles.
7. Conclusion
7.1. Synthesis of the results
This research has demonstrated that Sino-foreign joint ventures are exogamic partnerships.
This study reinforces the point that the aim of each partner is to gain access to the knowledge
of its counterpart. As soon as one partner has this access, it starts its learning process. As
soon as it is able to complete this process, and then, as soon as it is able to duplicate this
knowledge outside the joint venture, there is a good chance that the joint venture will end.
This explains why Sino-foreign joint ventures are unstable forms of organization. This is
especially true if knowledge is a key asset in the joint venture. On the contrary, if tangible
assets that cannot be easily duplicated (such as machinery or equipment) are at the core of
the deal, the structure will last longer. As previously mentioned, one possible development
for the future in China might be a growing number of endogamic partnerships between
Chinese and foreign companies with more and more close profiles.
7.2. Implications for practitioners
Since the beginning of the eighties, foreign companies wanting to do business in China
have been forced to establish joint ventures with local partners. However, the last twenty

THE EXOGAMIC NATURE OF SINO-FOREIGN JOINT VENTURES
303
years have shown quick and in-depth changes in China. The country is still in a period of
adjustments and transition. Private entrepreneurship continues to develop within service ac-
tivities as well as in other industries. The most experienced foreign companies have already
learnt about the local context. Chinese companies have also learnt from their counterparts;
in the future they may create a hybrid model, combining deep Chinese values with Western
approaches. Young and well-educated managers are coming onto the market. Government
is working at solving issues such as intellectual property rights (IPR) and corruption, etc.
All these changes are opening the door to wholly owned structures.
This means that joint ventures are now becoming a true choice. Foreign companies that
will establish a joint venture with a local partner in the future will do it because of a choice
between several options. One of the criteria for making this decision has been explored
by the study: collaborating has some value as soon as it demonstrates the possibility of
access to valuable knowledge for foreign companies. This especially means locally rooted
knowledge. This point also has implications for Chinese companies. They will have to pay
increasing attention to the value of the resources they bring into the joint venture if they
want to be attractive partners. Finding the appropriate partner will be even more critical for
them.
7.3. Limitations and further research
As already mentioned, the sample of this study is not free from bias. Regarding data collected
with the questionnaire, the profile of Chinese partners might favour a Shanghainese point
of view. More data from other areas such as Beijing and Guangzhou would be needed to
test in future research whether cultural differences between different Chinese provinces
might create some discrepancies relatively to the issues raised. In the same vein, the too
limited number of foreign managers that answered the questionnaire did not allow for a
comparison to be made with Chinese managers. The systematic comparison offers some
interesting areas for future research.
One interesting topic for future research would be to analyze the link between the willing-
ness to gain access to onegiven resource and the desire to learnthe corresponding knowledge
by one partner. The impact of these learning processes on the stability of Sino-foreign joint
ventures would also be of interest.
Acknowledgments
An earlier draft of this paper was presented at the first conference of the International
Association for Chinese Management Research (IACMR) held in Beijing, June 17–20,
2004, under the title: “Sino-Foreign Joint Ventures as Exogamic Partnerships”. I gratefully
acknowledge my colleagues at Shanghai University, Professors Yu Ying Chuan and Dong
Qin, for generously supporting the implementation of this research. I would like also to
express my appreciation of the work done by my Executive MBA students at Shanghai
University in conducting the interviews. I thank my research assistants at CERAM Sophia
Antipolis (France), Yuan Guang Liang and Tao Rong Rong, for their help in data analysis.

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I finally deeply thank colleagues that commented on a previous version of this paper:
Brian Silverman (University of Toronto, Canada), Vivien Walsh (Manchester School of
Management, UK), He Yong (Universit´e Pierre Mend`es France, France), two anonymous
reviewers of the Beijing IACMR Conference, two anonymous reviewers from the APJM
and Mike Peng, Editor of the journal. Their thoughtful and constructive comments and
suggestions greatly helped to improve this text.
Notes
1. For example, Western managers are often trained to think in terms of exclusive choice (A or B) while, in China,
culture favours duality (A and B at the same time).
2. This last point is not considered in this paper.
3. A copy of the questionnaire is available from the author on request.
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