New report draws on BCG’s experience over the past decade of working with 20 JVs in China’s automotive industry.
One of the biggest obstacles to JV success is managing the partnership once the deal has been signed, according to a new report by The Boston Consulting Group (BCG). The report, How to Successfully Manage Joint Ventures in China, is being released today.
China is an irresistible target for multinational corporations (MNCs) seeking growth. But in some industries, regulatory restrictions on foreign ownership make joint ventures the only viable option for producing goods locally. Despite their enthusiasm for JVs, most MNCs believe that they could get more value from these partnerships. A mismatch of management skills, approaches, and control between partners can be a source of conflict and undermine a JV’s outcome. Typical problems include organizational and governance models that don’t work well, cultural differences, and difficulties collaborating.
China’s auto industry is a case in point. JVs in this industry have a long history and are strategically important to the country. “The government’s original intent was to provide MNCs with access to its markets in exchange for technology that would strengthen local OEMs and improve their global competitiveness,” explains Nikolaus Lang, a BCG senior partner and a coauthor of the report. But the transfer of knowledge and development of JV brands is happening more slowly than expected.
Eight Guidelines for Success Drawing on BCG’s experience of working with 20 JVs in China’s automotive industry over the past decade, the report identifies eight actions to increase the odds of success:
- Continually align on objectives, strategy, and operations, then formalize them by stipulating them in the JV’s contractual agreement.
- Clarify management roles and structure, leveraging the key capabilities of each partner and ensuring that everyone understands their responsibilities.
- Create a unified, stand-alone culture to prevent silo thinking and an “us versus them” mind-set.
- Tailor JV processes to the local context to make sure that they fit the JV’s specific operating model and draw on best practices from both partners.
- Separate strategy discussions from operations to maintain JV focus on day-to-day operations, and hold managers accountable for execution by using performance metrics tied to incentives.
- Use data to support decision making because timely information is critical for tracking performance, monitoring inventory levels, making effective decisions, and flagging potential problems early.
- Adapt HR planning to local conditions, tailoring training and exchange programs to increase the capabilities of local employees and to create an attractive career path for them in light of China’s talent shortage.
- Provide support beyond the JV to bolster the Chinese government’s goal of strengthening local OEMs to improve their global competitiveness.
The report also offers a tool developed by BCG that JVs can use to evaluate their relative postdeal strength in each of these critical areas.
These moves can help address the inherent challenges of managing JVs and improve the value that they deliver across all industries—especially given China’s changing JV environment. “Because the local auto industry has fallen short of the government’s expectations, JV activities are in transition,” notes Marco Gerrits, a BCG partner and a coauthor of the report. The slowing growth of China’s GDP and the continuing rollout of legislation to improve the environment are expected to further increase the likelihood of coming changes. Many are predicting that the Chinese government will pressure JVs to become more independent and accountable and to increase their global reach. Others predict that JV regulations will end as JVs themselves become less important and relevant. Either way, change is likely on the horizon, and MNCs need to be aware of these developments.
A copy of the report can be downloaded at www.bcgperspectives.com.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].
