developing nations led to the Government driven “Western Development Strategy” as part of the tenth year plan (2001-2005) covering six provinces..
Notwithstanding the economic policies favouring commerce and FDI, the OECD in particular have regular reported on challenges facing FDI in China’s regional development and the focus of this analysis is to critically evaluate the various types of business organisation and entry modes into the Chinese Market. In particular, this paper will evaluate the possible threats faced to foreign businesses in entering the Chinese market.
Whilst foreign investors are ultimately autonomous on the mode of entry into the Chinese Market from equity joint ventures (EJV), wholly foreign owned enterprises (WFOE) and contractual or cooperative joint ventures (including licensing and technology transfer agreements) joint exploration, and co-operative development; it has been submitted that the reality of entry into the market has been challenging in practice (Luo, 2000). Since, the late 1980s the predominant mode has been EJVS and WFOES (Luo, 2000). Until 1996, EJVs were the most popular entry vehicle; however the last decade has seen the proliferation of WFOES (Charles, 2005). Between 1993 and 1997, the actual use of WFOEs in China grew at an annual rate of more than 25 per cent while EJVs grew by only 6 per cent (Rugman & Hodgetts, 2003).
This indicates a fundamentally changing dynamic of the way China is attracting foreign investment, with WFOEs becoming dominant entry mode into the market (Charles, 2005). This is significant in placing a foreign company at a competitive edge in the market. Arguably, the causal effect is the disappointing performance of EJVS in China, the expectation that performance problems will accelerate along with the perception that foreign investors dissatisfaction is unlikely to change unless competitive compromises are given (Charles, 2005).
Various problems have been associated with the Chinese EJVs,