Inside Contractual Joint Ventures in China: Ownership Advantage, Resource Contribution and Management Control

Empirical studies on contractual joint ventures (CJVs) in China are rare. Concentrated in Guangdong province, CJVs represent, rather than FDI, a long-term subcontracting alliance arrangement between Hong Kong and Guangdong firms. The quasi-market quasi-hierarchy nature of the alliance makes uncovering the ownership advantages of CJVs and dissecting the distribution of management control between CJV partners difficult. Drawing on data from cross-case studies, this paper identifies ownership advantages and their sources, and reveals how the pattern of non-equity contributions by CJV partners underpins CJV control structure. The findings show that the concept of ownership advantage can occur in a non-equity alliance, so long as there is a separate alliance organization. The transfer of ownership advantages from parent firms to CJVs takes place in the same way as in equity alliances. The overall design of the CJV control structure is based on the perceived value of non-equity contributions by each side, but as control rights are not clearly derived from equity ownership, power distribution is not always consistent with the pattern of non-equity resource contributions, particularly where trust between partners is lacking.