Cultural Problems within International Joint Ventures in China

53 interest very important. A majority of the interviewed managers would never make a Joint Venture without a controlling stake in the share capital. The composition of the Board of Directors (BOD) is another possible source of control over a JV. The BODs functions are the representation of the JV, to reach operative and strategical decisions as well as to monitor their implementation. Decisions there are reached by a majority in number and not with respect to the shares of equity. A further source of controlling power can be the composition of the management. In general the management is composed of a General Director (GD) and one or more Deputy/Vice General Managers (VGM). Normally the GD is empowered to fill other key positions in the JV at his own will. As a result the staffing of the position of the GD is often referred to as the most important measure to take control of an IJV. Also the right to fill this position does not automatically come with a majority stake it is in most cases the partner with a higher equity share who determines the person. Last but not least the possibility to fill the key positions in an IJV is also a measure of input control. The position of VGM, which is normally filled by a person chosen by the party which has not applied the GM, can also bring some monitoring power or influence in this area with it. The VGM may be granted a veto against certain decisions of the GD whereby his possibilities of control may be clipped, for example. The controlling power of the VGM is therefore subject to the scope of competences granted to him. At last, the power to be able to staff key positions at will, can be a way to gain input control, too. However the importance of certain positions may vary for different partners. Staffing positions with one’s own employees may enhance the control of divisions considered to be of special importance. In the study conducted by Alexander T. Mohr the importance of staffing key positions was only surpassed by the importance of the position of the GD. The study although revealed, that managers consider it essential to place employees of their own company in the IJV at all. According to the same study key- positions considered to be especially valuable are director of accounting and director of controlling. On the one hand the filling of key positions enhances the probability that the execution of the activities is oriented towards the aims of the respective parent company. This is the case, since the director is not only aware of the aims of the parent but the fulfilment is normally in his own best interest, too. On the other hand the flow of information concerning certain [...]

52 the right of a partner to fill other key positions and the possibility to lay down a catalogue of decisions where an ordinary resolution is sufficient, are such mechanisms. Since in the PRC there are still some industries where ownership caps (limitations to foreign interest in Chinese companies) exist, these indirect mechanisms are of special interest. Altogether control mechanisms can be divided into positive and negative mechanisms. Positive mechanisms are aimed to guide the JV managers in a direction advantageous for one of the parent companies. This can be achieved by a special training for the employees of the parent company/expatriates working in the JV or the linkage of their salary to the earnings of the parent company. Negative mechanisms are supposed to prevent the JV management to act against the best interests of the parent company. Such are the installation of a control organ like the Board of Directors or rules clipping the free hand of the management. However the focus of this work is on intercultural problems within the venture and not on the relationships between parent companies and subsidiary. Instead the monitoring of the results of the respective partner’s actions, called output control and the direct control of and influence on the actions of the respective partner, called process control are further explored here. A further control mechanism, called input control, refers to measures like the staffing of important positions and is a category of itself here.96 [...]

There have been found to be a considerable range of mechanisms for control used by the parent firms, also including indirect mechanisms. Early studies of control in IJVs have been concentrated on the capital shares of the partners and concluded from a majority of the share capital on a partner’s ability to influence the management of the JV. However practical surveys show that it is not enough to have a controlling stake in share capital. It has been reported that, although the Chinese side held only a minority of the share capital they often commanded the venture, at least the operative part. Measures which allow a partner with an equal stake or a minority share to control the joint venture have been explored by several researchers. The proportion of seats on the Board, the filling of the position of the General Manager, [...]