Abstract
This study explores how inter-partner trust in international joint ventures (IJV) affects third country relocation decisions as foreign partners face an uncertain business environment in China due to wage increases and competition from local companies intensifies. As the concept of third-country relocation is relatively new compared to other international business concepts, it is crucial to find a solid framework that can explain this phenomenon. A study of 232 Korean IJVs operating in China was used to assess the relationship between inter-partner trust and third-country relocation intention. Also, we measured moderating variables that strengthen (plant performance, asset specificity, coercive pressure) and weaken (mimetic pressure and normative pressure) the negative relationship between trust and third-country relocation intention. The main effect and interaction effects were significant in showing that inter-partner trust hinders decisions on IJV’s third-country relocation. In addition, the results show that trust and third-country relocation relationship interact with other moderating variables. In conclusion, our study suggests that foreign IJVs should explore various aspects such as inter-partner relationships and internal and institutional factors before making decisions on IJV relocation.
Highlights
Many foreign manufacturing firms operating in China have been facing increased competitive pressure from recent economic transformations
We examine how inter-partner trust has different effects on third-country relocation decisions depending on the level of the internal aspects of a manufacturing firm and institutional pressures perceived by foreign manufacturers
The Chinese market is a rich context for analyzing the third-country relocation phenomenon in terms of an Asian perspective as many Asian manufacturing firms are located in China
Summary
Many foreign manufacturing firms operating in China have been facing increased competitive pressure from recent economic transformations. In addition to wage increase pressures, the Chinese government has transformed the economic structure from labor intensiveness to new technology-oriented businesses such as 3-D printing and high-end machine development. Foreign manufacturing firms, which are usually in labor-intensive sectors—such as toys, clothing, and other light manufacturing industries—perceive the transformation as institutional pressures that may cause them to suspend operations in China. The Boston Consulting Group recently surveyed 106 U.S manufacturing firms operating in China and found that 37% intend to relocate their manufacturing bases to nations that have less institutional pressure [2]. Global corporations—including GE, Whirlpool, Toshiba, Foxconn, and Canon—have announced that they will relocate some of their Chinese manufacturing plants to other foreign countries or to their home counties
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