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However, Once Greater Levels Of Fdi Are Attracted, And The Relationship Has ...

However, once greater levels of FDI are attracted, and the relationship has been combined with an exporting strategy, higher performance is achieved by the SME. Indeed, exporting helps drive the relationship FDI has with performance in the latter stages, as firms which attract high levels of FDI tend to experience higher profits than those with little connection to their target markets (Lu and Beamish, 2001). Indeed, when such a strategy can be expanded into an alliance with foreign partners, the sharing of local knowledge can be an effective strategy to overcome the deficiencies SMEs face in resources and capabilities, when they expand into international markets (Lu and Beamish, 2001).

An expansion of this partnering into the formation of full international joint ventures is another strategy pursued by some Chinese SMEs since China's accession to the WTO, and has given them an important strategic advantage among the other internationalised Chinese SMEs. Partnering strategies in the formation of international JVs have been found to have significant positive benefits for SMEs attempting to expand their offering to the international markets. Lu and Beamish (2006) conducted a study examining how the two types of resources contributed by each side of an international joint venture: local market knowledge and financial and other resources, impacted on the performance of the overall JV. Whilst their sample was based on international JVs established by Japanese SMEs, they still have explanatory power for the choice of the same strategy by some Chinese SMEs.
The study revealed that SMEs' international JVs with partners in countries around the world were often associated with decreases in the longevity of the relationships between the two partners, especially if the two sides to the agreement were able to use the JV to acquire local market knowledge. This implies that many SMEs do not see an international joint venture as a long term strategy, but as more of a method of entering new markets and attracting investment, whilst sharing the risks. The study also showed that the amount of experience of the partners in the JV did not have any direct effects on the venture's profitability, but that JVs between more experienced companies tended to be shorter in length (Lu and Beamish, 2006). Again, this implies that Chinese SMEs may be using international joint ventures as a way to establish a presence and obtain knowledge about the local market conditions. Hence, the more experienced the SME the greater the rate at which it can assimilate local knowledge and create its own local presence. Once the SME has assimilated enough information about the market to create its own venture in the market, the need for the joint venture disappears, as does the venture itself.

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