International Journal of Project Management 22 (2004) 33–42

www.elsevier.com/locate/ijproman

Factors affecting construction joint ventures in China

Andrew Galea,*, Jun Luob
a
Manchester Centre for Civil and Construction Engineering, Project Management Divison, UMIST, PO Box 88,
Sackville Street, Manchester M60 1QD, UK
b
Ove Arup and Partners, Beijing Office, Room 3610, Jing Guang Centre, Hua Jia Lou, Chaoyang District, Beijing, 100020, China

Received 28 June 2001; received in revised form 12 October 2001; accepted 24 January 2003

Abstract
Since the early 1990s, construction joint venture companies have been developing and evolving rapidly in the People’s Republic
of China. However, entering the Chinese construction market is still seen as exciting but difficult by many foreign contractors and
consultants. This research involved a full population survey of 160 Sino–foreign joint venture project based construction companies
in four provinces. It investigated key factors for the success at the formation stage of joint ventures, comparing perceptions of
Chinese and foreign executives from Sino–foreign joint ventures. The results inform potential foreign and Chinese firms seeking to
establish successful construction joint ventures. The authors argue that there is no significant difference in the perceptions, between
Chinese and foreign partners, of the importance of key factors leading to the success of joint ventures at the formation stage.
# 2003 Elsevier Ltd and IPMA. All rights reserved.
Keywords: China; Joint venture; Formation; Construction

1. Introduction provide opportunities for foreign investment, in the

Joint venture (JV) project based companies exist both
as a mode of foreign investment and as a means of
technology transfer. They have increasingly become the
dominant form of international business growth for
multinational enterprises (MNEs) seeking expansion
opportunities in both developing and developed mar-
kets [1–6]. In developing countries the attractiveness of
foreign investment through JVs is that they are a means
of stimulating market development, acquiring advanced
technology and developing managerial skills necessary
to create further economic growth [6].
Since 1980 and particularly during the early 1990s, the
Chinese construction market has gradually been open-
ing to overseas contractors and design consultants.
Many foreign construction firms have been allowed to
contract various types of joint venture projects through
setting up construction JVs in China. By 1996, there
were over 2000 construction JVs in the country [8]. The
enormous demand for construction and infrastructure
* Corresponding author. Tel.: +44-161-200-4236; fax: +44-161-
200-4646.
E-mail address: andrew.gale@umist.ac.uk (A. Gale).
0263-7863/03/$30.00 # 2003 Elsevier Ltd and IPMA. All rights reserved.
doi:10.1016/S0263-7863(03)00012-7
Chinese construction sector. Currently, it is prohibited
for wholly foreign owned construction firms to establish
in China so many foreign contractors and consultants
set up construction JV companies. However, there has
been little empirical research into Sino–foreign JVs in
the Chinese construction sector. Foreign consultants
and contractors view the Chinese construction market
as exciting but difficult. The purpose of this study was to
examine key factors leading to the success of JVs at the
formation stage through comparing perceptions and
attitudes of Chinese and foreign executives from 160
construction JVs in four provinces. The results may be
used as a guide for future foreign and Chinese firms
seeking to establish successful construction JVs.
2. Previous research into success and failure of Sino–
foreign joint ventures
Success and performance of JVs are relative concepts.
A JV is regarded as a success if it performs well. There is
some literature on the analysis of JV success and failure.
Literature on criteria for successful JVs is vague. It is
suggested that a JV can be viewed as successful if it
34 A. Gale, J. Luo / International Journal of Project Management 22 (2004) 33–42
improves the competitive position of parent firms [9]. It
is argued by some researchers that technology transfer is
the key objective of a firm in entering into the JV and
that the JV will be regarded as successful if the parent
firm learns from its partner about technology and man-
agement know-how [10]. One author contributes a more
comprehensive criterion on the success of JVs as those
which survive over a reasonable period of time, gen-
erally over 8 years, where the major party involved, the
MNE, the national partner and the host government,
perceive sufficient benefits in relation to costs [11].
However, it is argued that survival may not be a reliable
measure for assessing JV performance and that a rea-
sonable period of time, over 8 years, is a subjective
concept [12]. The authors offer a further criterion for
successful JVs: both partner(s) and host government
perceive sufficient benefits in relation to costs, as well as
satisfying their strategic objectives.
Two factors influencing success and failure of JVs
were identified: (1) attempts by one of the partners to
obtain dominant control; (2) disagreements over man-
agement and operational strategies of the JV [13].
These factors were said to have nine main aspects of
potential disagreement including: strategy, marketing,
personnel and production policies, management style
and the decision-making process. In addition, there
may be other differences of opinion regarding the con-
tributions of each party and the distribution of profits.
Some authors have argued that most JVs in developing
countries are formed to achieve long-term objectives
[14,15,11]. One study finds 14 key factors of success
and nine key factors of failure and explains them
through a series of case examples [11]. This researcher
also points out strongly that these factors are often
interrelated and their combination leads to the success
or failure of a JV.
In identifying the key factors affecting the success of
JVs, previous research was generally concerned with the
critical success factors of the whole JV life cycle, rather
than categorizing various factors into three different
stages of JV life cycle (i.e. formation stage, operation
stage and termination or continuity) [11,16–18]. Those
studies did not focus on each single stage of the JV life
cycle and this caused practical problems or confusions
when practitioners tried to implement the strategies
recommended by the researchers. Furthermore, most of
those studies emphasize the different perspectives
between local partners in developing countries and
Western partners about criteria associated with JV suc-
cess [16,17,19,20]. These researchers argue that different
perceptions must be a function of different cultural
backgrounds. One researcher does address the JV life
cycle in a more integrated way by understanding the
cyclical process of formation, adjustment and eval-
uation. It could be inferred from this that formation is a
recurrent stage during the life cycle of a JV [21].
Operation or task related considerations that fall
under the heading of ‘‘strategic fit’’, cooperation or
partner related factors classed as ‘‘organizational fit’’
and cash related factors called ‘‘financial fit’’ offer three
significant considerations for the success or failure of a
JV partnership [22].
3. Methodology
The research hypothesis was developed based on an
extensive literature review and a series of pilot survey
interviews and stated as:
Chinese partners and foreign partners to a Sino–
foreign joint venture attribute the success at
formation stage of the joint venture to different
factors.
A questionnaire survey was designed to collect quan-
titative and qualitative data. In-depth interviews were
used to collect empirical evidence to supplement the
findings of the questionnaire survey.
3.1. Sample selection
According to the Chinese Ministry of Construction in
1996 [8], there were 160 JVs located in the four devel-
oped cities and provinces of Beijing, Shanghai, Jiangsu
and Shenzhen. These were selected as a representative
sample of JVs in China. All qualifying construction JVs,
installation JVs and Class 1 decoration JVs were sam-
pled; whilst Class 2 and 3 decoration JVs were ran-
domly selected.1 All JVs sampled had operated for at
least 2 years so that the respondents were experienced in
managing JVs.
Six key JVs were selected for an in-depth interview
survey and four were included in this study (see Table 1),
coded CJ-C1, CH-D1, CJ-C2 and CH-C2 respectively.2
3.2. Data collection
The questionnaire survey gathered both quantitative
and qualitative data and the interviews gathered quali-
tative data. For the questionnaire survey two versions
of the final questionnaires in Chinese and English
(designed for cross-cultural comparability) were mailed
to 160 JVs together with an official letter from the Chi-
1
According to the Qualification Standards of Construction Enter-
prises of the MOC, Sino–foreign construction JVs are classified into
three categories: construction, decoration, installation and other spe-
cialist. Each category is divided into three classes, with class 1 being
the highest grade.
2
Hong Kong companies are still regarded as the foreign companies
after 1997 by the Central Government, and the investment from HK
as foreign investment.
 A. Gale, J. Luo / International Journal of Project Management 22 (2004) 33–42
Table 1
Main characteristics of sample joint ventures in the in-depth interviews
Name of joint venture Chinese/Japanese
CJ-C1
Date of establishment 03/1986
Qualification Construction 1
Total investment US$ 270,000
Share of equity (% C/F) 50/50
Duration of first agreement 10 years
Length of operation To date
C, Chinese; F, Foreign.
nese Ministry of Construction (MOC). Foreign partners
(except Chinese speaking) received the English ques-
tionnaire and Chinese partners received the Chinese
questionnaire. Respondents were required to return
questionnaires to the MOC. The Chinese version was
mailed to the Chinese general manager or deputy gen-
eral manager of the JV and the English version to the
foreign deputy managers or general manger of the JV.
The four local Construction Commissions under which
these JVs were located, assisted and supervised the
delivery and collection of the questionnaires.
Responses were obtained from 104 JVs. Of these, 97
JVs (60.6%) produced usable responses. From the
usable data multiple respondents (i.e. both Chinese
partner executives and foreign partner executives) were
identified from 74 JVs (46.3%). The authors believe this
to be a very high response rate. It was probably due to
the formal involvement of the Chinese MOC.
In-depth interviews were carried out to collect quali-
tative data from managers of both Chinese and foreign
partners for a sample of JVs. Company documents,
marketing brochures, archives and newspaper yielded
secondary data.
3.3. Questionnaire design
The questionnaire was designed to identify critical
factors in the success of JVs at the formation stage
through comparing the attitudes and perceptions of
Chinese executives to those of their counterpart foreign
executives. Based on exploratory interviews and exten-
sive literature review [11,16–18,23], a list of seven main
factors (variables) was compiled in order to ask respon-
dents to rank the importance of the seven factors on a 5-
point Likert-type scale, in the light of their experiences
in managing Sino–foreign construction JVs. The factors
(variables) were:
1. Obtaining adequate information about potential
partner before negotiation.
2. Selection of a suitable partner.
3. Clear identification of the partner’s objectives.
4. A long-term commitment to the partner rather
than short-term profit.
35
Chinese/Hong Chinese/Japanese Chinese/Hong
Kong CH-D1 CJ-C2 Kong CH-C2
03/1986 07/1985 05/1987
Decoration 1 Construction 2 Construction 2
US$ 329,000 US$ 270,000 US$ 300,000
54/46 50/50 50/50
10 years 10 years 12 years
To date To date To date
5. Clear statement of JV agreement (i.e. both par-
ties’ rights, obligations, distribution of profits
and settlement of conflicts).
6. Compatibility of partners’ management culture.
7. The control of majority capital ownership.
Each statement was worded in the form: ‘‘. . . is crucial
to the success of JVs’’. The hypothesis was based on the
idea that both Chinese and foreign managers may have
a different conceptual frame of reference in relation to
how to make a JV successful from the formation stage
based on their different cultural backgrounds. Based on
familiarity with a pilot survey data and exploratory
interview data, the authors have arrived at the position
that it is likely that there are no significant differences
between the Chinese and foreign executives.
3.4. Data analysis and hypothesis testing
Data analysis was undertaken using SPSS for win-
dows. Two successive stages were followed. Descriptive
statistics for means of first contact, JV entry models and
length of negotiation were calculated to examine market
entry strategies. The hypothesis was tested using a two-
tailed t-test. To do this, mean values and standard
deviations were calculated for the two groups (Chinese
and foreign) and the seven variables ranked in descend-
ing order of importance. A two-tailed t-test was per-
formed to determine if in general there was any
statistically significant difference between the mean
scores of the two groups. Comparisons between two sets
of observation were made, using t-tests to examine each
of the seven variables in greater depth.
3.5. Validity and reliability of samples, data collection
methodology
The sample in this study is representative. The foreign
partner countries represent over 10 countries and
regions, including Hong Kong, USA, Japan, Taiwan,
Singapore, France, Germany and Macao. These were
and are the main foreign investors in the Chinese con-
struction sector and other manufacturing sectors. The
cities and regions (Beijing, Shanghai, Jiangsu and
36 A. Gale, J. Luo / International Journal of Project Management 22 (2004) 33–42

Shenzhen) from where the sample was drawn are repre-
sentative because the majority of foreign direct invest-
ment (FDI) is concentrated on these developed cities
and regions, especially in the Chinese construction sec-
tor. One of the two important previous studies focussed
on data drawn from US–Chinese JVs [24,25] and the
other sampled mainly from Shenzhen [26].
In the sample used in the study discussed in this paper
the foreign equity share ratio of minority, equal and
majority were all approximately one third each. Minor-
ity foreign share was the highest (37%). One researcher
argues that no correlation could be claimed between
ownership and management control because only 21%
of foreign companies had majority ownership in his
sample [27].
With respect to data collection methodology another
researcher argues that using a single respondent for each
international JV enables researchers to obtain reliable
and efficient data for JV performance when data is
impossible or difficult, in most circumstances, to collect
data from multi-respondents (i.e. both parties to a JV)
[28]. However, the use of a multi-respondent approach
in this study allowed the authors to obtain more reliable
results through carrying out cross-cultural examination
and comparison. In addition, the Chinese government’s
support for this research project was extremely impor-
tant to ensure that the researchers obtain a high level of
cooperation from enterprises. Furthermore, all data
were collected from experienced executives and man-
agers of the JVs. These respondents participated directly
in the management and operation of the JVs. Previous
research reveals that most researchers gathered data
from inexperienced company executives [16,17,29]. The
validity of the results from these studies could be ques-
tioned.
4. Results
and foreign partners can not be ignored (20.5%). It is
difficult to distinguish the roles played by middlemen
with friends and relatives. In many cases these middle-
men are the friends of one party who are familiar with
another party and have close relationships with them.
In four cases (see Table 4), one of the JVs was set up
through a friend’s relationship with a foreign partner,
one through the help of local government (Beijing Con-
struction Commission) in selecting the foreign party and
another two had previous relationships in cooperative
contracting in China and abroad.
The results detailed in Tables 3 and 4 confirmed that
there were few JVs that were formed with the assistance
of a Hong Kong agency. This is understandable, since
the reform in 1978 China has opened to the outside
world. Both Chinese and foreign companies can directly
and conveniently obtain necessary business information case
from various channels and there is no need to use Hong
Kong as a means to enter the Chinese market.
4.2. Negotiation and joint venture agreement
Having selected potential partners, the next step is
negotiation. In the survey 88.7% of Chinese respon-
Table 2
Relationships between joint venture partners before negotiation
(n=97)
Relationships No. %
of JVs
No previous relationships 71 73.20
Cooperative contracting projects in the international 4 4.12
market
Cooperative contracting FDI projects in China 9 9.28
Import and export of building materials or equipment 15 15.46
Training in project management skills 1 1.03
Building technical assistance agreement 1 1.03
Cooperative R & D 2 2.06
Other 7 7.22

4.1. Models of joint venture entry Some JVs reported more than one kind of relationship.

Table 2 shows that 73.2% of partners in JVs in this

Table 3
survey had no relationship with each other before Models of joint venture entry used by partners
negotiations began to form a JV. It also shows that
26.8% of partners in JVs had previous business rela- Models of entry Frequency %
of use
tionships, such as cooperative contracting projects in
international markets and China, import–export rela- Direct contact with potential partners 31 27.7
tionships, training and technical assistance agreement. Via various Chinese government agencies 14 12.5
Via broker or middleman 39 34.8
Table 3 summarizes the main models used by both
Via a Hong Kong business agency 3 2.7
parties to enter into JVs. Direct contact and via brokers Via a Chinese-foreign business agency in 2 1.8
or middlemen were the most frequent means used by Hong Kong
partners to establish initial contact (27.7 and 34.8% Others (e.g. friends, relatives, etc.) 23 20.5
respectively). Third party (brokers or middlemen)
Total 112a 100.0
played the most important roles in helping to establish-
ment of Sino–foreign construction JVs. Contributions a
Totals are more than 97, because a few JVs used more than one
from friends and relatives as bridges between Chinese type of entry method.
 A. Gale, J. Luo / International Journal of Project Management 22 (2004) 33–42
Table 4
Previous relationships and entry models in in-depth interviews
Name of JVs Previous relationships Entry models
CJC1 Cooperative contracting Direct contact
abroad and in China
CHD1 No Friend (middleman)
CJC2 Cooperative contracting Direct contact
in Japan and China
CHC2 No Chinese government
dents and 82.4% of foreign respondents reported that
they obtained enough information about potential JV
partners before negotiation. Negotiation could be very
smooth or a rather time-consuming process. Both sur-
vey and interview data show that the length of negotia-
tion did not depend on the amount of the total
investment to the JVs only [25]. It also depended on
other factors such as the degree of familiarity between
partners, degree of desire of both parties to form a JV
and convenience or ease of communication. The time
taken in negotiation (from first contact to signing a JV
contract) had an mean of 8.09 months (S.D.=6.55) with
a range of 40 months to 1 month.
Usually the agreement of Sino–foreign construction
JV contains a number of main clauses. These normally
cover the following: company name, range of business
operations, objectives, total investment and partner
share, definition of obligations, composition and
responsibilities of the board membership, general man-
ager’s rights, personnel recruitment, finance and
accounting, tax payments, distribution of profits, dura-
tion of operations and resolution of conflict.
Of the JVs sampled 84.5% reported that the rights,
responsibilities and obligations of both parties were
clearly defined in their JV agreements. In general, Chi-
nese obligations usually appeared to address the fol-
lowing: approval and registration of the JV, personnel
recruitment, visa and work permits for foreign partners
and supply of office buildings and the foreign partners’
obligations were basically to assist the JV in training
management staff, providing up to date information
Table 5
Comparison of two groups’ means and rank orders
Variables Mean
C F
Obtaining enough information 3.83
Selection of suitable partners 4.44
Clear identification of partner’s objectives 3.68
Long-term commitment of cooperation 2.81
Clear statement of JV agreement 3.97
Perception compatible with partner’s culture 2.82
Control of ownership 2.99
C, Chinese partners; F, Foreign partners. Scale: 1=Strongly disagree, 2=Disagree, 3=Somewhat agree, 4=Agree, 5=Strongly agree.
37
and technology, developing the overseas markets, pur-
chasing necessary equipment and material from abroad
for the JV and supplying the capital for projects.
The outcome of negotiation is either failure or success.
Failure is reduced through the analysis of what partners
need from a JV and the willingness to negotiate as and
when the need arises during the JV relationship. Uncer-
tainty and its reduction are a function of the level of
agreement on JV scope definition, legal form to be
adopted, financial arrangements, management, time
duration of JV life and dissolution mechanisms. The level
of agreement though negotiation at the JV entry level is
an important factor in the potential success of a partner-
ship. Important components of the continuous process of
negotiation process are: aspirations, uncertainty, knowl-
edge, information exchange and social exchange [30].
4.3. Perception of key success factors
Table 5 shows that both sets of respondents ranked the
factors: selection of suitable partners, obtaining enough
information, clear statement of JV agreement and clear
identification of objectives as the four most important
factors. Chinese and foreign partners appear to feel
strongly that selection of a suitable partner was the most
crucial factor leading to the success of JVs at the forma-
tion stage. Very similar mean scores are observed, ran-
ging from 4.44 to 3.68 and 4.46 to 3.76, respectively. Their
respective standard deviations (S.D.s), corresponded to
the shape of the distribution of variables around the mean
values. For example, the first factor had S.D.s of 0.54 and
0.60, which indicates a low degree of dispersion. Percep-
tion compatible with partner’s culture was rated as the
sixth most important factor by both Chinese and foreign
executives but with different mean values of 2.82 and 3.26
respectively. Differences were observed between the mean
scores of Chinese and foreign executives (2.81 and 3.19,
respectively) for two factors: long-term commitment of
cooperation andcontrol of ownership. These means were
the lowest for both Chinese and foreign respondents.
There is an interesting relationship between the rank
order of the first four critical success factors, shared by
S.D. Rank
C F C F
3.99 0.77 0.63 3 3
4.46 0.54 0.60 1 1
3.76 0.69 0.64 4 4
3.30 0.95 0.90 7 5
4.01 0.87 0.75 2 2
3.26 0.86 0.85 6 6
3.19 0.92 0.90 5 7
38 A. Gale, J. Luo / International Journal of Project Management 22 (2004) 33–42
Chinese and foreign partners. If these four factors are
considered in reverse order they reflect the process that
would be logically followed in selecting a joint venture
partner. The last factor being the key consideration
prior to committing to a business relationship.
Clearly identifying potential partners’ objectives
would lead to a need for as much information as possi-
ble about the prospective partner(s). Following con-
sideration of the information there is a logical need for a
formal record of what would constitute a joint venture
agreement and finally the commitment through selec-
tion of a joint venture partner would occur.
Table 6 contains the results of a t-test for the com-
parison of the two groups’ means. The t-value of 0.68 is
less than the critical value for significance level P < 0.05.
Hence, the null hypothesis can not be rejected.
Table 6 also presents those factors that were identified
to be significantly different or similar in their percep-
tions. For five of the seven important factors, no sig-
nificant differences were found from both groups at the
0.05 level (the null hypotheses were accepted.). Both
Chinese and foreign managers and executives demon-
strated similar perceptions on the importance of key
factors leading to JV success at the formation stage.
These five factors are:
1. Selection of a suitable partner.
2. Clear statement of JV agreement.
3. Obtaining enough information about potential
partners before negotiation.
4. Clear identification of partner’s objectives.
5. Control of the majority ownership of the capital.
The statistical results indicated significant differences
between the two groups in the following two factors:
1. Long-term commitment of cooperation rather
than short-term profit.
2. Perception compatible with partner’s manage-
ment culture at the operation stage.
Table 6
Results of t-test for two groups (two-tailed)
Degree of freedom
In general
Perceptions for two groups 12
7 individual items
Obtaining enough information 166
Selection of suitable partners 168
Clear identification of objectives 165
Long-term commitment 165
Clear statement of JV agreement 165.2
Perception compatible with culture 166
Control of ownership 167
P<0.05; P40.01.
The t-values for these two items were 3.40 and 3.31
with 2-tail significance levels of 0.001, respectively. The
null hypotheses were rejected. With reference to their
respective mean scores in Table 6, foreign respondents
appear to show more concerns about cultural compat-
ibility than their Chinese partners did. The Chinese
group expects a long-term attitude in cooperation
through forming JVs to achieve their objectives, rather
than short-term profits.
5. Discussion
This study paid particular attention to the key factors
leading to JV success at the formation stage. There is an
old Chinese saying that ‘‘Difficulty for everything is the
beginning’’. A good start can make things easier at later
stages. It is suggested in the literature that ‘‘formation’’
is one of a number of stages of a joint venture partner-
ship and that the subsequent stages of ‘‘adjustment’’
and ‘‘evaluation’’ cycle throughout the life of a joint
venture. These cycles are characterized by intra-group
and border group convergence and divergence [21].
The statistical results suggest that both Chinese and
foreign partners have similar perceptions of the impor-
tance of the key success factors at the formation stage.
This finding leads the authors to question the validity of
previous studies on similar topics. Those studies were
generally concerned with the critical success factors of
the whole JV life cycle [11,16–18]. There was a common
sense argument underpinning these studies. Essentially
there are different perceptions between local partners in
developing countries and western partners about criteria
associated with JV success.
The results of this study suggest that the different
perceptions associated with JV success held by Chinese
and foreign partners may not exist at the JV formation
stage. This is interesting when considered in relation to
the literature with respect to the need for continuous
negotiation and the cyclical nature of the JV process
t-Value Two-tail sig. (P) Null hypotheses
0.68 0.511 Accepted
1.42 0.159 Accepted
0.25 0.803 Accepted
0.76 0.448 Accepted
3.40 0.001 Rejected
0.36 0.718 Accepted
3.31 0.001 Rejected
1.42 0.159 Accepted
 A. Gale, J. Luo / International Journal of Project Management 22 (2004) 33–42
[21,30]. The development of mutual understanding and
trust occurs over time along with the willingness to
share information and knowledge. Common business
principles may well exist in different cultures. This is
understandable and logical, because at the formation
stage of JVs both parties make their own decisions.
Hence, no major conflicts will arise at the JV operation
stage as both parties take part in the management and
operation of the JV. Management is the most important
issue at the operation stage, and is related most fre-
quently to cultural factors. Conflicts will unavoidably
arise due to cross-cultural differences. The authors of
this paper believe that more dissimilarities than simila-
rities occur between the perceptions of Chinese and
foreign partners to a JV.
Furthermore, as stated above, both Chinese and for-
eign partners have identical perceptions on the impor-
tance of five of seven key factors, and significant
divergence on the other two factors. At one time key
critical strategic considerations such as the relative
labour or capital intensity of the JV, location in relation
to the Chinese seaboard and type of ownership (wholly
owned or subsidiary) are now insignificant. Low per-
formance has been found to be closely correlated with
labour intensive processes thus leading to the need for
capital-intensive approaches for success. The cheap
labour attraction of China is a false advantage. Rapid
improvements in infrastructure have increasingly meant
that location is of much less importance. Ownership has
not been found as significant as market strategy
[6,27,28,31]. The key determinant of organisational
form has been found to be that of the foreign partner
[32]. The quick take up and development of knowledge-
based opportunities in China is having an increasing
influence business strategy. Also, the earlier need for a
reliance on the ‘‘guanxi’’ (or connections) of local part-
ners is giving way to more rational processes based on
transparency and legal process [6,33]. Problems do
appear to be very common around the low level of
technology transfer and project management skills
being transferred by foreign partners; due in large part
to their absence from the theatre of operations [6].
One researcher has classified attributions for success-
ful JVs: operation (or task) related, cooperation (or
partner) related and cash related being associated with
strategic fit, organizational fit and financial fit respec-
tively [33]. The general position taken by this researcher
author appears to support the authors’ findings.
5.1. Selection of a suitable partner
Previous research has emphasized the importance of
selecting a suitable partner in the formation of JVs [25].
In the authors’ study, both Chinese and foreign partners
regarded this as the most important success factor. A JV
is like a marriage. The empirical evidence from the case
39
study implies that if you choose the wrong partner, you
get trouble. The Chinese deputy manager told a story:
Our first partner was from a HK private company
and was not an ideal partner. We did not know this
company quite well before and hurried to form the
JV. Then, various conflicts associated with main
goals, management and operation. After one year,
our parent company decided to quit the contract.
Through the help of Beijing Construction Com-
mission, we found another HK partner. This was a
bigger company and had a good reputation. So far
we have cooperated very well.
5.2. Clear statement of joint venture agreement
Both Chinese and foreign partners ranked this factor
as the second most important. In fact, JV agreements
function well in supervising, regulating and guarantee-
ing both partners’ rights, responsibilities and benefits in
Sino–foreign construction JVs. The Chinese general
manager of CHD1 emphasized the clauses in the JV
contract regarding both parties’ rights, responsibilities
must be written very clearly, especially the distribution
of profits, because potential conflicts are mainly caused
due to different perceptions of profit. The style of writ-
ing in JV contracts appears to be different based on the
different cultural backgrounds of the partners. Western
partners usually write everything carefully and clearly.
However, regarding their Japanese partner, the Chinese
deputy manager of CJC1 comments:
They are not used to defining everything clearly
and this does indeed cause trouble in some cases. I
remembered that once the Japanese general man-
ager wanted to make a remittance to the parent
company for an emergency. But in our contract
there is no clause to say whether or not the money
can be remitted in this kind of case. So I disagreed
with this action. After some anxiety I carefully
thought about his requirements and let the money
go. He was very happy. You know, we do every-
thing strictly according to the JV contract. But
sometimes, you have to be flexible.
The factor is apparently an important variable related
to JV success. Some researchers have pointed out that
conflicts between partners often arise due to the ambi-
guity of the contractual clauses [11,17].
5.3. Obtaining enough information about potential
partners before negotiation
So far the literature on JVs, involving partners from
different countries, has ignored this aspect. The study
40 A. Gale, J. Luo / International Journal of Project Management 22 (2004) 33–42
results reveal that 88.7% of Chinese respondents and
82.4% of foreign respondents obtained enough infor-
mation about potential partners before negotiation.
Both groups ranked this factor as the third most
important.
This factor is apparently significant for parent firms in
choosing the right JV partner and conducting successful
negotiations with them. There is an old Chinese military
strategy book called ‘‘SunZhi’s Art of War’’ which says:
‘‘Know you and know myself, then come out victorious
in every battle’’. Today this famous book is increasingly
used by Oriental and Western business people for busi-
ness strategy. JV partners should adopt every modern
information channel and tool, such as government
agencies, relatives, friends, libraries and world wide web
to gain as much information as possible about potential
cooperative partners. The information should include
the partner company’s size, qualifications, organiza-
tional structure, previous experience and reputation,
capital assets and property, business specialists, man-
agerial personnel, facilities-equipped, share of local and
international markets and research and development
capability.
5.4. Clear identification of partner’s objectives
This factor was rated by both groups as the fourth
most important. During the period from initial contact
until signing a JV agreement, the partners’ main strate-
gic objectives must be identified by each other. In many
cases both parties’ main objectives will be com-
plementary. This is particularly true in developing
countries. Clearly identifying partners’ objectives will
avoid causing unnecessary conflicts during management
and operation of JVs. Significant differences in JV part-
ners’ goals may cause failure of the JVs [11]. However,
in the case of Sino–foreign construction JVs, both par-
ties have similar strategic objectives and this is why the
majority of Sino–foreign construction JVs perform well.
The reason relates to the nature of the construction
industry which is different from the manufacturing
industries, where their products are highly expected to
be exported by local partners [34,35].
5.5. Control of ownership
Both Chinese and foreign groups have similar per-
ceptions on this factor related to JV success. However,
tiny differences can be observed in two mean scores. The
Chinese rated the factor as the fifth important amongst
seven factors, whilst the overseas partners viewed it as
the seventh key factor. This implies the Chinese man-
agers may be more concerned with the proportion of
equity share than their overseas counterparts [34,35].
Other researchers have found this question in need of
further research. The issue of aligning strategic goals,
the level of presence of foreign partners and the key
potential benefits perceived by Chinese partners from
joint venturing with foreign partners are major issues in
this context [32,33].
5.6. Perception compatible with partner’s management
culture at the later stage of JV operation
Cultural environment is a crucial factor influencing
management and performance of JVs. Previous litera-
ture has frequently mentioned that different managerial
style, business and corporate culture between develop-
ing and developed countries can lead to serious con-
flicts, instability and failure of JVs [11,20,36,37].
Partners from MNEs should adopt flexible attitudes in
doing business overseas and learn to understand the
values of different cultures.
Trust is a very important aspect of cross-cultural JVs.
One researcher, studying two major JVs in India, con-
cludes that in the early stages of the JV relationship
there may be high uncertainty for both parties which
prevents the allocation of resources by both parties. If
trust is generated well the resources necessary to
develop a successful JV are released. Any apparent
asymmetry in capacity, willingness and needs will
exacerbate poor relations and cross-cultural experiential
learning will be curtailed [38]. The two main aspects of
culture that may be of greatest significance are the dif-
ferences between Chinese and foreign partners with
respect to levels of socio-cultural distance and uncer-
tainty avoidance. The affect of these differences may be
mitigated to a certain extent by the implied finite life
cycle of a JV [39].
In this study, the Chinese and overseas groups held
significantly different perceptions on this factor,
although both of them ranked the factor as the sixth
most important amongst seven individual factors. For-
eign managers appear to be more concerned about cul-
tural differences than their Chinese counterparts. This
can be seen in the foreign mean score at 3.26 cf 2.82 for
Chinese. A possible explanation is that experienced for-
eign managers have increasingly realized that doing
business in China is different from that in their own
countries. In contrast, Chinese managers view the factor
as less important than other factors due to their position
as the host country.
5.7. Long-term commitment to cooperation with the
partner
Both groups exhibited striking differences on this fac-
tor. This can be seen in the foreign respondents’ mean
score of 3.30 cf 2.81 for Chinese. The foreign group
rated the factor as the fifth most important amongst
seven individual factors, whilst the Chinese group the
seventh. These differences suggest that foreign managers
 A. Gale, J. Luo / International Journal of Project Management 22 (2004) 33–42
and executives are aware that Chinese firms expect long-
term cooperation and benefits. Long-term commitment
to Chinese partners rather than short-term profit in the
Chinese construction market is crucial to success of JVs.
Indeed, empirical evidence in China indicated that quite
a few foreign company executives emphasized taking a
long term view regarding their Chinese operation [40].
Many foreign companies, especially those from Western
countries have still adopted a ‘‘wait and see’’ approach,
because of widespread worries about the language bar-
rier, unfamiliarly different culture and political risks,
although the Chinese market is highly attractive.
6. Conclusion and recommendations
This study reveals that in general there is no sig-
nificant difference between Chinese and foreign part-
ners. At the formation stage of the JV life cycle, both
Chinese and foreign partners have similar perceptions of
the importance of the key factors leading to the success
of JVs. Different perceptions of Chinese and foreign
partners about criteria for JV success may be associated
with the different stages of the JV life cycle. However,
this does not mean that understanding the culture of the
host country is not necessary at the formation stage. In
contrast, the authors strongly advise that foreign part-
ners start to understand cultural differences as early as
possible before they enter the Chinese market. The
findings also imply that both parties have significantly
different views about cultural environment and long-
term commitment. Therefore, both parties should be
aware that probably the potential points where conflicts
will arise are at the later stage of JV operation and
should improve their understanding of long term-com-
mitment of cooperation rather than short-term profit
and the importance of achieving compatibility between
partners’ management cultures. An active development
of mutual trust founded on symmetrical needs, will-
ingness and capacity to engage in experiential learning
from a cross-cultural JV is essential [38].
6.1. Chinese and foreign partners
In many countries, wholly owned foreign contracting
or consulting firms are not allowed to establish. Suc-
cessfully establishing a JV not only offers opportunities
for expansion but also brings both parties’ valuable
skills together to carry out projects effectively and effi-
ciently. The authors found through interviewing many
government officers and company executives, in many
cases, foreign contractors and consultants failed to
communicate with local governmental departments and
misunderstood clients because they were unfamiliar
with local procurement methods, industrial practices,
Chinese working methods and thought processes. The
41
Chinese construction industry requires a valuable time
commitment from JV partners and can be considered a
time consuming process. However, evidence shows that
Sino–foreign construction JVs perform well [28]. High
local demand and shared strategic intent supported by
simple human contact are key determinants of success-
ful and stable JVs [41,42].
The significance of ‘‘quanxi’’ (connections) is becom-
ing less significant as transparent business practices
founded on legal process develop. The relative presence
of the foreign partner (affecting level of technology
transfer and development of project management skills
in the Chinese partner) is probably more significant than
the form of ownership in relation to JV success [6,41].
The findings of this study provide a practical per-
spective on setting up a JV successfully. After deciding
to form a JV, both potential local and foreign partners
should realize that choosing a suitable partner is the
most significant factor and the first step leading JVs
towards success. To make the right decisions it is
important to obtaining enough information about
potential partners before negotiation.
Although direct contact with potential partners is a
means of entering into JVs, brokers and middlemen
(including friends and relatives) are the most preferred
means in helping to establish a JV. This greatly reduces
expenditure in collecting information and communi-
cations as well as being an aid to familiarization. How-
ever, research finds that the early development of trust
from simple human contact is a crucial aspect of success
in JVs [38,42].
When everything is agreed and the JV agreement is to
be signed, JV partners should be aware of the clauses
relating to both parties’ rights. These should cover
obligations and responsibilities, distribution of profits
and resolution of conflict, clearly stated and defined, in
order to reduce the possibility of conflict during JV
operation. A comprehensive and detailed JV agreement
is essential.
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