The Gap in Current Literature

theories that provide some theoretical suggestions as to understand the innovation behaviour. Upon reviewing these innovation theories, it is concluded that there are three main factors to understand innovation. They are the innovation environment (F1), the resource accessibility (F2) as well as the process of innovation (F3). These three factors can influence the innovation performance of a firm. Specifically in the context of IJVs, the stability of IJV (F4) should also be considered in understanding an IJV’s innovation behavior. This is because, though unlike F1-F3 the stability of an IJV will not improve its innovation performance, the instability issues can cause operational problems which obstruct the innovation activities. As discussed in the previous chapter, the current literature on international collaboration and IJVs suggests that IJV partnership represents a good medium to drive innovation. Upon reviewing the mechanism that allows an IJV to drive innovation, this research found that the theoretical suggestions of both the IJV literature and the innovation literature basically align with each other (in terms of F1-F3).

However, the previous section suggested that there has only been limited innovation performance in the automotive IJVs in China. The architectural innovation and incremental innovation outcomes achieved by the automotive IJVs in China, by their nature, do not seem to involve any technological development. Rather, they merely represent the result of a deep understanding of marketing behaviour. This is especially true considering the modified products/new products that the IJVs introduce to the market mostly remain the same with respect to the technologies used in them. Additionally, there does not seem to be clear signs or evidences showing it is a common phenomenon that the automotive IJVs suffer from significant instability issues, which obstructs the collaborative innovation activities. Therefore, in suggesting the capacity of IJVs to drive innovation, there seems to be a misalignment between theoretical suggestions and real-life practice, as current literature on IJVs do not seem to provide a sufficient explanation on the limited innovation performance of the IJVs.

As discussed before, the Multi-Stage Model of Knowledge Management of Pak et al. (2015) illustrates the mechanism of how the innovation achievement in an IJV can benefit its parent companies. According to the model, the complementary resources

are combined and modified and adapted in an IJV to generate innovation results, which can be harvested by the parent companies. Real-life examples support the arguments proposed by Pak et al. (2015). Taking SAIC as an example, the complementary resources between SAIC and its foreign IJV partners resulted in incremental and architectural innovation results. As a consequence of innovation achievements in the IJVs, SAIC is now capable of both making styling changes to its independent vehicles and designing new car models by recombining existing components. The Roewe (known as Rover in the UK, which is now a SAIC owned brand) RX5 sports utility vehicle can perhaps best demonstrate the capability of architectural innovation of SAIC. This is because the RX5 model is independently developed by SAIC. Its key components are developed elsewhere (e.g., its SSA chassis was first used in MG models; the 15E4E engine originated from Chevrolet models). It is a similar case with other automotive IJVs in China, such as the GAC Group and the FAW Group, as they are also capable of delivering new products based on existing technologies/components.

Nevertheless, the ‘market for technology’ strategy that led to the strict requirement on IJVs aimed to ultimately enhance the technological and innovation capacity of the Chinese firms. Based on the suggestion of the Multi-Stage Model of Knowledge

Management by Pak et al. (2015), it seems that the automotive IJVs in China need to

achieve innovation outcomes that involve the improvement of existing technology or the development of new technology in order for the parent company to benefit from them and consequently, address the issue of limited technological capability. However, the reality is that there have only been limited innovation results that do not involve any technological innovation results. As a consequence, the parent companies would not be able to benefit from new technologies and consequently, improve their technological capabilities. In this sense, the IJV-innovation strategy of Chinese government seems to have failed to provide a feasible solution to the limited technological capabilities in the automotive firms of China. In fact, it has been more than three decades since the introduction of China’s IJV-innovation strategy. All of the automotive IJVs were established at least ten years ago, and some of them were established three decades ago. The reality is that the local automotive firms are still

incapable of technologies that allow them to compete in either local or international markets.

As a conclusion, it is evident that the automotive IJV partnerships have indeed led to some innovation achievements as predicted by the IJV literature. Yet, the innovation achievements have been rather limited, which means that there are only limited reverse knowledge migration effects. The current literature on IJVs revealed some features of IJVs that drive innovation, yet current literature cannot seem to fully explain the limited innovation performance of IJVs. Hence, it is speculated that there are some factors that have not been appropriately considered by the current literature in indicating IJV’s capacity to drive innovation and enhance the innovation capacity of local firms. As a consequence, the effectiveness of IJVs as a medium to enhance indigenous innovation capacity in the automotive industry in China, especially with regards to technological innovation, is also questioned. Based on this rationale, this research focuses on exploring the explanations for the limited innovation performance in automotive IJVs in China. Therefore, the main research question is as follows:

Why has there been only limited innovation performance in the automotive IJVs in China, contrary to the current theories on the capacity of IJVs to drive innovation?

The review of the current literature on innovation and IJVs revealed a number of factors to understand innovation behaviour in the context of IJVs (F1–F4). These factors constitute four main themes. This research will examine the effectiveness of Chinese automotive IJVs in enhancing innovation in accordance with these themes and factors. The detailed research design will be presented in the next chapter.