Joint Venture Business in China: Cultural and Political Challenges and Market Entry Strategy

This article discusses the challenges faced by European multinational companies in doing joint venture business with China. It covers the cultural and political risks associated with entering the Chinese market and suggests a market entry strategy to overcome these challenges. The article also provides an example of a company that failed to have a successful joint venture in China. The subject is Global Business Environment and the course code is System04092.

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System04092

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Executive Summary
The joint venture is the agreement between the two parties to expand their business and gives
the opportunity to invest and develop the business in other countries. With the business
opportunity, it also describes the cultural and political challenges faced by the European
multinational company in doing joint venture business with China. The assignments depict
the market entry strategy that the company must apply prior to entering the Chinese market.

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Content
s
Introduction................................................................................................................................4
Political risk in entering china....................................................................................................8
Cultural Challenges in china....................................................................................................10
Adoption of a market entry strategy.........................................................................................14
Conclusion................................................................................................................................16
References................................................................................................................................18

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Introduction
A joint venture is a business planning in which two or more parties agree to pool their
resources towards the achievement of a specific task. The parties in the joint venture are
responsible for the profits and losses of the company. The joint venture helps the organization
to pool their resources collectively and expand their business. It provides the business
opportunity to the companies to increase their market share and target more and more
customers. By doing the joint venture business, it will allow the companies to expand their
business in other countries and build strong relations with the other countries (Wise Step,
2016).
There are various benefits of doing joint venture business because it increases the capacity of
the organization and develops more distribution channels. Especially doing business in China
will provide the opportunity to gather more resources and expand its business. The European
multinational company will able to use improvise technology and however enhancement of
overall. It will provide the vast business opportunity to the European multinational company
to make investments and diversify its business in China. Business opportunity refers to the
opportunity to make investments and further grow and develop the business. In doing
business in China the European company will get the business opportunity to develop its
business in China market and able to retain more and more customers for the firm (Wise
Step, 2016).
With the business, opportunities in China there are also the internal and the external factors
that influence the working environment of the organization. In the internal environment, it
consists of the values, mission and the structure of the organization, which influences the
working of the European organization. In China, the focus is to collectively attain the goals of

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the company while in European companies they majorly focus on individual goals. Such a
difference in perception creates challenges in achieving the goals of the organization
(Ethridge, Marsh and Bunn, 2011).
In the further discussion, it will provide the cultural and the political risk associated in doing
joint venture business with China.
Culture is the features and the familiarity of a specific group of people covering language,
religion, and social habits language, cuisine. These basic characteristics differentiate the
people of one country to another. It is observed that there is cultural diversity among the
different nations. In China there is a culture of collectivism, majorly influences on traditions,
and respects the culture while in the European countries the focus is to achieve the individual
goals. Such changes in the language, religions, beliefs, and values inculcate the need to
research the environment before entering into the market. However the culture influences the
business environment in the form of changes in the lifestyle, tastes, and preferences of the
people and creates fluctuations in achieving success. In order to overcome such political risk
and cultural differences, the government has launched various international policies and laws
(Garcia et al, 2014).
International trade policies and strategies are the international laws and the multidimensional
contracts that direct the sale of goods between the different countries. These laws are either
imposed by the government of the host country or the transnational institutions, which are not
in control of the government. These policies and strategies pave the path for the functioning
of the organization (Rugman and Verbeke, 2017).
It is analyzed that the organization culture in China is much more customer oriented and is
focused on providing the quality of work. They have the culture to work with complete
harmony and expect the contribution of the employee during all the operations of the

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company. The Chinese organization culture focuses on the implementation of the different
leadership styles for effective management of the functioning of varied organizations. In
order to do so, they bring innovations to compete in the ever-changing business environment
(ITAP International, 2018).
However, the European national culture is quite different it focuses on individualism rather
the approach of collectivism; The European Multinational Companies has to alter its national
culture and adopt the organizational culture of the china to enhance the efficiency in its
operations and thus does not destroy the harmony of the company. The essence of Chinese
culture mainly focuses on moral cultivation and aims to build interpersonal relationships and
respect for the age and hierarchy. They are more family oriented and have the belief to work
in complete harmony (Linan and Serrano, 2014).
China follows the paternalistic style of management, which is visible in all the organizations
of China. They are intensely bureaucratic and dignified, thus focus on enhancing the self-
management, and hardly encourage employee’s empowerment. It is analyzing that the
organization structure operates in a dynamic environment that affects its operations. This
business environment consists of the various political, economic, cultural and technological
factors that influence the functioning of the organization (Lucintel, 2016).
The political factors of the china i.e. the government regulations and the legislation also
affects the working, therefore, the European countries have to analyze such factors to ensure
the success of the joint venture. Such factors must be deeply analyzed prior to the entry in the
Chinese market (Mingzheng and Xinhui, 2014).
The thesis statement depicts the political risk and the cultural challenges to enter the Chinese
market and focuses on the market entry strategy that ensures the success of the organization.

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Political risk in entering China
The term political risk termed as the intervention of the government in the business matters of
the foreign companies doing the commercial in a specific country. It refers to the risk in
which the host country makes the political decisions which adversely affects the functioning
and profitability of the organization. The types of political risk include micro risk and macro
risk. Micro risk refers to the opposing actions, which distress the particular corporation, or
the industry such as exploitation, or the harmful actions against the corporations from foreign
countries while macro risk refers to the adverse actions that affect the functioning of the
foreign firms such as expropriation or insurrection (Harris Bricken, 2014).
Political risk adversely affects the companies and leads to loss of money. The political risk
may vary at the different business levels. It depends upon the type of investment, its method
of financing, its location and the period involved. It is analyzed that China has the
organization culture, which, is controlled by the government, and the companies mainly
depend upon higher authorities to suppress the matter. Such a situation involves higher risk
for the European companies who want to enter the Chinese market and establish their
business. (Harris Bricken, 2014).
The political risk faced by the companies may be in the form of imposing legislation related
to the health, employment, safety of the humans and in concern for the environment
(Investing answers, 2018).
The risk, which the government applies, is in the form of tariffs and trade quotas. It is
observed that the government of the host country has the inherent bias in their country and
thus negatively affects the entrance of foreign companies. China has the huge potential
because of increase in population but with massive opportunities, it involves higher risk.
Therefore prior to entrance in the Chinese market, the European company will have to

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conduct thorough research to overcome the challenges of the political risk and the cultural
challenges that block the success of the enterprise. The risk associated with the business may
be different at the different levels of the business. Such political risk affects the functioning
of the organization, its assets, and transfers thus hinder in achieving the company goals (Luo,
Chen, and Wu, 2017).
Cultural Challenges in China
Changes in the cultural difference affect the human thinking and behavior of the people
working in business organizations. In doing the joint venture business with China the
challenges faced by the European multinational companies includes power distance index,
Individualism versus collectivism, Masculinity versus femininity, uncertainty avoidance
index and time orientations (Thomas, and Peterson, 2017).
Power distance index refers to the scope to which the less powerful associates of
organizations and associations agree and expect that their powers be circulated unequally.
The less empowered people accept and expect that their powers are distributed unequally and
therefore do not demand an explanation in this case. In European countries, there is less
power of distance index and thus the companies’ focuses on taking personal decisions. The
companies ensure less involvement of the government, which leads to the smooth functioning
of the business while In case of China there is high distance power index, the companies
involve participants in decision-making, and approach of collectivism is promoted. This leads
to complex decision making and can act a hindrance in smooth functioning of the business.
Therefore, by having the Chinese partner he will ensure high distance power index in the
organization and the decision making powers will be in hand of supervisors, which resist the
employees in participating and thus creates dissatisfaction among employees (Tjosvold,
2017).

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It is observed that in European countries there is a high degree of individualism focusing on
achieving personal goals while in the Chinese organization culture there is a high degree of
collectivism. In China individualism is consider as negativity, thus focuses on achieving the
company goals in groups, and considers that the best course of actions can be achieved in
groups. In Chinese culture, affiliation is an extra imperative than the individual
accomplishments and believes that individual achievement can only be achieved through
working in groups. Therefore working with Chinese manager will emphasize more
dependence on the group for achieving success in the business (SABA Lumesse, 2015).
It is analyzed that European companies have medium masculinity and majorly concerns on
achievement, status, assertive and personal reward and in China there is medium femininity,
which focuses on compassion, modesty and consensus building. In European companies,
cooperation is view as general and therefore leads to the inability to achieve the goals while
in Chinese culture cooperation is considered as the main preference. The Chinese manager
believes to reduce the responsibilities on one and thus avoids the exposure of embarrassing
personal failure. It is observed that Chinese come from a culture of strong collectivism,
united with the propensity of medium femininity highlighting harmony and personal
relations. They focus on using indirect means to resolve the conflicts they use their superior
authority to suppress the conflict. The European companies focus on resolving the conflicts
through the direct method using the public display. They rely on using the confrontational
tactics such as stating to factual proof or the rational arguments, which are considered
insensitive solutions by the Chinese managers (Garcia et al, 2014).
In Chinese organization, the culture there is low uncertainty avoidance as the managers are
reluctant to take the risk of uncertainty. They find risk-taking much less tolerable and thus
deprive of grabbing the new market opportunities, using the new technologies. While In the
case of European countries, the company has high uncertainty avoidance. They consider risk

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as part of the business and thus take the risk of failure and focuses on involving new
technologies, grabbing the market opportunities. This difference in culture acts as a challenge
in doing the joint venture business (Insigniam quarterly, 2018).
The last dimension is time orientation, which provides the spectrum that captures the
transformation in the culture’s way of appreciating the past as they move forward. It consists
of the low time positioning, which is manifest by the propensity to respect tradition, situation,
and recognized standards. In the case of short time, orientation refers to the cultural
disposition to be more practical and elastic. It is observed that European companies are short-
term oriented whereas China is considered to be long-term oriented. Chinese are concerned
with conserving the individual reputations and focuses on building interpersonal
relationships. This leads to the involvement of a long time to build trust and loyalty
(Gillespie, and Hennessey, 2011).
Therefore, after the brief description of the cross-cultural challenges, it is observed that China
specifies a high power distance ranking, which leads to increase in the level of disparity of
authority and prosperity within the society. It is analyzed that the Chinese culture has high
long-term orientation, which thus creates the patience and overcoming the obstacles with
time. The Chinese organization culture focuses on collectivism rather than individualism,
therefore; it believes that best outcomes can be achieved in-group. In order to contemplate
with the Chinese partner European company must focus on building relationships because
China sees their companies as their representatives rather than individuals. They must focus
on collectivism rather than individualism and must analyze the market before the prior entry
into the market (Shenkar, Luo, and Chi, 2015).
The example of the company that fails to have a joint venture in China is “Groupon”. The
famous e-commerce market place aims to have the joint venture with one of the largest

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internet company of China named as Tencent. The company was not able to have a successful
joint venture because it uses Tibet culture in its promotion advertisements which are risk for
the company and the company adopted the idea of providing the employees with huge
salaries but the competitors in China takes the action of not providing employment to the
workers who will work for ‘Groupon’. This was the reason for the fail of the joint venture
(Pronk, 2016).
The suggestion of a market entry strategy
The European multinational company must suggest the appropriate market entry strategy to
overcome the cultural and political barriers that act as roadblocks in achieving success. To
overcome the cultural differences the company must evaluate the preferences of the target
market, it should consider the changes in the requirements of the customer and must select
the location that is easily approachable to the target market. The company must conduct deep
research to identify the market and develop its competitive advantage in China (B2B
International, 2018).
The European Company has to analyze whether to choose the tier 1 or tier2 cities. Tier1 cities
are considered as most established market in terms of consumer performance and are
considered as the most appropriate for the foreign companies entering into China market.
Over the years, Tier2 and Tier 3 cities have also grown due to expansion in income,
therefore, the demand for foreign goods has increased. The company has to decide whether to
go in a less developed market or the more tested market. The company must analyze the
location of the customers, the distribution channels, the regulatory barriers, which can hinder
the performance of the organization. The company has to research access to raw materials,
the availability and the cost of human resource (export.gov, 2017).

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Before entering into the market of China, the company must analyze the policies and the
regulations laid by the China government, which restricts the entrance of the foreign
companies and thus limits the actions of the companies. Such actions can hinder the success
of the organization. Regulations are becoming stringent because of environmental issues.
Therefore, the company should research prior to entering the market. There are certain factors
to decide the entry mode, which includes business landscape, the geographical size and the
range of the market, the level of on the ground sales and the technical provision essential by
the customers (B2B International, 2018).
To enter the market through market research is much requisite, it helps the companies to
ascertain the dimension and the nature of the market opportunity, future trends and the level
of growth in the future. Good market research helps to analyze the roadblocks that come in
operating the business and act as the benchmark to judge the performance of the organization.
Thorough market research provides a clear strategy map and thus prevents in taking the poor
decision- making (EDUCBA, 2018).
The type of staff employed critically defines the quality of work in the organization. The
company in tier 1 cities generally have more quality workers than the tier2 and tier 3 cities.
Another important decision is to hire expatriates in high-ranking management positions or to
limit these roles. Having the Chinese manager will help the company to understand the
market in a better way. It is considered important and inseparable activity before starting the
business in China. To start the joint venture the company must judge the honesty of the
partners and the workforces. It helps to find any skeletons in the cupboard before continuing
to considerable investment. There are various legal and risk assessment consultants are
available that provides the individual's background checks, analysis of risk and business
intelligence (Linan and Serrano, 2014).

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The learning that the European multinational companies gain in experiencing a joint venture
business with China is that the companies must focus on choosing the correct business
partner for the success of its joint venture business. The companies must choose the correct
manager for effective implementation of the activities and the companies must respond to the
change in an effective manner for the continual success of the venture (MC Kinsey&
company, 2010).
Conclusion
In relation to the above context, it is concluded that before entering into the Chinese market
the European multinational companies must conduct thorough research to get the deep
understanding of the factors that influence the functioning of the environment and must
consider the fluctuations in the needs and the wants of the Chinese customers. China offers
opportunities to explore globally but it also comes with lots of failures. To overcome the
political risk and the cultural challenges the organization must have a deep insight into the
organization and the national culture of China. It must adopt the working style of China to
facilitate the operations of an organization and must bring the innovations in its product and
services to maintain its competitive edge and capture the larger market share.

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