Background of Selected Firms

This section will present and discuss the background of the selected cases to demonstrate that these selected cases meet the criteria discussed before. The description of the background of each firm will be presented in general terms for ethical considerations.

IJV Case 1: JV1:

The European partner – JV1F, as a global automotive firm with headquarters in Europe, is one of the largest and most well-known premium car makers in the world. The company originated from a military equipment manufacturer during the Second World War. Currently, JV1F owns two premium car brands and one top luxury car brand, including the brand of itself. JV1F’s technological capabilities range from premium compact cars to fully electric vehicles as well as high-end sports cars. On the other hand, the Chinese partner – JV1L – is a local Chinese automobile manufacturer that originated from a state-owned minibus manufacturer. Before the joint venture, the company had a limited capability of making cars. JV1L has been fully benefiting from the support of both the local and central government of China. In the early 21st century, JV1F and JV1L signed an international joint venture partnership, which officially marks the start of the local production of foreign premium cars. JV1F dominates in the operation and control of IJVs due to its superior technology and product capability as well as their commitment in the market of China, which will be discussed in Section 6.5. In the early stage, the joint venture company was only capable of the vehicle assembly of two basic JV1F models based

on the imported spare parts from Europe. As of 2015, the joint venture company is capable of manufacturing four models of JV1F cars with the capability of locally producing 80% of the necessary parts.

IJV Case 2: JV2

JV2F, as the European party of JV2, is an international automotive firm headquartered in Europe, having over 100 years of history. JV2F cars represent the best-selling premium cars across the world. The technology capability of JV2F ranges from fully electric cars to cutting-edge Formula 1 racers. The Chinese partner – JV2L – is a Chinese state-owned car manufacturer which was founded in the 1950s as a truck maker. JV2L’s trucks are popular for commercial uses because of their cheap prices and relative reliability, yet its saloon cars are less popular due to the lack of advanced car-building technology. It has been attempting to expand its production capability, which includes acquiring both local Chinese car firms as well as international firms. In 2005, JV2L and JV2F signed an international joint venture deal that put the brand of JV2F, as the most popular premium car brand, into local production. Initially, only two of JV2F’s car models were produced in China, and the number increased to four in the last few years. The joint venture company suffered serious sales difficulties due to internal competition during the initial years of operation as well as a lack of localisation. JV2F also considers the joint venture company as a means of entering the Chinese market. These points will be discussed in Section 5.3. In the last few years, the sales performance of the joint venture company has been gradually catching up with its major rivals because of improved localisation of the locally produced cars.

IJV Case 3: JV3

JV3F (the European party of JV3) is an international automobile manufacturer founded in the early 20th century. JV3F is currently one of the world’s largest car makers, and it owns more than eight brands including three major luxury car brands. JV3F group’s production capability ranges from affordable compact cars to top luxury cars and high-performance sports cars. Yet the brand of JV3F mainly focuses on economic cars. JV3L, as the Chinese partner, is a state-owned automotive firm

founded in 1940s. This was one of the first few companies that China established to develop China’s own automotive industry. Initially, the company made small passenger cars based on one European model to serve the need of government officials. As of now, JV3L is one of the largest Chinese car companies in terms of firm size and total production capability. JV3L has three joint venture partners from Europe and America.

The joint venture deal between JV3L and JV3F was signed in the mid-1980s and was seen as a milestone for the Chinese automotive industry development as it was one of the first Sino-foreign automotive joint venture deals. The joint venture deal also reflected the ‘market for technology’ policy that was introduced by the central government of China to enhance the technological capability of local firms. After three decades, the joint venture company makes a total of over 20 models of JV3F and Brand X (brand name removed for ethical reasons) brands, which is considerably more than the models introduced by any other Chinese automotive joint ventures. All these models are highly localised, and some of these models are even designed and produced by the joint venture company to be specifically sold in China and nowhere else. Unlike the two previous IJV cases, JV3 is capable of designing cars based on JV3F’s technology.

Independent Car Maker: ICM

ICM was established in the mid-90s as a battery manufacturer for mobile phones and other electric devices. It was founded because most foreign battery makers were moving away from local production due to increasing costs. ICM replaced the automated battery production line with low-cost manpower, and ICM insisted on independently producing the key machinery itself. This aggressive cost-cutting strategy gave ICM a cost advantage over its competitors and ultimately led to its success in the battery making business. The by-product of such a cost-cutting strategy was the opportunity to fully understand and master the technology production process, which is regarded as the very basis of their latter innovation processes. After a few years of development, ICM has become one of the world’s leading battery makers.

In 2003, ICM officially stepped into the automotive industry by acquiring a local Chinese automotive company. The capability of the acquired company before the acquisition by ICM was very limited, producing 1990s Japanese car models. Since then, ICM has built five major manufacturing plants across China with the capability of vehicle manufacturing, modelling R&D and vehicle designing. Throughout this process of developing into an auto manufacturer, ICM has focused on building its own R&D capability, rather than continuing to rely on imitating existing products and technology as pointed out by interviewee ICM1:

‘We ICM people must be able to decide the fate of our own. We strictly demand ourselves to fully master the core technologies. Because we believe our survival and development depend on it.’

The core technologies mentioned above, according to the interviewee, represent the key parts of ICM’s production, such as platform, engine and transmission in their automotive business. The battery making business’ success influenced the later operation of the automotive business. In fact, ICM has maintained a high independence in developing its own technological capabilities rather than relying on external forces, such as the technology capability of a joint venture partner like most other Chinese automotive firms. ICM has been doing external R&D collaborations, yet the external collaboration only acted as a supplement to their overall innovation strategy. ICM, as a relative latecomer in the Chinese automotive industry, has managed not only to survive, but also to deliver a considerable number of independent innovation achievements. Its innovation performance will be presented in the following section. ICM is currently recognised as a world-class innovator due to its innovation and technological capability.

As a conclusion to the background of the selected cases, the selected IJV cases were established more than a decade ago between state-owned local automotive firms and automotive MNCs with a substantial amount of resources and managerial know- how. This perfectly meets the criteria discussed before. On the other hand, the selection of the ICM case indeed reflects the nature of the polar-case as it is not a state-owned company. More importantly, it does not benefit from an IJV partnership, and its innovation performance has been achieved independently. To further ensure

the validity of case selection, the next section will compare the innovation performance of the selected cases. The comparison can further demonstrate that the selected cases are polar-type in nature.