Institution Granting Degree
United States International University
Business | Business Administration, Management, and Operations | International Business
THE PROBLEM. The research required an investigation into and an assessment of selected risk exposures of multinational companies headquartered in the United States and Hong Kong which have engaged in or planned to participate in joint ventures within the special economic areas or mainstream economy of China.
THE METHOD. A data sample of forty-five companies (twenty-two in Hong Kong and twenty-three in the United States) was obtained from a population of 187 published listings of parent companies with verifiable joint ventures. A questionnaire was mailed to top-level corporate managers responsible for or vitally involved in the joint venture investment decision. Each respondent was asked to provide opinion data by individually rating twenty-three risks on a continuum which indicated the degree of concern for each risk. The risks were classified as political, foreign exchange, or commercial.
The data for joint ventures in China's special economic areas and mainstream economy were analyzed using percentage comparisons, rank orders, and t-tests. Tabulations also were provided to illustrate demographic data.
THE RESULTS. It was found that the political risk of primary concern for the special economic areas was the possibility of an excessive and unanticipated rise in taxes. For the mainstream economy, the highest concern expressed was the possibility of antagonistic attitudes developing toward foreign investment. The foreign exchange risk which received the highest priority was identical for both local groups. This concern involved the potential for financial loss from the restriction of currency exchange. This factor also was rated the greatest concern of all the risks evaluated in the survey. The primary commercial risk for the special economic areas was that of an inconsistent interpretation of the Chinese legal and regulatory structure. For the mainstream economy, the greatest commercial risk was found to be the failure or inability of the Chinese suppliers of raw materials to meet delivery schedules.
It was concluded that joint ventures in China are faced with a moderate level of investment risk exposures. As a result of the two-tiered legal structure, the mainstream economy was reported to present a slightly higher political and commercial risk profile than was noted for the special economic areas.