Hybrid governance of joint ventures in transitional economies: the case of Guangzhou Automobile Group in China

Abstract

The conventional approach to examining firm-to-firm governance is unable to disentangle the complexity of strategies and the interplay between different actors with their corresponding rules and routines embedded within an institutional environment where the state plays as a key equity partner in joint ventures (JVs) in transitional economies. This paper proposes an analytical framework of hybrid governance to explain how an alignment of mutual interests between three groups of heterogeneous multi-scalar actors (states, local and foreign firms) facilitates technological upgrading in JVs and the establishment of local production networks in transitional economies. The case of Guangzhou Automobile Group (GAC) demonstrates how the divergent interests of various actors do not necessarily constrain the development of the JV. Under such hybrid governance, whereby the boundaries between public and private property are blurred, GAC’s senior managers have been able to navigate and align the multifaceted agendas of various actors: from the profit-maximization demanded by foreign JV partners and industrial development commanded by the central state, to the development of the local capacity and capability for large-scale production and product development and setting up local automotive supply chains required by the local state. Three necessary conditions for technological upgrading in JVs are identified: a 50-50 equity structure, a latecomer in a big market, and the financial imperative of local firm actors.

Keywords:

• Hybrid governance
• joint ventures
• production networks
• transitional economies
• automotive
• China

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Yeung (2016) has reservations about the operation of GPN 2.0.

2 Abo (1994) referred to Japanese plants in the US as hybrid factories, while Adler (1999) used the term hybridization to refer to the adaptation of JMS in the US.

3 See Alami and Dixon (2020) for the comprehensive review of various conceptualizations of state capitalism.

4 See Lazaric and Lorenz (1998) and Foss and Lorenzen (2009) for cognitive coordination and incentive coordination. We are grateful for an anonymous reviewer to point out these concepts.

5 FCA merged with the PSA Group and formed Stellantis in 2020. We excluded GAC-Mitsubishi (established in 2012) in the discussion due to its low production volume.

6 GAC formed a JV with Peugeot in 1985 to assemble 504 and 505 saloons but it closed in 1997 after producing about 100,000 cars.

7 Changfeng Motor assembled Mitsubishi Pajero under the Leopaard brand. It sales were poor (26,816 in 2008) so Mitsubishi eventually sold its equity in Changfeng and formed a new 50-50 JV with GAC (Reuters, 19 May 2009, 6 November 2010).

8 More than 80 percent of GAC-FCA’s 300 tier-I suppliers (one-third are locally-owned and two-third are foreign-owned) manufacture their parts in China (GAC-FCA, 14 August 2017).

Additional information

Funding

This research is supported by the NUS Strategic Research Grant (R-109-000-183-646), awarded to the Global Production Networks Centre (GPN@NUS) for a project entitled “Global Production Networks, Global Value Chains and East Asian Development” and the Philosophy and Social Science Funding of Guangdong Province in China (GD20SQ21). We are also grateful for the anonymous engineers and managers who facilitated and participated in interviews. The authors are thankful for the valuable comments and suggestions from the handling editor (Prof. Jennifer Bair) and three anonymous reviewers on the earlier draft of this paper. As usual, the authors are responsible for the views expressed and any omissions.

Notes on contributors

Godfrey Yeung

Godfrey Yeung is Associate Professor of Economic Geography at the National University of Singapore. His research interests include foreign direct investment, international trade and production networks, financial geographies and regional development in China. In addition to the effects of state-driven decarbonization strategies on industrial development, he is currently researching automotive production networks and their impacts on local economic development.

Yi Liu

Yi Liu is Associate Professor of Economic Geography at Sun Yat-sen University in Guangzhou, China. His research interests are globalization, regional development, industrial upgrading and innovation. He has been studying industrial upgrading in the Greater Bay Area in South China for more than ten years.