Silicon Valley Firms' Operational Tactics and Venture Performance in Greater China

Business Forum, Summer-Fall, 1999 by Mark V. Cannice, John D. Daniels

The manufacturing subsidiaries all carry out significant manufacturing or development work in the host country. The joint venture manufacturing and sales operations are all conducted with a host country firm and are typically chosen in part to satisfy some host government restrictions to ownership. (One joint venture was a three-way partnership with two U.S. firms and one Chinese firm.) The distributor modes are usually chosen by smaller companies seeking market penetration, and best represent the export option in the sample.

All exporters used intermediaries in the host country. This is most likely because of the complexity of many of the products offered by the sample firms. This complexity normally requires at least some period of set up and training that is performed either by distributors or local support staff. A number of busineses in the sample firms have recently replaced distributors with WOS sales offices as these firms increase focus on their international sales and service effort. No licensing agreements existed in the sample. In the following we provide a summary discussion of two ages from the study.

Case Summaries and Arguments

Firm 1

The first company that was examined in the main field study is a medium-sized manufacturer of components that are inserted into integrated circuits. Essentially, this company is a supplier to integrated circuit fabricators. Its customer supplies PC makers who sell to the general public. In essence, this company is two steps down the value chain from the final customer. Firm 1 chose a distributor in Hong Kong to look for new markets in Hong Kong and China. We classified its strategy as market-seeking. The respondent asserts that resource constraints limit the firm's pursuit of this market to a distributor. This corresponds to the weak cash position of the firm because of its recent acquisitions and extraordinary expenses as stated in its public reports.

Performance is rated as being low. The respondent commented that "There is a pony in China somewhere, but we have not found it yet." This company demonstrates moderate decision comprehensiveness and low decision team heterogeneity. This low decision context probably impacted the strategy and operating mode selection. Technology transfer costs are rated moderate to high. The market entry model suggests that the moderate to high technology transfer costs demand higher internalization, perhaps through a joint venture or subsidiary, and thus do not fit well with the distributor choice.

According to the respondent's discussion and questionnaire items, the assessment of the environment potential is high and the uncertainty moderate. This indicates a moderate NPV for the country. The moderate net present value demands a joint venture and does not fit the distributor choice. Performance is low. The fit between the decision factors and the operating mode choice is low. Predictebly, the firm exhibited low performance.

It seems here that the low decision context is a significant factor in leading to a poor strategy of market-seeking where a more highly integrated sales effort is demanded because of the nature of the technology and need to fit its technology with the potential customer. Thus, decision context is shown to moderate the international strategy choice as well as the operating mode selection.