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Graduate School
1987
Determinants of Joint Venture Performance: a
Study of International Joint Ventures in the United
States (Japan, Europe).
Winston Kwashie Awadzi
Louisiana State University and Agricultural & Mechanical College
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( Japan, Europe)." (1987). LSU Historical Dissertations and Theses. 4339.
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Order Number 8719846
Determinants of joint venture performance: A study of
international joint ventures in the United States
Awadzi, Winston Kwashie, Ph.D.
The Louisiana State University and Agricnltnral and Mechanical CoL, 1987
Copyright ©19S7 by A w adzi, W inston Kwashie. A ll rights reserved.
U MI
SOON.ZeebRd.
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DETERMINANTS OF JOINT VENTURE PERFORMANCE: A STUDY OF
INTERNATIONAL JOINT VENTURES IN THE UNITED STATES
A Dissertation
Submitted to the Graduate Faculty of the
Louisiana State University and
Agricultural and Mechanical College
in partial fulfillment of the
requirements for the Degree of
Doctor of Philosophy
The Ilit erijepartmen l.ai Programs in Business Administration
by
Winston K. Awadzi
B.S., Louisiana State University, 197(>
M.B.A., University of New Orleans, 1978
M.A. (Econ.) University of New Orleans, 1979
May, 1987
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WINSTON KWASHIE AWADZI
All nights Reserved
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ACKNOWLEDGEMENTS
It has taken the pursuit of a doctoral degree for me
to really appreciate what it
others.
means
Personal sacrifice pales
to
in
be
the
indebted
face
of
to
the
contributions and sacrifices made by others.
I owe a big debt of gratitude to several people.
would like to thank members of my dissertation
for their
counsel
and
guidance.
Dr.
Ben
L.
chairman of the committee, deserves special
Kedia,
thanks.
provided the necessary direction and support that
the
dissertation
from
McCann, Dr. Larry Fahr,
Sherrell
all
deserve
start
Dr.
to
finish.
Ravi
my
Chinta
undying
I
committee
Dr.
and
He
guided
Eugene
Dr.
appreciation
Dan
and
gratitude.
Special thanks go to Dr.
Kwawu
Mrs. Don Vermeer, Dr. Barbara Holt,
Agbemenu,
Mr.
and
Reynolds, Mr. Erin Schmidt and all those who
ways
have
possible.
contributed
I
would
to
also
making
like
to
Dr.
Mrs.
in
and
John
diverse
this
dissertation
thank
my
parents,
brothers and sisters for providing the family milieu that
inculcated in me the desire to pursue knowledge.
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My biggest debt of gratitude and
thanks
go
to
my
wife, Susie, and to my children Winston, Jr., Jacqueline,
Jo-Ann and Carrie.
Susie was always there to provide the
much needed encouragement and support that saw me through
the difficult times.
Never did she
complain
about" the
years of deprivation she and the children had to
endure.
The honor and credit for this dissertation should
really
My joy is sadly tainted because two persons I
have liked to share this honor with are not here
flesh, though they may be in spirit.
father,
Julius
Evans
Kwashie
These are
Awadzi,
mother-in-law, Jane Asibe Dolling.
To
would
in
my
the
late
and
my
late
them,
and
their
ever loving memories, I dedicate this dissertation.
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TABLE OF CONTENTS
Page
ACKNOWLEDGEMENTS
ii
LIST OF TABLES......................................
vii
LIST OF FIGURES.....................................
ix
ABSTRACT.............................................
x
CHAPTER
I.
II.
INTRODUCTION ................................
1
A.
DEFINITION OF THE PROBLEM ..............
1
B.
PURPOSE OF THE STUDY ...................
4
C.
NEED FOR THE STUDY .....................
7
D.
SCOPE OF THE STUDY .....................
8
E.
ORGANIZATION OF THE DISSERTATION........
LITERATURE REVIEW ..........................
9
11
A.
MOTIVATIONS FOR IJV: FDI THEORY AND
THE STRUCTURE OF FDI.................
11
B.
BASES FOR BARGAINING AND THE OUTCOMES
FOR IJV..............................
26
1. RELATIVE BARGAINING POWER AND CRITERIA
FOR SELECTINGPARTNERS............
28
2. RELATIVE BARGAINING POWER AND EQUITY
OWNERSHIP. .......................
32
3. RELATIVE BARGAINING POWER AND
MANAGEMENTCONTROL.................
39
4. RELATIVE BARGAINING POWER AND
COOPERATION...............
44
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Page
C.
OUTCOMES OF BARGAINING AND IJV PERFORMANCE 56
1. PARTNER SELECTION CRITERIA AND JOINT
VENTURE PERFORMANCE
..
2. EQUITY OWNERSHIP AND IJV PERFORMANCE
56
57
3. MANAGEMENT CONTROL AND IJV PERFORMANCE
58
4. COOPERATION AND IJV PERFORMANCE.....
61
D.
MEASURES OF IJV PERFORMANCE.........
64
E.
CHOICE OF IJV PERFORMANCE CRITERIA.....
69
THE RESEARCH MODEL AND HYPOTHESES .........
75
A.
THE RESEARCH MODEL.....................
75
B.
HYPOTHESES.............................
78
RESEARCH METHODOLOGY .......................
93
A.
93
B.
C.
OPERATIONALIZATION OF VARIABLES .......
1. INDEPENDENT VARIABLES ............
93
2. INTERVENING VARIABLES ..............
97
3. DEPENDENT VARIABLE .................
102
DATA COLLECTION .......................
103
1. POPULATION AND SAMPLE...............
103
2. DATABASE DEVELOPMENT ...............
104
3. QUESTIONNAIRE ADMINISTRATION........
105
DATA ANALYSIS .........................
109
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Page
V.
VI.
RESEARCH RESULTS: ANALYSIS ANDINTERPRETATION 110
A. MOTIVATIONS FOR JOINTVENTURE............
110
B.
117
TESTS OF HYPOTHESES.....................
CONCLUSIONS, IMPLICATIONS, LIMITATIONS OF THE
STUDY AND SUGGESTIONS FORFURTHER STUDY..
157
A. SUMMARY OF RESULTS,,....................
157
B.
IMPLICATIONS........................
167
C.
LIMITATIONS.........................
174
D. AREAS FOR FUTURE STUDY...................
175
REFERENCES...........................................
180
APPENDIX............ ...............................
189
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LIST OF TABLES
Page
TABLE 1.1
DISTRIBUTION OF US FDI...................
TABLE 2.1
RELATIONSHIP OF STAGE OF DEVELOPMENT TO
....
VENTURE-CEEATION RATIONALES
2
15
TABLE 2.2
RESEARCH ON JOINT VENTURE PERFORMANCE
AND MEASURES USED....................
66
TABLE 2.3
SELECTED RESEARCH STUDIES AND CONCEPTS
EXAMINED..........
TABLE 4.1
PATTERN OF RESPONSES TO QUESTIONNAIRES..
TABLE 5.1
MEANS AND RANKINGS OF MJV VARIABLES FOR
FOREIGN PARTNERS..................... Ill
TABLE 5.2
"T" TESTS OF MJV VARIABLES FOR EUROPEAN
AND JAPANESE FIRMS..................
114
TABLE 5.3
MEANS AND RANKINGS OF MJV VARIABLES
FOR US FIRMS.........................
116
TABLE 5.4
REGRESSION ANALYSIS— RELATIVE BARGAINING
POWER VS MEASURES OF PERFORMANCE
118
TABLE 5.5
REGRESSION SUMMARY— RELATIVE BARGANING
POWER VS CRITERIA FOR SELECTING
PARTNERS.............................
119
TABLE 5.6
REGRESSION SUMMARY— RELATIVE BARGAINING
POWER VS EQUITY OWNERSHIP, CONTROL
AND COOPERATION...................... 124
TABLE 5.7
REGRESSION SUMMARY— PARTNER SELECTION
CRITERIA AND RELATIVE EQUITY
OWNERSHIP VS PERFORMANCE............
129
TABLE 5.8
REGRESSION— CONTROL (US FIRM) VS
PERFORMANCE..........................
135
TABLE 5.9
REGRESSION— CONTROL (PARTNER) VS
PERFORMANCE.........................
137
TABLE 5-nO
REGRESSION— CONTROL (JOINT VENTURE
I-ÎANAGEMENT) VS PERFORMANCE.........
139
72
107
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Page
TABLE 5.11
REGRESSION SUMMARY TABLE— CONTROL VS
PERFORMANCE.........................
TABLE 5.12
REGRESSION— COOPERATION VS PERFORMANCE
TABLE 5.13
CONTINGENCY ANALYSIS— COMPRES VS
CONTROL (US FIRM)..................
146
TABLE 5.14
CONTINGENCY ANALYSIS— COMPRES VS
CONTROL (FOREIGN PARTNER)..........
146
TABLE 5.15
CONTINGENCY ANALYSIS— PASTASSO VS
CONTROL (US FIRM)..................
148
TABLE 5.16
CONTINGENCY ANALYSIS— PASTASSO VS
CONTROL (FOREIGN PARTNER)..........
148
TABLE 5.17
CONTINGENCY ANALYSIS— COMPRES VS
COOPERATION.................... .....
150.
TABLE 5.18
CONTINGENCY ANALYSIS— PASTASSO VS
COOPERATION.........................
151
TABLE 5.19
CONTINGENCY ANALYSIS— COOPERATION VS
CONTROL (US FIRM)..................
152
TABLE 5.20
CONTINGENCY ANALYSIS— COOPERATION VS
CONTROL (FOREIGN PARTNER)..........
153
TABLE 5.21
SUMMARY OF RESEARCH HYPOTHESES AND
FINDINGS............................
154
141
143
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LIST OF FIGURES
Page
FIGURE 1.1
ELEMENTS OF THE STUDY..................
4
FIGURE 2.1
DETERMINANTS OF FDI STRUCTURE AND BASES
FOR BARGAINING BETWEEN FIRMS........
20
FIGURE 2.2
LINKAGES CREATED IN AN INTERNATIONAL
JOINT VENTURE........................
45
FIGURE 2.3
INTERDEPENDENCIES IN JOINT VENTURES
49
FIGURE 2.4
BARGAINING BETWEEN PARTNERS AND ITS
OUTCOMES...........................
55
FIGURE 2.5
OUTCOMES OF BARGAINING AND PERFORMANCE..
63
FIGURE 3.1
THE RESEARCH MODEL.
..................
76
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DETERMINANTS OF JOINT VENTURE PERFORMANCE: A STUDY OF
INTERNATIONAL JOINT VENTURES IN THE UNITED STATES
This
study
focuses
on:
(1)
the
motivations
international joint venture (IJV) formation in
States ; (2) the bases and outcomes
of
the
bargaining
for
United
between
partners; and (3) the relationship between the outcomes
bargaining and joint venture performance.
of
Forty U.S.-based
joint ventures formed by U.S. firms with Japanese (22)
European (18) partners were studied.
These
IJVs
and
operated
in the manufacturing sector of the economy.
The
results
government
of
the
regulations
study
business-related factors were
IJV formation.
show
and/or
that
both
attitudes
significant
U.S.
(GRA)
motivators
and
for
However, business-related factors were much
stronger
motivators
Further,
GRA
was
than
a
GRA
stronger
for
the
whole
motivational
sample.
factor
for
Japanese multinationals (MNCs) than for European (MNCs).--The
findings
bargaining power
also
(RBP)
indicated
led
to
the
that
use
high
of
relative
appropriate
partner selection criteria and to high equity ownership
the IJV.
However, the level of RBP did not
determine
exercise of management control or the level of
in
the
cooperation
between the partners.
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The results on the
revealed
that:
(1)
determinants
the
level
of
of
IJV
significanlty impacted IJV performance; (2)
cooperation
between
performance;
(3)
partners
no
evidence
functions.
of
level
significantly
relationship
was
of
impacted
found
between
the
IJV
and
no relationship was found between
equity ownership and IJV performance;
was
exercised
the
selection of partner in the same business as
IJV performance; and (4)
performance
control
differential
Specifically,
the
Additionally,
control
U.S.
over
firm,
there
the
IJV’s
the
foreign
partner and IJV management generally exercised control over
different functional areas.
The study has a number of
implications
for
research and practice: (1) it provides
an
for explaining the motivations of U.S.
firms
MNCs that set
the
up
joint
ventures
in
strategy
empirical
and
U.S.;
(2)
provides an integrated model that, it is hoped, will
future research on
empirical base
for
joint
ventures ;
assessing
the
(3)
that
should
to
those
receive
of
it
guide
provides
performance
ventures; and finally, (4) it suggests
joint ventures factors
it
base
foreign
an
joint
who
emphasis
run
in
order to enhance joint venture performance.
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Chapter I
INTRODUCTION
A.
DEFINITION OF THE PROBLEM
The role of the multinational corporation (MNC)
the international economic order continues
research and
business.
writing
in
the
field
of
in
dominate
international
The conflict between governments and MNCs has
not abated for the most part.
now more accommodative of
However, the parties
each
other
Governments, especially those in
countries (LDCs), have
necessary
to
part
of
learned
their
(Janger,
the
to
efforts
lesser
accept
to
developed
MNCs
develop
economies, while the MNCs have become more
are
1980).
as
a
their
accomodating
of the demands of these governments for a certain amount
of control over their own destinies.
A
reflection
of
this mutual accommodation is the increasing use of joint
ventures, although the general concensus of managers
MNCs
is
that
{Tomlinson,1970;
they
Killing,
of
dislike
joint
ventures
1983).
Kenneth
Randall,
president of the Conference Board, has observed that:
1
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Out of such mutual need and complementary
capabilities has been born a basis for
cooperation. The organizational solution
is the
international
joint
venture
(Janger, 1980:v).
Randall's comment reflects the conceptualization of
international joint ventures as specially devised
of operating in LDCs.
means
However, statistics derived
from
the Harvard Comparative Multinational Enterprise Project
by
Franko
(1976)
indicate
that,
by
the
mid-1970s,
U.S.-based multinational firms were engaged in
just
many joint ventures in the developed countries
as
were in the lesser developed countries.
There were
as
they
695
IJVs in the developed countries compared to 681 IJVs
in
the lesser developed countries (Table 1.1).
TABLE 1.1
DISTRIBUTION OF US FOREIGN DIRECT INVESTMENT
Wholly
Total
All
LDCs
DCs
3720
1583
2137
2344
902
1442
Majority
Owned
558
301
257
Minority
818
380
438
Source: Computed from tables in Franko, L. (1976).
The European Multinationals. Stamford, CT.: Greylock.
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These statistics may be indicative
that
the
IJV
is
a
universal
of
form
the
of
fact
business
organization rather than a peculiarity of doing business
in the LDCs.
This universality of IJVs is borne out
by
increasing use in the DCs, including the United
According to statistics released
by
the
their
States.
International
Trade Administration of the U.S. Department of Commerce,
164 joint ventures were
formed
in
the
United
between U.S. companies and foreign partners
States
within
the
three-year period 1981 and 1983: 47 in 1981, 79 in
1982
and 38 in
seem
1983.
significant
in
While
these
relation
to
figures
total
may
not
foreign
direct
investment in the United States (about 4 percent),
of these joint ventures were very notable, such
some
as
the
one between General Motors and Toyota of Japan.
In spite of their universal and almost equal use in
both DCs
and
LDCs,
however,
the
studies on joint ventures continues
focus
to
be
of
on
research
outward
flows from the DCs to the LDCs (Reynolds,
1984;
1974).
international
It may be insightful
joint ventures in the
to
developed
examine
countries
Webley
because
of
their increasing importance and use in these countries.
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B.
PURPOSE OF THE STUDY
The research questions examined in this
schematically presented in
Figure
1.1.
The
study
are
elements
shown in the figure provide the bases for the purpose of
the study.
ELEMENTS OF THE STUDY
MOTIVAT:EONS FOR
JOINT 1/ENTURE
STRUCTURE AND iBEHAVIOR OF IJV
-BARGAINING POWER
-PARTNER SE]LECTION
-RELATIVE E(3UITY OWNERSHIP
-MANAGEMENT CONTROL
-COOPERATIOÎ
JOINT 1/ENTURE
PERFOlÎMANCE
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This study first examines the motivations for joint
venture
formation
investment (FDI)
behavior
examined.
of
the
in
relation
theory.
firms
to
Second,
forming
direct
structure
and
joint
ventures
is
The focus is on the relative bargaining power
of the partners and its influence on
the IJV and the behavior of IJV
to: (1) criteria
ownership,
foreign
the
for
selecting
the
structure
partners
with
partners,
of
respect
(2)
equity
(3) managerial control, and (4) cooperation.
Third, the impact of all
the
variables
above on the performance of joint ventures is
A conceptual model of joint ventures
tested using a sample of
is
international
enumerated
examined.
developed
joint
(IJVs) set up in the United States between European
Japanese firms and U.S. partners.
and
ventures
The study sheds
and
some
light on research questions, such as:
1.
What are the motivations of foreign MNCs and their
U.S. partners for engaging in IJVs in the United
States?
2.
To what extent do U.S. government regulations
and/or attitudes impact the decision to enter into
joint ventures?
3.
What is the basis of the relative bargaining power
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(RBP) of the partners, and how does RBP influence
such behavioral factors as:
a.
the criteria for the selection of
b.
the share of equity ownership,
c.
partners,
the exercise of (managerial) control over
the IJV, and
d.
the level of cooperation/conflict between
the partners?
4.
How do the structural and behavioral factors
affect the performance of the IJVs?
5.
To what extent can these variables explain/predict
joint venture performance, individually and
collectively?
6.
Does national origin of partners mediate the
7.
Do IJVs of one nationality perform better than
8.
What are the major structural and behavioral
explanatory/predictive ability of these variables?
those of other nationalities?
differences between the joint ventures with
partners from Europe as compared to those with
partners from Japan?
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c, NEED FOR THE STUDY
This type of study is
First, most
of
the
needed
research
for
three
studies
ventures (or on international businesses)
on advanced country
MNCs
that
countries (Reynolds, 1984).
reasons.
done
on
have
operate
in
In fact, the
joint
focused
developing
bulk
of
research has been on the operations of U.S.-based
However, the United States, in
being
the
single largest source of foreign direct investment,
has
also become the
largest
addition
recipient
of
investment, and this necessitates a
Secondly,
researchers
are
to
the
MNCs.
foreign
shift
in
unanimous
direct
research
in
their
prediction of the increasing use of IJVs (Friedmann
and
Kolmanoff, 1961; Drucker, 1973; Janger, 1980; Bivens and
Lovell,
1966).
This
prediction
is
based
on
the
inability of even the largest firms to "go it alone" due
to the rapid rate of technological development, the high
cost of conducting
research
(R&D),
the
projects, and the high costs involved in
(Killing,
1982;
1983;
Harrigan,
prediction is true, then there is a
that
would
provide
insights
into
1984).
need
the
riskiness
many
If
for
of
projects
such
a
research
workings
and
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ramifications of IJVs.
Thirdly, and even more importantly,
the
IJV
literature
indicates
that
a
perusal
researchers
tended to focus only on specific aspects of
as parent control.
IJVs,
No integrated conceptual
of
have
such
model
has
been developed to deal with the different facets of IJVs
simultaneously
and
decision-making.
redirecting
to
guide
research
This study fills
research
focus
to
and
these
strategic
gaps
include
by
(1)
foreign
MNC
operations in the United States, (2) tying together
different
streams
performance,
of
research
(3) providing
a
on
joint
comparative
joint ventures between U.S. firms and MNCs
and Japan, and (4)
providing
an
analysis
from
integrated
linking (a) the motivation for joint
the
venture
venture,
of
Europe
framework
(b)
the
behavior of partners and (c) joint venture performance.
D.
SCOPE OF THE STUDY
This study focuses on international joint
(based in the United
partners from Japan
States)
and
between
Europe.
The
U.S.
ventures
firms
selected
ventures operate in the manufacturing sector (20-39
and
joint
SIC
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Code) of the economy.
E.
ORGANIZATION OF THE DISSERTATION
The first chapter defines the research problem
sets forth the purpose, need and
scope
The next part of this section details
of
the
the
and
study.
organization
of the rest of the study.
Chapter two (LITERATURE REVIEW) presents
of the existing literature, and
sections.
a
four
Section one examines the motivation for
IJV.
deals
with
the
divided
review
into
Section two
is
bases
for
the
bargaining power (RBP) of partners and the
bargaining between them.
relative
outcomes
Section three relates
to
of
the
relationships between the outcomes of bargaining and IJV
performance.
The last section examines
the
on the measurement of IJV performance.
literature
A research model
is developed based on the review of the literature.
Chapter three (THE RESEARCH MODEL
AND
HYPOTHESES)
develops the integrative conceptual model embodying
major determinants of
sets forth
derived
the
from
relationships
joint
research
the
among
performance.
propositions
model
the
venture
and
variables
and
the
in
the
It
hypotheses
hypothesized
the
model.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Supporting
evidence
is
provided
for
each
of
the
hypotheses.
Chapter four
(RESEARCH
METHODOLOGY)
research methodology used in the study
into four sections.
details
and
is
the
divided
The first part describes the sample
and discusses the development of the database.
section presents the operationalization and
of the variables identified in
the
section details the methodology for
data and the fourth section
model.
the
discusses
The next
measurement
The
third
collection
the
of
statistical
analyses performed on the collected data.
Chapter
five
(RESEARCH
RESULTS:
ANALYSIS
AND
INTERPRETATION) outlines the findings of this study.
It
also discusses contributions made to the development
of
theory and research and to strategic management decision
making relative to IJVs.
Chapter six (CONCLUSIONS, IMPLICATIONS, LIMITATIONS
OF THE STUDY AND SUGGESTIONS FOR FUTURE STUDY)
a summary of the
research
findings
implications of the research.
and
presents
examines
the
Areas for future research
are indicated to motivate additional research on IJVs.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Chapter II
LITERATURE REVIEW
This chapter is divided into
first
section
examines
the
(foreign MNCs and local firms)
ventures.
four
sections.
motivations
for
of
engaging
in
The second section deals with the
the relative bargaining power
partners and
the outcomes
them— criteria
ownership
for
(RELEO),
cooperation
(CO).
(RBP)
of
selecting
the
third
for
venture
bargaining
between
(CSOP),
control
section
the bargaining (CSOP, RELEO, MC, CO) and
equity
(MC),
and
reviews
the
literature on the relationship between the
performance.
joint
bases
joint
partner
management
The
of
The
partners
outcomes
joint
of
venture
The fourth section examines the literature
on the measurement of joint venture performance.
MOTIVATION FOR INTERNATIONAL JOINT VENTURE: FOREIGN
DIRECT INVESTMENT THEORY AND THE STRUCTURE OF
FOREIGN DIRECT INVESTMENT
The
international
collaboration between an
local firm.
joint
venture
incoming
(IJV)
foreign
Because of the emphasis in
the
involves
MNC
and
a
literature
11
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
on the need for MNCs
advantages
(FSAs)
knowledge,
(Magee,
to
preserve
by
their
internalizing
197S;
1977;
firm-specific
their
Dunning,
secret
1977;
1979;
Buckley and Casson, 1976) such collaboration appears
represent an improper exposure of the two firms
to
to
the
danger of losing their competitive advantages.
Eugman
(1980),
for
example,
avers
in
his
Internalization Theory that:
...the technology cycle encourages the
MN(C) to set up foreign subsidiaries...
since the internalization will prevent
loss of its information advantage to
potential rivals (Eugman, 1980: 44).
Along the same lines, Lecraw (1984) asserts that:
In order to operate internationally, a
firm
must
possess
firm-specific
(ownership) advantages in
technology,
production,
marketing,
finance,
and
management...A (MNC) will undertake FDI
when...its firm-specific advantages allow
it to compete in the host country... and
when the advantages of internalizing the
transaction within the firm by FDI are
greater than the advantages of (exporting
or licensing) (1984: p. 28).
However, Magee (1976), in his Appropriability
asserts that an MNC would reap the
from
its
developments
in
most
information
Theory.
appropriations
through
a
wholly-owned subsidiary within which it would be able to
preserve whatever secret knowledge it possesses.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Two conclusions may be drawn from the
theorists (1) emphasize
firm-specific
the
advantages
above.
internalization
(FSA)
to
FDI
of
MNCs*
prevent
the
dissipation of z':=ir information or knowledge advantage,
and (2) seem to preclude internationalization
before
they
have
advantages
that
acquired
would
significant
permit
self-sufficient operations (SSO).
by
firms
firm-specific
wholly-owned
For
however, IJVs may be the only feasible
smaller
means
or
firms,
of
entry
into foreign countries or markets (Berlew, 1984),
While an
IJV
dissipation of a
may
firm’s
not
necessarily
competitive
advantages, its very nature presents
such dissipation.
lead
or
to
the
firm-specific
opportunities
for
These opportunities arise because the
partners may share resources, including
facilities
and
personnel.
If the need to preserve FSA is so great,
do MNCs engage in IJVs with
local
why
then
The
answer
lies outside the scope of FDI theory because the
theory
does not provide a guide as to
foreign investment should
ownership).
be
what
firms?
the
structure
(wholly-owned
Neither does it explain
the
or
factors
of
shared
that
determine such structures.
In order to
determine
the
motivations
for
IJV,
therefore, there is a clear need to extend FDI theory to
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
include the form FDI takes and the determinants of
such
structure.
A search of the literature reveals that
regulations
and/or
attitudes
and
the
government
need
to
pool
resources motivate firms to enter into joint ventures in
both the
lesser
developed
countries
developed countries (DCs).
(LDCs)
and
in the degree to which they influence the joint
decison in LDCs and DCs.
countries.
found the motivations of the
ventures
legislation,
to
venture
For example, in a study of
joint ventures in developed
joint
be:
firms
(1)
(2) partner’s
Killing
for
entering
government
needs
for
other
definition
patents,
of
while
partner’s
assets
included
attributes
manufacture of products.
ventures in
attributes
Killing’s
or
or
partner’s
needs
assets.
His
items
like
cash
and
included
the
use
or
Seventeen percent of the joint
study
were
government suasion or regulations.
were formed because of
into
suasion
other
34
(1983)
skills (technical, managerial), and (3) partner’s
for the
the
These factors, however, vary
skills
formed
because
Sixty-four
needed
and
19
of
percent
percent
because of assets or attributes possessed by one partner
and needed by the other partner.
In a study
of
joint
ventures
in
LDCs,
Beamish
(1985) found that government suasion or legislation
was
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
given as the reason for the formation of 57
the IJVs he studied.
Need for the skills
the partner accounted for 38
percent,
percent
of
possessed
by
while
assets or attributes accounted for only
5
summary of the Killing and Beamish studies
need
for
percent.
is
A
provided
in Table 2.1 below.
RELATIONSHIP OF STAGE OF DEVELOPMENT TO VENTURE-CREATION
RATIONALES
DC (%)
(Killing)
GOVT. SUASION/LEGISLATION
SKILLS NEEDED
ASSETS OR ATTRIBUTE NEEDED
LDC (%)
(Beamish)
17
64
19
SOURCE: Beamish, Paul W. The Characteristics of
Joint Ventures in Developed and Developing Countries.
Columbia Journal of World Business. Fall 1985,
pp. 13-18.
Several
motivations
other
for
studies
joint
provide
venture
specifically, LaPalombara and Blank
joint ventures were mandated in
support
for
formation.
(1979)
Nigeria
found
and
but that in Brazil, where equity participation
the
More
that
Malaysia,
was
not
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
mandated, joint ventures were encouraged.
To wit;
The government is clearly interested in
encouraging
joint
ventures
and
is
stepping up pressures... in
terms
of
incentives and disincentives (it) will
offer to the foreign investor (1979:105).
Friedmann and Kolmanoff (1961) report similar
findings,
citing the particular case of the Philippines where
government made it
difficult
wholly-owned subsidiaries.
to
In
obtain
a
study
the
approval
of
168
for
joint
ventures in DCs and LDCs, Janger (1980) found that about
fifty percent of the IJVs in his study were
to government suasion or legislation.
formed
due
Gullander
(1976)
concluded from a study involving interviews with
twenty
joint ventures that in both LDCs and DCs
"nationalistic
feelings" cause
formal
governments
to
impose
informal restrictions on foreign firms.
To
and/or
deal
with
such restrictions, these firms enter into joint ventures
with local firms in order to acquire a local
character.
Finally, Tomlinson (1970) found from a study of IJVs
India
and
legislation
Pakistan
that
government
in
suasion
and
was the major motivation for entering
into
IJVs.
While the focus of most of the
been on LDCs, the
governments
of
above
studies
developed
has
countries
have also been found to place restrictions on MNCs.
For
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
example,
Friedmann
and
Kolmanoff
(1961)
found
that
IJVs
than
Italian legislation was more liberal towards
wholly-owned
subsidiaries.
reported that Sweden,
either
closed
or
portions of their
Lea
and
Webley
Norway,
Italy
and
restricted
entry
into
economies.
"Canadianization" program,
And
also
(1972)
France
have
significant
Canada,
under
restricts
its
entry
into
certain sectors and uses tax incentives to increase
the
degree of Canadian participation.
Similar observations have been made with respect to
investments in the United States, either as wholly-owned
subsidiaries or as IJVs.
For
example,
found that fears of increasing
trade
Webley
(1974)
protectionism
in
the United States have led to investments in the country
to "get behind the barrier" (p. 25).
a study of European firms in the
the existence or threat
of
U.S.
Franko (1971),
United
States,
tariffs,
quotas
administrative regulations as providing the impetus
the investments.
Negandhi and Baliga (1981) also
that, in the United
States,
both at
and
the
state
activities of foreign
legislations
federal
investors
recently, Reich and Mankin (1986)
setting up of plants in the United
levels
and
were
to
MNCs.
have
companies, either as IJVs or wholly-owned
for
passed
curb
And
by
and
found
attributed
States
in
cited
the
more
the
Japanese
subsidiaries.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
to
efforts
to
"avert
rising
U.S.
protectionist
sentiment" (p. 78).
On the basis
of
the
preceeding
discussion,
the
motivation for IJVs may be attributed to: (1) government
regulations and/or attitudes, and (2) the need to obtain
resources from, or to pool resources with, other
It is the need for such resources that forms
of the collaboration between firms
in
government
M-Factors
pressure.
The
factors) is used here to
term
denote
the
such
firms.
the
resources.
Killing
of
(missing
term combines the two factors (skills needed and
or attributes needed) discussed by
basis
absence
The
assets
(1983)
and
Beamish (1985) (see Table 2.1).
The discussion, thus far, has portrayed the MNC
a passive role.
This, however, is not
the
case.
in
The
MNC is able to bargain for its choice of investment mode
(either wholly-owned or shared ownership) on
of
its
firm-specific
ownership-specific
advantages
endowments
the
basis
(FSA)
(Dunning,
1977;
or
1979).
The M N C s FSA make it attractive to the host country and
form the basis of its bargaining power.
not
only
internally-developed
but
These
also
FSA
are
embody
the
particular attributes of the M N C s country of origin.
The FSA that the MNC brings to the host country
made up of proprietary intangible assets that, at
is
least
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
for a period of tine, ere exclusive or specific
MNC.
to
the
The range of FSA possessed by MNCs is rather broad
but have been summarized into: 1. proprietary technology
due to research activities, 2. managerial, marketing, or
other skills specific to the organizational function
of
the firm, 3,
or
product
differentiation,
trademarks,
brand names, 4. large size, reflecting scale
and 5. large capital
requirements
for
economies,
plants
of
the
minimum efficient size. (Dunning, 1977, 1979).
The
FSA
of
the
MNC
are
matched
location-specific or country-specific
of
the
host
attractive
country.
to
advantages
the
include
The
CSA
MNC.
natural
against
the
advantages
make
These
the
(CSA)
country
country-specific
resources,
a
pool
of
efficient and skilled low-cost labor, and trade barriers
restricting
1985:119).
imports
The
(Rugman,
degree
of
Lecraw
and
attractiveness
country-specific advantages to the
MNC
Booth,
of
influences
the
the
relative bargaining power of the MNC in relation to that
of the host country.
Thus, the more attractive the host
country, the higher its bargaining power
would
be
and
the more it can use GRA to appropriate part of the MNC’s
returns.
Such GRAs lead the MNCs to seek local partners
in an effort to acquire a
local
character
(Fagre
and
Wells, 1982; Lecraw, 1984).
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The above discussion is summarized in Figure 2.1.
DETERMINANTS OF FOREIGN DIRECT INVESTMENT STRUCTURE AND
BASES FOR BARGAINING BETWEEN PARTNERS
BASES FOR
BARGAINING
BETWEEN MNC
AND HOST
GOVERNMENT
BASES FOR
BARGAINING
BETWEEN MNC
AND LOCAL FIRM
------LOCATION
SPECIFIC
ADVANTAGES
OF HOST
COUKÎSÎ
1
G0VEB3MENT
REGULATIONS
AND/OR
ATTITUDES
SELF-SUFFICIENT
OPERATION
(SSO)
STRUCTURE
OF
FOREIGN DIRECT
INVESTMENT
FIRM-SPECIFIC
ADVANTAGES OF
FOREIGN MNC
RESOURCES FOREIGN
MNC DOES NOT HAVE
(M-FACTORS)
JOINT VENTURE
______
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure
2.1
indicates
that
the
firm-specific advantages are likely to
two factors:
(1)
the
set
of
incoming
be
government
and/or attitudes (GRA) prevailing in the
M N C ’s
mediated
by
regulations
selected
country (Fagre and Wells, 1982; Lecraw, 1984),
and
host
(2)
M-Factors which are essential resources not possessed by
the incoming MNC but that are needed for
effective
and
efficient (successful) operations.
M-factors
can
be
supplied
by
local
firms
Such
in
a
joint
venture
arrangement and constitute the FSA of the local firms.
The term M-Factors is rather broad and. encompasses
nany
types
of
resources.
These
M-Factors
can
be
classified into three major categories:
1.
Production-related M-Factors
-technology, including patents and licences
(Kail, 1984; Killing, 1983; Papavassi1ion,
1975; Reynolds, 1984);
-economies of scale (Gullander, 1976; Killing,
1983; Litvak, 1984);
-capital (Hall, 1984; Killing, 1983; Simons,
1979);
-workers, both managerial and skilled
(Tomlinson, 1370; Friedmann and Kolmanoff,
1961)
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
-raw materials/components (Litvak, 1984;
Papavassilion, 1975; Hall, 1984).
2. Market-related M-Factors
-channels of distribution, both internal and
external (Walter and Murray, 1982; Gullander,
1976; Papavassilion, 1975);
-suppliers (Gullander, 1976; Papavassilion,
1975; Walter and Murray, 1982);
-customers (Gullander, 1976; Papavassilion,
1975; Walter and Murray, 1982);
-speed of market entry (Stopford & Haberick,
1976)
-established brands (Gullander, 1976);
3. Socio-politico-cultural M-Factors
-host government relations, including
preferential treatment low-cost loans, tax
breaks and other incentives (Simons, 1979;
Hall, 1984; Walter and Murray, 1982);
-local image (Simons, 1977; Hall, 1984;
Walter and Murray, 1982);
-understanding of local laws, customs and
mores (Hall, 1984; Walter and Murray, 1982).
-Spreading risk (Litvak, 1984; Hall, 1984;
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Papavassilion, 1975).
The
interaction
firm-specific
between
advantages
regulations and/or
(1)
(FSA),
attitudes
the
(2)
foreign
the
prevailing
in
the
country (GRA), and (3) the FSA of the local firm,
on the resources it can supply
in
an
MNC’s
government
IJV
host
based
arrangement
(M-factors), essentially determines the form
the
MNC’s
investment takes: a self-sufficient operation (SSO) or a
non-self sufficient operation.
One
of
the
non-self
sufficient
sharing ownership in an IJV.
operations
The MNC
would
is
prefer
to
have a SSO where:
1. it has all of the resources it needs
and
there
are no adverse GRA,
2. it has
all
the
resources
it
needs
and
resources
but
can
overcome any adverse GRA there may be,
3. it does not
readily acquire them
contracting for them,
have
all
either
or
the
through
acquiring
purchasing
local
firms
can
them,
that
possess them.
From the above presentation, two
propositions
may
be derived:
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Proposition 1:
An IJV results from an MNC’s inability to
overcome the regulations and/or attitudes
of the host country, and/or
Proposition 2:
An IJV represents an MNC’s inability to
engage in a self-sufficient operation
(SSO) due to the lack of, and
the
inability to readily acquire, essential
resources
(M-Factors)
required
for
operating in a selected foreign country.
The literature reviewed in this section focused
the
motivation
for
joint
venture
formation.
on
The
interaction of (1) the FSA of the MNC (2) the FSA of the
local firm, and (3) the country-specific
the
host
country,
attitudes towards
determine
the
including
foreign
form
its
investments,
of
the
(self-sufficient operation (SSO) or
advantages
regulations
was
MNC’s
of
and/or
found
to
investment
non-self-sufficient
operation (NSSO).
Of the two investment forms identified
and (NSSO), only the
non-self
interest in this study.
sufficient
above
form
(SSO
is
of
Specifically, the focus of this
study is on IJVs because of their increasing importance.
Their
general
acceptance
and
popularity
seems
indicate that the ability of firms, regardless of
to
their
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
size, to operate on their own, has been
by
today’s
universally
dynamic
greatly
business
eroded
environment
(Harrigan, 1984:7).
Specific questions that arise from the review
To
what
extent
do
government
regulations
attitudes lead to the formation of IJVs
States?
What resources do MNCs from
contribute to
IJVs
in
the
resources do U.S. firms
assertion by
Rugman,
United
et
contribute technology while
al.
United
Europe
seek
and
IJVs?
<1985:91-92)
local
to
the
and
to
firms
knowledge of the local environment is
partners could be expected
in
Japan
States,
contribute
what
If
that
the
MNCs
contribute
true,
mainly
then
a
U.S.
technology
from their foreign partners while providing them
into U.S. markets.
are:
and/or
This assertion is examined
The next section deals with the bargaining
access
in
this
between
the MNC and the local firm in structuring the IJV.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
B.
BASES
FOR
BARGAINING
AND
THE
OUTCOMES
FOR
INTERNATIONAL JOINT ^TENTURES
This section deals with the behavior
of
firms
in
organizing and operating the IJV.
Once the IJV form of investment has been
selected,
either due to government legislation/suasion or
to
the
need for resources (M-Factors), strategic decisions have
to
be
made
structured
with
and
respect
operations, however, such
make.
to
how
the
Unlike
in
decisions
are
operated.
This is because an IJV involves
decision-making with another firm.
IJV will
not easy
the
One
be
wholly-owned
to
sharing
partner
of
firm,
therefore, cannot make unilateral decisions with regards
to the structuring and operations of the joint
All decisions affecting the IJV will
need
venture.
to be
made
either with the partner or with the partner’s consent.
The relationship between the
complicated
by
the
fact
partners
that
while
decision-making with respect to the IJV,
simultaneously pursues
its
own
is
further
they
each
share
of
organizational
them
goals.
Since these goals may be different, or even conflict
some cases, each partner would
like
tohave
the
in
IJV
structured and operated according to its preferences.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
How the IJV is
actually
will be determined through
structured
bargaining.
relative bargaining power (RBP)
of
determine the assignment of roles
and the allocation of
benefits
and
operated
That
the
and
is,
the
partners
will
responsibilities
(Schaan,
1983;
Bafii,
1978; Fagre and Wells, 1982; Lecraw, 1984).
The resources possessed by MNCs have been shown
be the bases for their relative bargaining power
and Wells, 1982; Lecraw, 1984).
(This
explored fully in later sections).
however,
and
for
resources actually
the
purposes
contributed
point
will
For joint
of this
to
the
to
(Fagre
be
ventures,
study,
joint
the
venture
forms the bases of the relative bargaining power of
the
partners.
Specifically, each partner will need to decide
types of resources and the amounts
of
that will be committed to the IJV
to ensure
partner gets that level
of
these
the
resources
that
relative bargaining
the
power
necessary for attaining its objectives.
Because the bargaining process cannot
observed, the focus will
be
on
be
bargaining between the partners : (1) the
attained;
(3)
the
areas
of
criteria
for the selection of partner; (2) the degree
ownership
directly
the outcomes
of
the
used
of
equity
the
IJVs
operations over which control was obtained; and (4)
the
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
level of cooperation between partners.
a review of the four variables listed
What follows
above
and
is
their
relationship to relative bargaining power.
1.
RELATIVE BARGAINING POWER AND CRITERIA FOR
SELECTING
PARTNER
The majority of MNC managers who have been
in IJVs are convinced that the
local
partner
engaged
is
important for successful operations (Walter and
1982; danger, 1980; Tomlinson, 1970).
Yet
researchers have attempted to
develop
variables that
selection
lead
to
the
partners (Tomlinson, 1970; Franko,
a
1969;
only
list
of
very
Murray,
a
few
of
the
particular
1972).
Some
researchers feel that it is not a "useful
exercise"
develop such a list since
of
criteria can only
be
the
relevance
determined
post
hoc
to
selection
(Killing
1983).
The bases for the selection of partners
classified into
six
categories
by
have
Tomlinson
been
(1970).
These are:
1.
pressure to select a particular partner, either
directly or indirectly by government regulations
and/or attitudes ;
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
2. facilities possessed by local firm, like plants,
marketing or distribution facilities or a strong
market position;
3. resources, such as managerial and technical
personnel, materials, components or local capital;
4. status, both in the sense of financial and
business soundness, and in the ability to deal
with local authorities and engender good
public relations;
5. past association as agent, customer, licensee or a
partner in other undertakings; and
6. capacity to provide a local identity.
Both Tomlinson (1970) and Friedmann
(1961) found that the possession
of
was the most important criterion for
specific partners.
partners.
program
This
Kolmanoff
the
were
implies
considered
free
that
to
skills
selection
Also, MNCs that possessed
that the host government
development
and
managerial
important
select
resource
of
resources
to
its
their
own
possessions
granted higher bargaining power to the MNCs.
The role the partner is expected to play
used as a basis for selection.
Franko
(1976)
has
been
found
a
general aversion by U.S. multinationals for partners who
might exercise active management control.
Stopford
and
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Wells (1972) also found that
MNCs
selected
particular
* partners only where they could retain control over
what
they considered important decision-making areas.
While
the role a partner is expected to play has been used
as
a selection criterion, this
an
issue of control
and
is
would,
more
appropriately
therefore,
be
discussed
under control.
Firm strategy has also been found to influence
selection of partners.
that
MNCs
with
tolerated active
the
For example, Vernon (1971) found
broad
product
partners
lines
whereas
(diversified)
those
with
narrow
lines only accepted local partners with weak
bargaining
positions.
have
MNCs that are highly diversified
found to depend on
local
partners
to
provide
been
active
management (Brash, 1966).
Eleven
different
criteria
for
venture partners were identified in
These are
1.
pressure
by
selecting
the
government
joint
above
review.
regulations
or
suasion, 2. facilities, 3. resources, 4. status, 5. past
association,
6.
strategy, 9. size,
local
10.
identity,
7.
nationality,
role,
and
11.
8.
firm
general
soundness.
There were no selections on the bases of similarity
of partners’ businesses or the similarity of the foreign
partner’s business
to
the
IJV’s
business.
However,
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
among the
more
pertinent
questions
for
IJV
partner
selection in the United States would be:
how
does
the
relatedness of
influence
the
the
partners*
selection of partners?
business
Stated otherwise,
are
Japanese
and European MNCs using IJVs as a means of horizontal or
vertical expansion into the
diversifying
into
selection on the
other
basis
U.S.
market
areas
of
or
through
past
are
they
IJVs?
association
Does
lead
to
better cooperation and performance?
Similarity of business is important in
in order
to
test
the
assertions
of
this
FDI
study
theorists,
especially Internalization theorists (Magee, 1976; 1977;
Dunning, 1977; 1979; Hymer, 1976), that MNCs internalize
their
FSA
in
other
countries
due
to
market
imperfections, both natural and government-imposed.
such assertions are true,
then,
as
found, the investments MNC’s
make
should be either
or
horizontal
Caves
in
(1982)
other
vertical
If
has
countries
rather
than
diversifications into other industries.
For the purposes
criteria were used.
of
this
study,
These are: (1)
four
selection
complementarity
resources contributed by partners to the IJV,
facilities and resources ; (2) past
of
including
association
between
partners (either as agent, customer, partner, etc.); (3)
relatedness of partners’ business; and
(4)
relatedness
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
of the foreign partner’s business and IJV’s business.
Due to the large number of potential
IJV
partners
available to select from and the level of development of
the countries of interest in this study— United
Japan and Europe— the choice of a
solely on
the
types
and
partner
amountsof
States,
will
depend
resources
that
potential partners are willing to make available to
the
IJV.
The same will hold true for IJVs in
conditions can be
met.
The
first
LDCs
if
two
condition
is
the
absence of governmental coercion to select a
partner.
The second condition is the availability of
number of suitable potential partners
This would imply that the
contribute
particular
to
a
joint
more
to
select
resources
venture,
a
the
firm can
greater the
likelihood that it would be selected as a
partner.
essence, the relative bargaining power of the
partners determines who is selected and
a
from.
the
In
potential
bases
for
the selection.
2.
RELATIVE BARGAINING POWER AND EQUITY OWNERSHIP
The level of
equity
ownership
venture determines which of the
jure right to make
decisions
held
partners
for
the
in
has
joint
a
the
joint
de
venture
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(Guilander, 1976).
be exercised.
However, this right may or
Also,
one
partner
cannot
decide what the level of equity ownership
the new venture.
Such
a
decision
negotiated with the level
of
actual
not
would
be
in
have
to
be
would
equity
attained depending on bargaining between
may
unilaterally
ownership
the
partners.
As noted earlier, such bargaining power depends
type and amounts of resources contributed to
of
the
the
joint
venture.
Fagre and Wells (1982) conducted a study to examine
the
level
of
equity
ownership
bargaining between MNCs and
America.
host
attained
government
Latin
They used such variables as technology, access
to export markets, capital, and product
possessed by the
power.
through
in
MNCs
to
represent
They found that the degree of
obtained
was
positively
related
diversification
their
bargaining
equity
to
the
ownership
level
technology, positively related to the degree of
of
product
differentiation, positively related to access to foreign
markets,
but
negatively
related
to
the
number
of
multinational competitors in the market.
Fagre
financial
and
Wells
resources
(1982)
held
by
also
the
found
MNCs
important source of bargaining power in
This
was
because
seven
countries
that
were
Latin
with
not
the
an
America.
the
most
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
restrictive policies regarding foreign ownership had
percent of all U.S. manufacturing
affiliates
America but only 20 percent of the largest
in
investments.
This led them to two conclusions: (1) that perhaps
tended to place their largest investments
restrictive countries because they
40
Latin
in
realized
MNCs
the
less
that
size
did not give them greater bargaining power, and (2) that
the
insignificance
of
capital
for
the
MNC
in
the
bargaining process was due to the increasing
number
alternative sources of capital available
developing
to
of
countries (p. 16).
In addition, Fagre and Wells found that
produced several product lines had
a
ownership than single-product line firms.
four
different
convincing
particular
explanations
evidence
was
but
They
to
(p.
that
level
noted
available
interpretation"
MNCs
higher
of
offered
that
"no
favor
any
21).
Their
interpretations were:
1.
skills.
Product diversity may be
Larger
plants,
many goods in different
related
simultaneously
lines,
level of management expertise.
may
require
If this
case, then management skills would
to
management
manufacturing
is
reflect
a
higher
indeed
a
the
resource
needed by many developing countries.
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2.
Multiproduct
import-substitution
affiliates
may
development
fit
into
strategy.
an
Host
developing countries may therefore prefer a multiproduct
firm with the capability to produce acre goods that were
formerly imported to a single-product firm.
3.
Seventy
America
that
product
lines
percent
of
manufacture
are
industries— chemicals
all
affiliates
four
or
more
concentrated
(except
in
drugs
in
three
and
these industries play a special role in the
of
Latin
American
relationship between product
success may be
a
reflection
of
then
and
the
If
development
countries,
diversity
SIC
major
cosmetics),
non-electrical machinery, and electrical machinery.
programs
Latin
3-digit
the
bargaining
need
for
these
investors.
4.
levels
The
observed
and
product
structure
countries.
of
relationship
diversity
governmental
is
between
a
ownership
result
regulations
in
Corporations may tend to create
of
the
a
the
host
separate
subsidiary whenever they are dealing with a product line
in which the government will insist upon some measure of
local control.
Firms in that situation would have
more
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subsidiaries, fewer multiproduct affiliates,
and
fewer
wholly-owned affiliates (p. 18).
Lecraw
(1984)
also
used
a
bargaining
framework in his study of the level of equity
power
ownership
attained by 153 subsidiaries of United States, European,
Japanese and Third-World MNCs in seven ASEAN
countries.
Re found a strong positive relationship between relative
bargaining power, as proxied
by
resource
possessions,
and the level of equity ownership attained by the
MNCs.
That is, the higher the relative bargaining power of the
MNCs, the higher their level of equity ownership.
Although the focus of the Fagre
and
Wells
and the Lecraw (1984) studies was on bargaining
MNCs
and
host
governments
(not
local
analysis is applicable to bargaining
local firms that are potential joint
In
fact,
host
governments
bargaining agents for the
their demands are
for
have
local
firms),
MNCs
venture
partners.
been
since
equity
(Reynolds,
1984;
and
Friedmann
Beguin,
and
1971).
bargaining power should therefore
be
as
most
ownership
same
with
1961;
sources
relevant
the bargaining is with host government or
of
themselves
Kolmanoff,
The
and
regarded
local firms rather than with the governments
Friedmann
the
between
firms
sharing
(1982)
between
with
of
whether
private
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firms in the host country.
Other researchers have reported the
of
equity
Beguin
ownership.
(1971)
found
majority equity
For
that
ownership
example,
MNCs
were
except
in
strategic
use
Friedmann
and
indifferent
cases
complex technology, the need to protect company
or where
majority
control
represented
to
involving
secrets
collateral
to
foreign and international lending institutions.
Stopford
and
Wells
(1972)
found
that
MNCs
determined the level of equity ownership desired on
basis of their overall
equity ownership was
important to
strategy.
sought
exercise
more
A
where
higher
it
was
level
the
of
considered
decision-making
authority
with respect to the joint venture’s operations.
Two important points were made in the
on equity ownership.
attained is:
(1)
governments,
host
The
an
degree
important
firms
presentation
equity
bargaining
and
ownership
issue
MNCs;
for
and
(2)
dependent upon the relative bargaining positions of
the
parties.
country
of
However, a significant question still
to be answered.
remains
Since most of the studies reviewed here
were done outside the United States, or in LDCs, and did
not pertain solely to IJVs, will the same
hold in IJVs in
the
United
States?
applicability of these findings in the
To
relationships
examine
context
of
the
the
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
United States, the bargaining framework will be utilized
for IJVs in the United States.
Before concluding this section
should be made.
equity ownership
Some MNCs
as
against political and
a
an
reportedly
deliberate
economic
important
use
a
strategy
(Friedmann
and
to
hedge
risks— nationalization,
devaluation or foreign exchange blockage, and
taxation
note
minority
Beguin,
1971).
excessive
While
the
importance of such a strategy is recognized, the use
of
such strategy in U.S. joint ventures is not examined
in
this study.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
3.
RELATIVE BARGAINING POWER AND MANAGEMENT CONTROL
In
an
partner
IJV,
does
unilateral
not
wholly
decision-making process.
a
result
partners
decision
the
by
one
strategic
Final decisions (outcomes) are
of
bargaining
bring
forth
between
their
own
bargaining table for negotiation.
extent, determines
making
determine
the
extent
the
partners.
strategies
Control, to
to
which
The
to
a
one
the
large
partner
predominates with respect to particular functions of the
IJV.
is
Hence, another area for strategic
the
determination
operations to control
of
the
areas
and
the
amount
exercise over the selected areas.
the literature on control
attempts
to
indicate
that
the
decision-making
of
the
of
IJV’s
control
This section
pertains
linkages
to
IJVs
between
to
reviews
and
relative
bargaining power and control.
A
review
of
the
literature
reveals
that
the
distinction between equity ownership and control is
very
clear.
ownership to be
That
is,
some
tantamount
to
firms
consider
control
desire high levels of equity ownership
and
as
a
not
equity
therefore
means
of
acquiring control.
Gullander.
(1976),
for
example,
asserts
that
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
management control is said to exist for a
has the
majority
equity
(1978) also found
ownership
with
that
most
control
percent ownership.
share.
managers
and
restricted
to
U.S.
also
ownership.
they
report
However,
Japanese MNCs appear to have
host
They
governments
European
have
ownership
where
equity ownership with
that
sole
governments
control.
demanded
ownership as a means
of
found
Behrman
ensuring
found
was
to
local
control
a
or
not
equate
(1970)
majority
to
ownership
ownership
Even governments have been
and
readilly
(1971:a)
predilection of U.S. MNCs for either sole
possible.
that
percent
themselves
and
Franko
Baliga
ownership
100
that
100
may,
found
desired
reconciled
accepted minority positions.
and
percent
MNCs.
MNCs
majority
equity
preferred
Negandhi
European and Japanese
of
that
Remmers
Such complete equity ownership
(1981) found that the desire for 100
the leverage
and
equated
therefore
however, be repugnant to an IJV.
was not
company
Brooke
found
equity
over
joint
venture operations.
Gullander (1976) and Friedmann and Kolmanoff (1961)
distinguish
between
"voting
control"
or
control, which is the power of a parent to
de
jure
control
the
joint venture that accrues to it from its majority share
of ownership, and
de
facto
control,
which
is
the
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
effective
or
exercises
over
managerial
the
control
joint
a partner
venture.
Kolmanoff (1961) found that MNCs were
de
facto
control
positions.
Such
supplementary
licenses,
with
of
and
able
to
minority
was
things
equipment,
through :
patents,
of
technical
sales
agency;
(2)
representation on the board; and (3) assignment of
power in certain decision areas, like
stock to
third
possession of
parties.
They
the
also
(1)
like
supply
exclusive
and
exercise
ownership
exercised
agreements for
lease
assistance,
even
control
actually
Friedmann
veto
transfer
found
that
of
the
specialized knowledge orresources enabled
the MNC to exercise effective control.
implicitly equate the level of
These
control
findings
exercised
the bargaining power of the MNCs, as determined
with
by
the
resources they contributed to the IJV.
In a study focusing on the bargaining power of MNCs
and host
governments
found
positive
a
(cited
earlier),
relationship
bargaining power of the MNC and
exercised
over
subsidiaries
success.
the
that
areas
the
MNC
the
of
Lecraw
between
the
level
effective
control
of
critical
However, he did not find a close
between equity ownership and
of
operation
considered
(1984)
relative
its
to
relationship
control.
Some
MNCs with low equity ownership in their subsidiaries had
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
a high degree
of
control
over
the
variables in their subsidiaries and
critical
vice
success
versa.
Some
MNCs were able to control their subsidiaries in the LDCs
"by means other than through their share of
the
equity
in their subsidiary" (p. 38).
This supports earlier
Friedmann and Komanoff,
findings
(Gullander,
and
Schaan,
distinguish between de .jure
control
and
control.
is
This
1961
distinction
further
de
He found that
Japanese
MNCs
lower level of equity ownership in
European MNCs.
retain
a
reinforced
subsidiaries.
control
level
of
than
control
by
Japanese
typically
LDCs
However, the Japanese firms
higher
that
facto
Lecraw’s (1984) other findings with respect to
MNCs.
1976;
1983)
took
a
U.S.
or
managed
to
over
their
This clearly implies a difference between
accruing
from
equity
ownership
and
actual
control exercised.
The most far-reaching study on IJV control
work
done
by
Schaan
(1983).
In
a
study
Hexican-Canadian joint ventures in Mexico,
the concept of control, the determination
how to control, and how
function.
managers
managed
he
of
the
is
the
of
10
examined
what
and
control
He found that:
* control was exercised within specific contexts with
each parent controlling specific activities or decisions
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
rather than one parent having total control;
* in addition to control mechanisms already found
previous researchers— authority over
decisons
or
power (Friedmann and Kolmanoff, 1961; Gullander,
contractual agreements (Friedmann and
1976),
Kolmanoff,
Friedmann and Beguin, 1971); and staffing
1961;
(Dang,
1977;
Philips, 1970)— parents also used more subtle
means
influencing
of
ventures.
(a)
the
decisions
and/or
activies
by
veto
of
joint
Among these are:
organizational
processes:
planning,
capital
budgeting ;
(b) organisational systems : reporting, bonus,
reward
and punishment, promotion, JV’s policies and procedures,
staff services and training programs ;
(c) informal mechanisms: visits,
meetings
with
IJV
managers and phone calls.
He also found that control
was
the persuasion of the partner but was
by the outcome of bargaining.
also introduce the
concept
parent control
joint
of
exercised
often
Schaan*s (1983)
of
positive
ventures.
and
findings
negative
Positive
existed where managers were in a position
decisions or activities in a way consistent
interests.
through
determined
to
control
influence
with
their
Negative control was used to block decisions
by preventing their implementation.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The relationship between relative bargaining
and control
was
examined
in
this
section.
pointed out that equity ownership has,
been equated with control.
For the
in
power
It
some
purposes
between
was
cases,
of
de
this
study, a clear distinction is
made
control and de facto control.
Control, in the context
of this study, refers to de facto control.
the
actual
managerial
control
operations of the joint venture.
.jure
That
exercised
is,
over
The specific
the
research
question for which answers will be sought is: "How
does
the relative bargaining power of joint venture partners,
proxied by their contributions to the
amount of managerial
control
they
IJV,
affect
the
over
the
exercise
I J V s functions?"
4.
RELATIVE BARGAINING POWER AND COOPERATION
The third area of strategic decision-making relates
to the relationship between
relative
bargaining
power
and cooperation between the partners in a joint venture.
To the best of this researcher’s knowledge,
have been done
on
the
relationship
bargaining power and cooperation between
partners.
no
between
joint
This section, therefore, borrows from
studies
relative
venture
equity
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
theory and the literature on power and conflict.
Robey (1982) has noted that organizations
often arenas for conflict
than
competition
are
(p.
more
144).
However, joint ventures provide unique opportunities for
both conflict and
competition.
This
is
formation of a joint venture creates, at
three-way
linkage
(with
two
partners)
because
the
least,
between
the
a
the
partners and the joint venture (Figure 2.2).
FIGURE 2.2
LINKAGES CREATED IN AN INTERNATIONAL JOINT VENTURE
FOREIGN
PARTNER
LOCAL
PARTNER
VENTURE
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Although these linkages may be very close
or
very
loose, all the entities taken together could be regarded
as
a
"mega-organization".
"mega-organization"
makes
Such
it
a
concept
possible
to
of
a
apply
the
concepts of power and conflict already developed in
the
organization theory literature to joint ventures.
Salancik and Pfeffer (1977)
define
power
as
the
"ability to get things done the way one wants them to be
done" (1977:4).
Since conflict is the
one party in the
goal
achievement
interference
of
another
by
party,
conflict then is possible only if the interfering
party
has some power (Robey, 1982:145).
The power of one joint venture partner
to interfere
with the goal attainment of another partner
depends on a
number of factors.
First, joint
venture
pursue different, or
even conflicting,
goals.
of
Such pursuit
"sub
unit"
partners
may
organizational
goals
represents
suboptimization since it may detract from the attainment
of mega-organizational goals.
Mega-organizational goals
would be attained in situations where the goals
partners
and
of
the
joint
venture
of
are
the
met
simultaneously.
Secondly, as
has
been
established
relative bargaining power of joint venture
based upon the amount and importance
of
earlier,
partners
the
the
is
resources
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
they contribute
therefore,
to
that
the
the
contributes relative to
power
the
partner
joint
more
the
would
venture.
It
resources
other
have
follows,
one
partner
partner,
to
the
influence
more
and/or
interfere with the goal attainment of the other party.
Thirdly, the joint venture relationship creates the
opportunity for competition.
Such competition could
be
either between the partners or between the joint venture
and a partner or partners (Harrigan, 1984).
Eochan (1972) note
that
in
Schmidt and
competition,
the
outcome
depends only on one’s own goal-directed behavior and not
on interference with another’s
However, such competition could
where : (1) the
partners
goal-directed
develop
either
behavior.
into
operate
markets or industry, (2) compete in other
in
conflict
the
same
markets,
(3)
depend on each other, or (4) depend on the joint venture
for essential supplies or resources.
Using
the
mega-organization
concept,
all
sources of conflict identified by organizational
researchers would apply to joint ventures.
these is differentiation.
the
theory
The first of
This involves "the difference
in cognitive and emotional orientaion among managers
different functional departments" (Lawrence and
1967, p. 11).
Joint venture
partners
and
ventures themselves may operate in different
even
in
Lorsch,
joint
industries
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and markets and pursue divergent goals (Gullander, 1976,
Killing, 1982; Harrigan, 1984).
The second source
of
potential
partners is task interdependence.
Task
conflict
between
interdependence
falls into four categories: 1. pooled, 2. sequential, 3.
reciprocal,
(Thompson, 1967), and 4. team (Van
Delbeq and Koenig, Jr.,
1976).
between the different parties
joint
venture
may
interdependencies above.
involve
The
by
the
any
de
linkages
formation
of
the
Yen,
created
of
a
four
Figure 2.3 illustrates some of
these interdepencies.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
FIGURE 2.3
INTERDEPENDENCIES IN JOINT VENTURES
LP—
->.FF-
■4.IJV
FP—
->LP-
♦IJV
IJVIJV-
LEGEND: LP-US FIRM; FP-FOREIGN MNC; IJV-JOINT VENTURE
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
opportunities
for
interference and goal blocking that otherwise would
Task
not
exist.
interdependence
The greater the
presents
interdependence
the greater the potential
for
among
conflict
groups,
(Robey,
1982,
Thompson, 1967).
The third
source
of
potential
conflict
partners arises from the need to share
between
resources.
One
of the motivations for setting up joint ventures is
need of partners to pool or
share
1982; 1983; Gullander, 1976).
determined
through
resources
Who contributes
bargaining.
The
IJV,
represents a sharing arrangement within
the
(Killing,
what
is
therefore,
which
partners
may not want to freely share their resources for fear of
losing
their
firm-specific
advantages.
unwillingness to freely share, or to
hold
Such
back,
could
lead to conflict.
The fourth source
of
potential
partners involves power sharing.
the
sharing
of
power
and
partners and joint venture
conflict
between
Joint ventures involve
decision-making
between
Whether
there
will be conflict or not depends on the balance of
power
between the parties.
management.
Conflict is more likely to develop
where power is equally balanced, where each party has
basis for power and can influence the
other’s
a
behavior
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
in certain ways.
less
potential
Where power is
for
conflict
unbalanced,
because
one
there
party
is
can
dominate the other (Robey, 1982:159).
Three factors have been identified as
to the basis of
power.
Hinnings,
contributing
Hickson,
Schneck (1974) found coping with task
Pennings,
uncertainty
"the
variable most critical to power" based on their study of
intraorganizational
power.
The
second
factor
that
increases the power of an entity is its location in
the
workflow.
one
The more central the position, the
more
can control the flow of information to others within
organization, and the higher
one’s
source of power is resources
controlled.
become
dependent
on
others
for
power.
The
Where
resources
and
units
(money,
personnel, materials, information) their action
successfully influenced (Salancik
an
third
may
Pfeffer,
be
1974).
Such dependencies are created in IJVs (Figure 2.3)
Given the high potential for conflict within
ventures, cooperation, or the
lack
of
becomes an important issue for joint
Janger
(1980:5)
holdings alone do
has
not
noted
make
that
a
venture
venture
then
partners.
"...shared
joint
joint
conflict,
equity
in
the
absence of a reason for cooperation".
The importance of parent cooperation
by
the
general
reference
to
joint
is
indicated
ventures
as
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
"marriages" and the
partners
"living together" may be a
as
"parents".
better
term
marriage involves the joining of two
entity.
Perhaps,
since
parties
a
true
into
A JV still retains the two parents as
one
separate
entities and therefore represents a "living together" or
sharing
arrangement.
Weston
(1984:63)
has
observed
A joint venture is not
a
marriage
intended to
bind
the
parties
for
eternity.
Rather,
it is a temporary
arrangement
that
the
parties
will
terminate when short-term needs have been
satisfied.
A similar view is expressed by
Killing
(1983:128)
who
When freely formed, that is, without the
interference
of
governments,
joint
ventures are solutions to
what
are
essentially temporary problems... so most
joint ventures will and should come to an
Given that JVs are temporary unions for the
mutual
benefit of the partners, they appear
to
go
through
a
three-stage life
an
engagement,
a
period
of
cycle.
mutual
disengagement.
There
coexistence,
Following
this
is
and
life
an
cycle,
eventual
a
JV
cooperation lifecycle can be posited that is akin to the
foreign investment lifecycle developed by Haner
(1980).
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Cooperation between the partners should start slowly
they feel each other out,
increase
find coamon ground for the
Such a
concept
is
Friedman (1980) who allude to
ventures:
the
burst
of
the
satisfaction
objectives, and decline as their
declines.
when
need
of
supported
"three
activity
their
for
each
by
and
own
other
Berg
phases
reflecting the courtship, the creation
as
partners
in
and
joint
negotiation
and
nurture
of
the child, and separation" (p. 85).
Killing’s (1983) findings provide empirical support
for the cooperation lifecycle concept.
out of 19 (68%) partners could
not
He found that 13
have
done
without
their partners at the time their JVs were formed.
After
several years, only six (31%) could still not do without
their partners.
The excessive use or misuse of power,
enforce
decisions
made
without
the
partner, abuse of trust and perceived
1963) have all been pointed to as
attempts
consent
inequity
reducing
1982,
1983;
to
the
(Adams,
cooperation
between partners (Friedmann, Kolmanoff, 1961;
and Beguin, 1971; Killing,
of
Friedmann
Wright,
1977;
Burton and Saelens, 1982).
Cooperation between
parents
presents
Cooperation between partners is necessary for
joint venture
performance.
However,
a
paradox.
effective
cooperation
may
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
imply
the
dissipation
of
firm-specific
advantages,
especially where firms’ technical cores are
partners who may turn
Based on
the
the
venture partners,
to
preceding
research question may
extent does
out
be
relative
as
be
competitors
discussion,
posed.
That
bargaining
proxied
by
exposed
a
is:
power
the
contribute to the joint venture, impact
in
pertinent
"To
of
what
joint
resources
the
to
the
nature
they
of
the cooperation between them?
SUMMARY
This section has evaluated the
of the partner firms in
determining
bargaining
(1)
selecting partner, (2) equity ownership, (3)
control, and (4) cooperation.
behavior
criteria
for
managerial
The presentation in
this
section is summarized in Figure 2.4 below.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
FIGURE 2.4
BARGAINING BETWEEN PARTNERS AND ITS OUTCOMES
CRITERIA FOE
SELECTING
PARTNER
EQUITY
OWNERSHIP
BARGAINING
BETWEEN
PARTNERS
MANAGEMENT
CONTROL
COOPERATION
The next section examines the relationship between the
outcomes of bargaining and joint venture performance.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
c.
OUTCOMES OF BARGAINING AND JOINT VENTURE PERFORMANCE
This section deals with
the four outcomes of
for
the
selection
the
of
a
managerial control and
the
relationship
bargaining
partner,
between
process— criteria
equity
cooperation— and
ownership,
joint
venture
performance.
1.
PARTNER
SELECTION
CRITERIA
AND
JOINT
VENTURE
PERFORMANCE
Tomlinson’s (1970) study established a relationship
between criteria
for
selecting
venture performance.
a
He found that
which partners were chosen on
partner
joint
the
basis
and
of
past association were the most profitable.
most
profitable
were
those
in
which
selected on the basis of convenience
resources.
of
joint
ventures
The
second
partners
Joint
were
facilities
Third was selection of partner on the
of status or local identity.
in
favorable
ventures
in
MNCs were forced to select particular partners
or
basis
had
which
the
lowest level of profitability.
Among the
more
pertinent
questions
selection in the United States would be:
for
how
partner
does
the
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
relatedness
of
the
partners*
performance of the IJV?
business
impact
partner’s business to that of the IJV impact
performance?
How
the
How does the relatedness of the
does
the
the
complementarity
IJV’s
of
the
resources supplied to the IJV by the partners impact the
IJV’s performance? and, Does selection of a
partner
the
to
basis
of
past
association
lead
on
better
perf ormance?
2.
EQUITY OWNERSHIP AND JOINT VENTURE PERFORMANCE
Several
researchers
between the degree
of
have
equity
joint venture performance.
found
found that the performance of
partners.
found
that
IJVs
equally
(1971)
was
relationship
and
between
the MNC held a
venture
or
majority share (control was with the MNC) tended
more successful than joint ventures
in
which
the
That
small
share (control was with the local partner)
where
(1982)
joint
success and equity ownership was "U-shaped".
joint ventures in which
all
between
Lane
and
and
have
highest
divided
Killing (1983) and Beamish
the
relationship
attained
Killing (1983), Beamish
Lane (1982), and Friedmann and Beguin
equity ownership was not
a
ownership
is,
minority
a
large
to
be
partners
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
held roughly equal shares (control was split).
A similar finding was made by Lecraw (1984) in
study of bargaining power, ownership
and
of MNCs in developing countries.
However,
"J-shaped" relationship
equity
between
his
pi-ofitability
he
found
ownership
a
and
performance.
Since the studies reviewed here
were
either
outside the United States, or focused on joint
and subsidiaries of MNCs that were
States, the
pertinent
relationships
3.
would
question
prevail
not
is
in
in
the
whether
IJVs
in
done
ventures
United
the
the
MANAGERIAL CONTROL AND JOINT VENTURE PERFORMANCE
Parent control has also been found to relat to
performance.
he
also
In the Lecraw (1984) study cited
found
"...
a
close
over the areas of operation
critical
to
success,
of
and
its
is, the higher the effective
the
MNC’s
the
control,
viewpoint.
linear
(M)NC
subsidiaries
investment from the (M)NC’s viewpoint."
success from
a
success
(p.
the
The
IJV
earlier,
(positive)
relationship between the level of control
were
same
United
of
38)
higher
had
that
the
That
the
relationship
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
between the overall management control and
the
success
of the subsidiary was roughly "J-shaped".
Low
success
occurred when ownership and overall control were roughly
equally divided between the MNC and its local partner.
A study of 37 joint ventures between North American
and
European
partners
by
Killing
relationship between parent control
performance.
typology
(1983)
and
On the basis of control,
that
classified
dominant parent— one
wholly-owned
parent
subsidiary
managers, (2) shared
joint
he
the
into
venture
its
own
management— both
a
venture
developed
ventures
ran
with
found
joint
a
(1)
like
a
functional
parents
play
a
meaningful managerial role with functional managers from
both parents, and (3)
independent
ventures— where
joint venture general manager has a free
decisions.
were more
hand
to
the
make
He found that dominant parent joint ventures
successful
than
while independent ventures
Friedmann and
Beguin
shared
were
(1971)
the
also
ownership
most
found
ventures
successful.
that
shared
control led to low performance while unequal control led
to higher performance.
Rafii (1978) examined the impact of foreign
control on the transfer of technology to
ventures.
joint
parent
Iranian
Using a sample of 35 IJVs, he found that
venture
partners
pursued
divergent
joint
the
objectives
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which led to conflicts.
The foreign partners were found
to push for maximization of the net
global operations while the
maximize return
to
resolution
such
of
the
local
IJV.
benefits
partners
Rafii
conflicts
of
found
and
their
sought
that
the
to
the
ultimate
distribution of costs and rewards were a function of the
relative control that each partner
exercised
joint venture’s policies and operations.
over
the
He found
such exercise of control was positively related
that
to
the
joint venture’s performance.
Schaan (1983) found that the most successful
joint
ventures in his sample were those for which managers
in
the parent firm achieved a fit between their criteria of
success, the activities or decisions they controlled and
the mechanisms they used to exercise control.
From the
foregoing,
it
is
clear
that
exercise control over specific functional
areas
than overall control and that such control
is
related to joint venture performance.
For the
of this study, therefore, an attempt would
be
determine the functional areas over which
each
(and IJV
and
management)
exercises
control
partners
rather
directly
purposes
made
to
partner
how
the
exercise of such control impacts the IJV’s performance.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
4.
COOPERATION AND JOINT VENTURE PERFORMANCE
The amount and nature of cooperation between
venture partners have a significant impact on
performance.
Janger (1980:5) has noted that
joint
the
J V ’s
"...shared
equity holdings alone do not make a joint venture in the
absence of a reason for cooperation".
Although joint ventures may be
formed
the need to cooperate, there are numerous
for conflicts and disagreements.
Such
because
conflicts
arise from unilateral decisions made by one partner
attempts to enforce them
consent.
Refusals or
without
delays
the
in
of
opportunities
other
providing
could
and
partner’s
resources,
competition between partners, differentiation leading to
the pursuit of different
goal
blocking,
goals,
interference
task
with
a
interdependence,
partner’s
goal
attainment, and power sharing all contribute to conflict
(Robey, 1982; Salancik and Pfeffer,
1977;
Schmidt
and
Kochan, 1972; Lawrence and Lorsch, 1967; Thompson, 1967;
Van
de
conflicts
Ven,
Delbeq
could
performance.
lead
and
to
Koenig,
Jr.,
1976).
sub-optimization
In addition, abuse of trust and
inequity (Adams, 1963) also reduce
partners and thereby affect
the
low
perceived
cooperation
performance
ventures (Friedmann, Kolmanoff and Beguin,
Such
and
between
of
joint
1961,
1971;
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Killing, 1383, 1982; Wright, 1977; Burton
and
Saelens,
1982) .
Since partners generally
exercise
influence
over
particular functions they deem important, it may be more
meaningful to talk about disagreements or conflicts with
respect to these
functional
overall cooperation.
areas
rather
than
about
A focus on overall cooperation may
belie the conflict areas and prevent the development
managerially-meaningful insights into
those
areas that lead to
conflict
disagreements
or
of
functional
between
joint venture partners.
The focus of this
determining
the
study
specific
will,
therefore,
areas
of
disagreements and how these conflicts
be
conflict
or
on
or
disagreements
impact joint venture performance.
This section has evaluated the behavior of
in structuring the joint venture.
partners
The focus was on
the
bargaining between the partners and the outcomes of
the
bargaining— criteria for selecting partner, the level of
equity ownership attained
in
the
functional areas over which control
joint
is
venture,
the
exercised,
and
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
cooperation between partners.
The
preceeding
discussion
presented
diagramatically in Figure 2.5 below.
FIGURE 2.5
OUTCOMES OF BARGAINING AND PERFORMANCE
CRITERIA
FOR
SELECTING
PARTNER
EQUITY
OWNERSHIP
JOINT
VENTURE
PERFORMANCE
MANAGEMENT
CONTROL
COOPERATION
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Before proceeding to develop the integrated research
model and hypotheses, it is
literature
on
performance.
the
Over
researchers have
performance.
necessary
measurement
the
last
attempted
decade
to
to
of
examine
joint
or
measure
the
venture
so,
several
joint
venture
However, the diversity of definitions
measurement criteria used have created
In the next section, therefore, the
some
and
confusion.
literature
on
the
measurement of joint venture performance is reviewed
an effort to determine the most
appropriate
in
measure(s )
to use in this study.
5.
MEASURES OF JOINT VENTURE PERFORMANCE
A
review
performance
of
the
indicates
literature
three
on
specific
First, there is no general consensus on
of joint venture performance.
do not
explicitly
define
joint
venture
problem
the
areas.
definition
In fact, most researchers
joint
venture
performance,
preferring to have their definition
inferred
from
measures used.
consensus
on
Second, there is no
terminology to use.
the
what
Some researchers have used the term
"performance"' (Good, 1972; Dang, 1977) while others have
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
used the term "success" (Killing, 1983;
Schaan,
While the terms could be interchangeable,
the
1983).
lack
of
explicit definitions by some of the researchers makes it
difficult, if not impossible, to determine if
referring to the same construct.
Third is
they
the
are
variety
of measures used.
Table 2.2 classifies the
into three categories or
different
typologies.
studies based on traditional
financial
return on investment and return on
using survival
or
continued
venture as a measure of joint
(3)
studies employing
a
measures
These
(1)
measures,
like
sales ;
existence
(2)
of
studies
the
venture performance,
subjective
used
are:
measure
of
joint
and
joint
venture performance.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 2.2
BESEABCB OK JOINT VENTURE PERFORMANCE AND MEASURES USED
RESEARCHER
MEASURE
1972
DANG
1977
RILLING
1983
RENFGRTH
1974
FRANKO
1969
RAVEED
1976
I
X
FINANCIAL
Return On:
-Investment
-Equity
-Assets
-Sales
I
X
X
X
I
X
!
X
I
!
X
X
X
X
Total Sales
Cost of Goods
Total Assets
Total Liability
Total Capital
Asset Turnover
Grostb In:
X
X
X
X
I
Working Capital
Value Added
Productivity
Capital Intensity
I
X
X
X
SURVIVAL
SUBJECTIVE
I
Table 2.2 also indicates that, even under the three
broad classifications, no two researchers
the same
measures.
For
example,
for
used
the
exactly
financial
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
measure, Good (1972) used six financial, measures in
comparison of the performance of U.S. joint ventures
Mexico to wholly-owned Mexican firms.
These
return on investment (ROI), (2) return
on
in
were:
(1)
equity,
(3)
growth of profits, (4) growth of sales, (5)
total assets, and
her
growth
(6)capital intensity measured
of
as
a
ratio of fixed assets to total employment.
Dang (1977)
used
return on equity,
seven
financial
(2) growth of
assets, (4) return on sales,
(5)
asset
value added and (7) productivity in his
the relationship between ownership and
of
U.S.
joint
ventures
measures:
sales, (3)
(1)
return
on
turnover,
(6)
examination
of
the
vis-a-vis
performance
wholly-owned
subsidiaries in the Philippines and Taiwan.
Renforth (1974) used
nine
compare the performance of joint
U.S.-domiciled MNCs and
joint
ventures
between
measures
to
ventures
between
(1)
family-firm
U.S.
firm-partners in the Caribbean.
return on assets,
financial
firms
partners
and
His measures were:
(2) total sales,
(3) cost of
sold, (4) net profits, (5) return on assets,
assets,
and
(2)
non-family
(6)
(1)
goods
total
(7) total liabilities, (8) total capital and (9)
working capital.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
None of the above
studies
differences between the
groups
found
of
any
firms
significant
studied,
in
spite of the varying numbers of financial variables used
and the different manipulations
performed. Good
used
raw scores, Dang used deviations from the means of local
industries, while Renforth used
percentage
changes
in
financial measures over a five-year period.
Two researchers, Franko (1969)
have
used
performance.
survival
as
a
and
measure
of
Raveed
joint
(1976)
venture
Killing (1983) is the only one to use
the
subjective evaluation of joint venture general managers.
In a recent
study,
Schaan
venture success as "the ability
(1983)
of
a
defined
JV
to
joint
meet the
expectations of its parents" and operationalized this by
classifying JVs into the following categories :
-successful for both parents
-unsuccessful for both parents
-successful for the MNC parent, unsuccessful for
the local parent
-successful for the local parent, unsuccessful
for the MNC parent.
He concluded that:
-the criteria of success are not always
explicit;
-JV success is a multidimensional concept
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
involving both qualitative (financial) and
quantitative (non-financial) measures ;
-managers measure JV success by considering a
combination of criteria over a period of time
(p. 194).
In a more recent study, Lecraw
measures
of
subsidiary,
success :
(1)
the
(1984)
used
profitability
(2) the success of the subsidiary
three
of
as
the
rated
by the MNC (l=unsuccessful; 10=very successful), and (3)
the "corrected" success where the success rating of
the
individual subsidiary was
the
scaled
in
relation
to
average success rating of the firms in the sample in the
same industry in the same country (country and
corrected success) (p. 37).
Lecraw explained
industry
that
the
MNCs were "asked to rate the success of their investment
because profitability was
not
the
only
component
of
success for the (M)NCs in the sample" (p. 37).
D.
CHOICE OF PERFORMANCE CRITERIA
It is apparent from
the
foregoing
that
a
clear
definition of joint venture performance is needed.
a
definition
constituencies
must
take
served
by
into
the
account
IJV.
the
There
Such
different
is
an
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
"internal" constituency made up of the partners and
IJV itself and an "external"
constituency
entities in the organizations* (both
external
environment.
Any
IJV
made
and
up
the
of
parents)
performance
measures
selected, therefore, must be based on two main
factors :
(1) parent objectives and (2) industry performance.
For
the
purposes
of
this
study,
a
two-part
definition of joint venture performance was used:
(1) How well the joint
venture
meets
a
parent’s
expectations on criteria the parent considers important.
(2) How the IJV’s performance compares to those
of
its competitors.
Specifically, four measures of IJV performance
used in this study.
trend
of
using
This is in line
multidimensional
with
the
measures
are
current
of
IJV
performance (Schaan, 1983; Lecraw, 1984; Killing, 1983).
The measures are:
(1) A financial measure of
(a) return on investment,
(b)
performance
return
based
on:
equity,
(c)
evaluates
the
on
growth of sales and (d) market share.
(2) A
extent
to
non-financial
which
a
measure
parent
that
succeeded
in
obtaining
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
important factors like technology, raw materials,
funds
and access to markets.
(3) A measure of the IJV’s performance relative
to
other firms in its industry, and
(4)
combines
A
the
composite
above
industry-related)
measure
three
measures
of
performance
(financial,
to
provide
that
non-financial,
an
overall
selected
research
assessment of performance.
Table 2.3 presents
a
list
of
studies discussed in this chapter.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 2.3 presents a list of selected research studies
discussed in this chapter.
SELECTED BESBABCH STUDIES AND CONCEPTS EXAMINED
AUTHOE/
BESEABCfiEB
MOTIVATION
FOB JOINT
VENTUBE
BELATIVE
BABGAINING
PONEB
PAETNSB
SELECTION
CBITEBIA
EQUITY
ONNEBSBIP
HAHAGSSIAL
CONTBOL
I
FBIEDMANH I
KOLMANOFF (1961)
X
X
BIVENS I LOVELL
(1966)
X
X
BBASH (1966)
COOPERATION
CONFLICT
IJVP
X
X
X
FBANKO (1969)
BBOOEE & BEHHEBS
(1970)
X
PHILLIPS (1970)
X
TOMLINSON (1970)
X
FBIEDHANN I
BEGUIN (1971)
X
FBANKO (1971)
VEBNOH (1971)
X
X
X
X
X
X
X
X
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 2.3 (COHTD.)
AUTHOE/
BSSEABCBEB
MOTIVATION
FOB JOINT
VENTURE
RELATIVE
BARGAINING
POWER
PARTNER
SELECTION
CRITERIA
GOOD (1972)
MANAGERIAL
CONTROL
X
ST0PF02D i HELLS
(1972)
LEA & HEBLEY
(1972)
EQUITY
OWNERSHIP
X
X
X
X
COOPERATION
CONFLICT
IJVP
I
Ï
RENFOETB (1974)
SEELEY (1974)
X
GULLANDEE (1976)
2
BYHEB (1976)
I
MAGEE (1976)
X
X
I
X
RAFII (1976)
X
X
E.AVEED (1976)
X
I
X
Ï
DANG (1977)
X
DUNNING (1977/79)
X
WEIGHT (1977)
X
LAPALOHBAEA
ft BLANK (1979)
X
X
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 2.3 (CONTD.)
AUTHOE/
SBSBABCHEE
MOTIVATION
POE JOINT
VENTUEE
JANGER (1980)
I
NEGANDBI I BALIGA
11981)
X
RELATIVE
BARGAINING
POWER
MANAGERIAL
CONTROL
COOPERATION
CONFLICT
X
BURTON t SAELENS
(1982)
IJVP
'
X
X
X
!
PAGRE I NELLS
(1982)
KILLING (1982)
EQUITY
OWNERSHIP
X
BEAMISH A LANE
(1982)
CAVES (1982)
PARTNER
SELECTION
CRITERIA
X
I
X
X
2
X
X
X
SCHAAN (1983)
LECEAB (1981)
X
BEAMISH (1985)
I
RUGMAN, LECEAÏ
A BOOTH (1985)
2
REICH A MÂHEIN
(1986)
X
X
X
X
X
X
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Chapter III
THE RESEARCH MODEL AND HYPOTHESES
A. THE RESEARCH MODEL
Based on the review of the literature,
a
research
model is presented here (Figure 3.1)=
The relationships
depicted in the model form the
of
basis
the
research
..hypotheses to be developed in the next section.
The research model integrates the three
developed
section
earlier
(Figures
contributes the
in
2.1,
attitudes
review
2.2
antecedent
formation of the IJV.
and/or
the
and
factors
bargaining
sub-models
the
2.3).
(GRA),
literature
Figure
2.1
led
the
that
These are government
and
to
regulations
firm-specific
possessed by incoming MNCs (FSA),
(M-Factors).
of
advantages
missing
factors
These three factors form the bases of
between
the
partners
and
their
the
relative
bargaining power (RBP).
Figure 2.2 contributes the linkage between the
of the partners
and
between them, namely:
the
outcomes
criteria
for
of
the
RBP
bargaining
selecting
partner
(CSOP), relative equity ownership (RELEO), management
75
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PIGUBB 3.1
& CONCEPTUAL MODEL OF JOINT VENTURE PBEPOBMANCE
SELECTION OP PARTNER
-SAME BUSINESS AS IJV
-SAME BUSINESS AS PARTNER
-COMPLEMENTARY RESOURCES
-PAST ASSOCIATION
RELATIVE BARGAINING POWER
GOVERNMENT
-REGULATIONS
-ATTITUDES
EQUITY ONNEBSBIP
-MAJORITY
-EQUAL
-MINORITY
PIEM-SPECIFIC ADVANTAGES^
-RESOURCES CONTRIBUTED f
TO IJV BY MNC
MISSING FACTORS
-RESOURCES CONTRIBUTED
BY LOCAL PIRN
JOINT
VENTURE
PERFORMANCE
MANAGEMENT CONTBOL
-LOCAL FIRM
-FOREIGN PARTNER
-JOINT VENTURE
management
-TRUST
-PERCEIVED EQUITY
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
control (MC) and cooperation (CO).
the
model
with
the
Figure 2.3 completes
relationship
between
bargaining outcomes (CSOP, RELEO, MC
and
the
CO)
four
and
IJV
performance.
On the basis of the
number
of
research
research
questions
model
may
be
developed,
posed.
questions form the bases of the research
a
These
hypotheses
in
the next section.
These are: (1) To what extent do
regulations and/or attitudes lead to
IJVs in the United
States?
U.S.
the
(2) What
government
formation
are
major
to
these
contributions of foreign MNCs and U.S. firms
IJVs?
(3) What is
the
relationship
between
relative
bargaining power (RBP) and IJV performance? (4) What
the relationship between RBP
outcomes,
namely:
(criteria
(CSOP), relative equity
control (MC) and
and the
cooperation
relationship between the
What
among the bargaining
outcomes
how
do
these
(CO)?
bargaining
performance? And (6)
and
for
ownership
are
the
four
is
bargaining
selecting
(RELEO),
(5)
of
the
partner
management
What
outcomes
is
the
and
IJV
interrelationships
(intervening
interrelationships
variables)
affect
IJV
performance?
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
3.
HYPOTHESES
On the basis of the
literature
reviewed
and
the
model developed, three types of hypotheses are proposed;
(1) a set of
among
hypotheses
variables,
(2)
on
the
direct
hypotheses
relationships
relating
to
the
inter-relationships among the intervening variables, and
(3)
hypotheses
relating
to
exploratory
research
questions.
The first hypothesis relates
between the independent
variable,
power (RBP) and the dependent
to
the
relationship
relative
variable,
bargaining
joint
venture
performance (JVP).
Hypothesis 1 :
The more superior one partner’s relative bargaining
power (RBP), the better the
venture.
That
is,
one
performance
would
expect
of
the
a
joint
positive
relationship between RBP and JVP.
This
indicate
is
that
in
line
where
with
one
research
partner
is
venture performance was higher (Killing,
findings
that
dominant
joint
1983;
Schaan^ -
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
1983; Beamish and Lane, 1982; Lecraw, 1984).
The next set of hypotheses
(2-8)
pertain
to
outcomes of the bargaining between the partners.
reiterated
here
that
relative
bargaining
conceptualized in this study, refers
that the
partners
venture.
Their
actually
bargaining
to
contribute
power,
is
power,
as
the
to
the
It
resources
the
therefore,
joint
derives
from these resources.
Hypotheses
2
and
internalization theory.
2a
test
the
assertions
If the claim that firms
of
engage
in FDI to prevent the dissipation of their FSA is right,
then the IJVs they form should be in the
industries
which they operate at
or
That
is,
the
integrations
home
investments
rather
than
(horizontal
should
represent
diversification
in
vertical).
into
market
other
industries.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 2:
The higher the relative bargaining power. the
more
a firm would select partners in the same business as the
IJV.
High
EBP
resources.
implies
the
possession
of
essential
High RBP also implies a lot of FSA.
For the
MNC with a lot of FSA, the need to internalize
would be
great.
Where
the
MNC
needs
to
the
FSA
get
over
barriers imposed by GRA and/or market imperfections, the
investment should be in its own industry.
investment
should
be
a
market
That is,
integration,
the
not
a
diversification.
Hypothesis 2a:
The higher the relative bargaining power, the
more
a firm would select partners in its own business.
According to
the
internalization
theory
thesis,
MNCs attempt to prevent the dissipation of their FSAs by
using
them
countries.
within
their
own
operations
in
other
Such danger of dissipation arises because of
government regulations and
other
market
imperfections
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(Magee, 1977; Dunning, 1977; 1979).
But since FSAs
specific to firms and their operations
and Booth (1985), the internalization
(Rugman,
should
are
Lecraw
occur
in
the same industries in which the MNCs have FSAs.
Hypotheses
2b
and
2c
attempt
to
Tomlinson’s (1970) selection criteria
determine
if
relevant
to
are
IJVs in a developed country like the United States.
Hypothesis 2b;
The higher a firm’s relative bargaining power,
more it would select partners
complementary resources.
on
the
basis
of
Stated otherwise, there
positive relationship between relative bargaining
the
their
is
a
power
(RBP) and complementary resources (COMPRES).
High -relative bargaining
firm already has most of the
IJV.
power
implies
resources
It is reasonable, therefore, to expect
those firms
additional
that
are
resources
in
a
needed
position
would
be
that
needed
to
by
the
the
that
only
supply
the
selected
as
partners.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 2c:
The
higher
bargaining power,
(or
lower)
that
is,
one
partner’s
the
more
relative bargaining power, the more
selected on the
basis
of
partners
favorable
relative
assymetric
past
the
would
be
association
(PASTASSO).
Equal power distribution
1982).
It is
reasonable,
breeds
therefore,
conflict
to
(Robey,
expect
that
firms joint-venturing after a period of past association
would have established
other.
their
Also, firms with
power
unfavorable
would not be expected to collaborate
especially where they are free to
positive relationship
is
relative
past
with
choose
therefore
to
each
association
each
other,
partners.
predicted
A
between
relative bargaining power and past association
Hypothesis 3:
The higher the relative bargaining power (RBP) of a
firm, the higher the level of relative equity
(RELEO) it attains in the IJV.
That
is,
ownership
there
positive relationship between relative bargaining
is
a
power
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(RBP)
and
the
level
of
equity
ownership
attained
(RELEO).
Since a firm’s superior bargaining position enables
it to structure the
joint
venture
to
best
meet
objectives and since equity ownership confers a
its
certain
degree of control over the joint venture’s operations, a
higher equity
bargaining
position
position
is
reflective
(Lecraw,
Friedmann and Kolmanoff,
of
1984;
1961;
a
superior
Behrman
Friedmann
1970;
and
Beguin,
1971).
Hypothesis 4;
The higher
the
relative
bargaining
partner, the greater the level of effective
exercises over the
That
is,
there
operations
is
a
of
positive
the
power
of
control
joint
relationship
a
it
venture.
between
relative bargaining power and control.
Bargaining power, in the
context
of
this
relates to the resources a firm actually brings
partnership.
higher
its
The more it
bargaining
contributes,
power
(Killing,
study,to
therefore,
1982;
the
the
1983;
Lecraw, 1984; Fayerweather, 1982).
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 5:
The higher the relative
bargaining
partner relative to that of the other,
level of cooperation (CO) between them.
is a positive relationship between
power
the
of
one
higher
the
That is,
relative
there
bargaining
power (RBP) and cooperation (CO).
Joint
ventures
involve
the
sharing
of
firms
that
decision-making and pooling of resources by
may
be
potential
competitors.
Each
unwilling to cooperate fully for
company secrets.
cooperation
recalcitrant
fear
firm
of
may
giving
be
away
Where the parties are equally matched,
would
be
low
attitude
(Gullander, 1976).
one party to "force"
as
that
each
leads
Unequal power
the
other
party
adopts
to
distribution
to
cooperate
a
deadlocks
enables
(Robey,
1982; Salancik and Pfeffer, 1974).
Hypotheses (6-8) relate to the relationship between
the intervening variables and
the
dependent
variable,
joint venture performance.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 6:
The more partners are selected because they are
the same business as the joint venture, the
higher
in
the
performance of the joint venture.
Since MNCs try to
FSAs to local
internalize
operations
(Magee,
1977; 1979), it is reasonable to
by
bringing
1976;
expect
venture’s performance would be higher
that
where
expertise is in the area of business in
their
1977;Dunning,
a
joint
the
MNC’s
which
the
IJV
operates.
Hypothesis 6a:
The more partners are selected because they are
in
the same business as the U.S. firm, the higher would
be
the performance of the joint venture.
One of the problems firms engaged in joint ventures
face is trying
to
deal
with
partners
knowledgeable about their operations.
not appreciate or understand
facing the
other
courses of action.
partner
the
and
that
are
operational
the
not
Such partners may
need
IJVs formed between U.S.
problems
for
certain
firms
and
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
MNCs with FSAs in the
same
industry
should
eliminate
such operational problems, and ceteris paribus, result
in a more productive joint venture.
Hypothesis 6b:
The more
partners
are
selected
complementarity of the resources
they
because
of
the
provide
to
the
IJV, the higher
would be the IJV’s performance.
One of the
major reasons for the formation
ventures is for
ofjoint
firms to pool resources. (Killing, 1983;
Gullanger, 1984).
It
venture would be
more
follows, therefore, that a
successful,
ceteris
where partners make available resources that
joint
paribus.
the
other
either lacks or does not have enough of.
Hypothesis 6c:
The more favorable the past association between the
partners, the higher would be the IJV’s performance.
The period before the signing of the
venture agreement allows
the
firms
other’s suitability as partners and
to
to
formal
evaluate
gain
a
joint
each
better
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
understanding of each other’s objectives and methods
operation (Berg and Friedman, 1980).
differences
formation
would
of
have
the
been
joint
In essence,
worked
venture
out
before
leading
to
of
any
the
better
cooperation, and higher performance.
Hypothesis 7:
Where one partner holds
a
distinct
majority
(or
minority) equity ownership, the performance of the joint
venture will be higher.
The relationship between equity ownership and joint
venture performance
Joint ventures
has
with
been
perform as well as those with
minority ownership (Beamish
1983).
to make
holdings
found
to
be
equally-shared ownership
a
and
distinct
Lane,
could
and/or
lead
to
to
veto
deadlocks
not
majority
1982;
This is because equity ownership
decisions
U-shaped.
do
confers
decisions.
and
or
Killing,
power
Equal
periods
of
inactivity and conflict (Gullander, 1978).
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 8:
Where control over
venture
is
exercised
the
by
operations
only
of
one
the
joint
partner
performance of the joint venture will be higher.
Balanced power or control leads to
could be destructive.
Such destructive
negatively affect performance.
1982).
which
could
Therefore, where control
(or power) is unbalanced, there is
conflict (Robey,
conflict
conflict
Also,
ventures perform better than those
less
potential
dominant-parent
with
for
joint
equally-shared
control (Killing, 1983).
Hypothesis 9:
The
higher
the
level
of
cooperation
between
partners, the higher the IJV’s performance.
International joint ventures are formed because
the need of the partners to
pool
their
resources
of
for
undertakings that either one of them could not (or would
rather not) handle alone (Killing, 1982; 1983,
1985).
The absence of cooperation implies
of one or more of the parties
to
provide
Beamish,
the
refusal
the
missing
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
factors (M-Factors)
needed
for
successful
Lack of cooperation could, therefore,
operation.
result
in
lower
performance.
The third set of hypotheses
(10-13)
exploratory parameters of this study.
examines
These
relate to the interrelationships between and
four
intervening
variables
and
the
hypotheses
among
how
the
these
inter-relationships affect performance.
Hypothesis 1C:
IJVs with
higher
complementarity
of
contributed
resources (COMPKES) and lower control by both
that is, higher IJV
autonomy,
would
partners,
outperform
with lower complementarity of resources
those
contributed
by
partners and higher levels of control by the partners.
With a full complement of the resources it needs to
operate efficiently and the autonomy to function without
undue interference from the partners, an
IJV
could
be
expected to have higher levels of performance.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 11:
IJVs formed by partners who have had favorable past
associations
control,
and
that
in
is,
which
a
partners
more
exercise
autonomous
outperform those with partners who have had
past associations and in
which
the
less
IJV,
would
unfavorable
partners
exercise
higher levels of control.
Unfavorable
partner to
seek
activities
of
past
to
the
association
exercise
IJV
could
more
leading
cause
control
to
each
over
decreased
the
IJV
performance.
Hypothesis 12:
IJV’s with higher
resources and high
outperform
complementarity
levels
those
with
of
of
contributed
cooperation
lower
(CO)
would
complementarity
of
contributed resources and low levels of cooperation.
Given the right
resources,
effectively.
matched
by
an
IJV
type
could
and
be
If such provision
high
levels
of
quantity
expected
of
of
to
resources
cooperation
essential
function
is
between
also
the
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
partners, then IJV performance could be expected
to
be
higher than where both resources and partner cooperation
are lacking.
Hypothesis 12a:
IJVs in which partners have had more favorable past
associations and
higher
levels
of
cooperation
outperform those in which partners have had
would
unfavorable
past associations and lower levels of cooperation.
It is reasonable
associations
understanding
to
between
and
expect
parties
that
would
cooperation.
favorable
lead
to
past
better
Furthermore,
such
favorable past associations matched by high
cooperation '
could
levels
of
I J V s with low levels of partner control, that
is,
be
expected
to
result
in
higher
performance.
Hypothesis 13:
high IJV autonomy, and high levels of cooperation
would
outperform those with high levels of partner control, or
low IJV autonomy, and low levels of cooperation.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Equal
power
conflict as each
distribution
party
tries
tends
to
to
exercise
result
its
in
power
(Killing, 1983).
The next chapter details the
research
methodology
used in this study.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Chapter IV
RESEARCH METHODOLOGY
This chapter is divided into three
first
section
variables.
details
The
second
collection methods.
data
analysis
the
section
The
methods
third
used
sections.
The
operationalization
focuses
section
to
test
of
on
data
describes
the
the
research
hypotheses.
A. OPERATIONALIZATION OF VARIABLES
This section provides
operational
definitions
the variables and the method of their measurement.
of
The
variables are classified as independent, intervening and
dependent.
1.
INDEPENDENT VARIABLES.
a.
Relative Bargaining Power (RBP)
Relative bargaining power represents the extent
which a firm can influence the operations of
venture.
It
has
been
established
earlier
the
(in
to
joint
the
93
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
review of the literature section)
derives
from
the
relative
that
such
contribution
influence
of
needed
resources to the joint venture effort.
The term M-Factors (MF) was used to
refer
to
the
resources that the foreign MNC supposedly lacks and that
are contributed to the IJV by the
local
Firm-specific advantages (FSA) relate to
U.S.
partner.
the
resources
the incoming MNC possesses and contributes to IJV.
Fourteen
production-related,
market-related
and
socio-politico-cultural factors derived from Tomlinson’s
(1970)
study
were
used
to
measure
bargaining power of the partners.
the
relative
The use of
resources
to indicate relative bargaining power follows
of Fagre and Wells (1982) and Lecraw
the
operationalization
departure from theirs.
in
this
While
the
(1984).
study
they
used
represents
factors
technological intensity, advertising intensity,
intensity,
and
export
intensity
that
work
However,
a
like
capital
consider
the
POTENTIAL contributions a partner could make to the IJV,
this
study
uses
the
ACTUAL
contributions
made
by
partners as an indication of their bargaining power.
argued earlier,
a
firm’s
right
to
control
a
As
joint
operation with another firm can only be derived from the
resources it actually contributes, not the resources
possesses but does
not
make
available
to
the
it
joint
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
venture.
The 14 variables are:
technology;
established
(1)
plants/facilities;
(3) technical personnel:
brands ;
(6)
(2)
(4) management;
distribution
(5)
channels ;
(7)
research and development (B&D); (8) financial resources;
(9)
raw
materials/components;
position;
(11)
patents/licenses;
(10)
strong
(12)
provide local identity; (13) government
(14) good overall image.
market
capacity
to
relations ;
and
For convenience, the terms MFl
through MF14 are used to denote the 14 variables in
the
analysis.
The respondents were asked to indicate the relative
contributions of each of the resources by
by allocating 100 points
between
the
each
partner
partners.
also rated the importance of each resource on a
scale with 7 being "extremely important" and 1
all
important".
computation
of
For
each
relative
of
the
14
power
was
done
They
7-point
"not
resources,
using
at
a
the
equation:
MFl (RESOURCE) = (CONTRIBUTION OF US FIRM - CONTRIBUTION
OF PARTNER) X IMPORTANCE OF RESOURCE
Three other variables were added because
obvious
impact
on
bargaining
power.
of
These
their
are
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
government
regulations/attitudes
(GRA),
country
origin of partner (PCOUNTRY), and the relative
the partners (RELSIZE).
attitudes
have
been
Government
formation of joint ventures
local firms.
regulations
established
foreign
bargaining power.
GRA
existing government
is measured
regulations,
as a
The
scale
in the United
States
(Questions 2a,
questionnaire in appendix).
firm’s
composite
three
measures
joint
2b,
on
and
and
the
ventures
2j
GRA was computed by
the scores on each of the three questions
of
government
questions
motivation of the foreign firms to form
and
determine
U.S.
potential
regulations, and tariff barriers.
were derived from the 7-point
the
the
MNCs
It is included here in order to
the extent to which it contributes to
of
and/or
as influencing
between
of
size
in
adding
dividing
the total by three.
The second variable, PCOUNTRY, was included because
of the distinct characteristics of Japanese and European
firms
that
partners.
might
make
them
especially
A dummy variable was used to
variable with
l=European
variable, RELSIZE,
was
and
3=Japanese.
included
as
desirable
represent
an
The
this
third
"intimidation
factor" to capture the extent to which the size of firms
influenced
their
power.
RELSIZE
was
computed
dividing the total assets of the U.S. firm by the
by
total
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
assets of the partner.
2.
INTERVENING VARIABLES
a.
Relative Equity
Ownership
(RELEO)— Since
assignment of shares is the result
of
allocation is indicative of the outcome of the
bargaining strengths of
The" relative
equity
partners
(LeCraw,
level
attained
by
a
held
by
the
U.S.
firm.
ownership reflects any shifts in the
partners over time and
also
matches
1984).
firm
measured by subtracting the percentage equity
ownership
was
ownership
percentage
equity
Present
equity
positions
the
the
relative
the
held by the foreign partner from the
the
bargaining,
of
the
measures
of
performance used for this study.
b.
Criteria for Selection of Partner (CSOP)— These
are the criteria used by the U.S. firms in the selection
of
their
partners
attributes
of
and
are
partners
reflective
(b)
of
their
(a)
the
perceived
importance-T-resources they are willing to commit to
the
joint venture.
Four selection criteria are used
for
this
Two criteria, (1) complementary resources, and (2)
association,
were
taken
from
Tomlinson's
study.
past
(1970)
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
questionnaire.
His other criteria are
for this study.
not
relatedness of the partner’s business
to
that
proposed IJV, and (2) the relatedness of
business, were added.
indicate,
on
appropriate
Two other selection criteria,
a
The
respondents
7-point
questionnaire), the extent
scale
to
the
(1)
the
of
the
partners’
were
asked
(question
which
the
selected on the basis of each criterion.
to
4
in
partner
was
Each selection
criterion was used as a separate measure.
c.
Managerial Control (MC)— This is a
measure
the actual control exercised over the joint
venture
the local partner (MCU), the foreign partner
(MOP)
the IJV (MCJ).
Nineteen
items
representing
functional areas in an organisation
were
revised and supplemented
practice.
to
reflect
immediate reference.
(1)
These
which
was
business
These items make up question number 22 on the
questionnaire in the appendix and are
capital
policy; (4)
current
and
important
used.
were derived from Tomlinson’s questionnaire,
of
by
listed
here
for
They are:
expenditure;
(2)
pricing;
organisation;
(5)
product
(3)
dividend
planning ;
production planning ; (7) quality control;
(8)
and sales; (9) purchasing; (10)
methods;
costing
(6)
marketing
(11)
budgetary control; (12) accounting procedures ; (13) wage
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and
labor
policy;
compensation
of
administration
procedures;
(14)
selection,
executives;
and
promotion
(15)
supervision;
(IS) exports
and
and
training;
(17)
imports;
(16)
reporting
and
(19)
loan
funds (financing).
Following the method used
by
Lecraw
(1984),
respondents were asked to allocate 100 points
U.S. firm, the
partner
and
the
IJV’s
management
indicate the relative control they exercised
of the 19 functions.
In addition, they
scale,
with
importance.
7
indicating
the
For each function,
over
were
indicate the importance of each function
a
to
7-point
level
party’s
to
each
asked
on
highest
each
the
among the
of
relative
control was computed by subtracting the level of control
exercised jointly by the partner and the IJV
management
over a function from the level of control exercised over
that function by the U.S. firm.
weighted
by
the
importance
The
of
result
the
was
then
function.
This
procedure was repeated for each of the parties.
Rather than derive a composite control score as
the Lecraw
study,
control were
however,
used.
This
all
is
in
the
line
sub-measures
with
findings that partners exercise control over
functions rather than
Schaan, 1983).
overall
control
in
of
research
particular
(Lecraw,
1984,
A composite score would not indicate the
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
particular functions over which each
partner
exercises
control.
BHDP9R (best subset analysis) was
used
to
the elements of control that were significant
of the
parties
engaged
in
the
joint
dependent variable for the analysis
was
derive
for
each
venture.
The
joint
venture
performance.
d.
Cooperation (CO)— This is a measure of (1)
the
extent to which there was agreement/disagreement between
the partners over the 19 functional areas
for
the
equity;
control
and
(4)
measure;
(2)
willingness
collaboration with the partner.
used for this scale.
The
used
trust;
to
(3)
engage
earlier
perceived
in
future
A total of 23 items was
respondents
were
asked
indicate on a 7-point scale how often disagreements
occurred over the 19 functional areas.
A
score
to
had
of
7
indicated "never" and 1 "always".
Following the same procedure used for
the
control
measure, the EMDP9E program was used to derive the
best
subset of the twenty-three variables that influenced the
performance
of
the
IJV.
A
composite
measure
cooperation would not indicate the particular
of
functions
over which conflicts and disagreements occurred.
Theoretically, cooperation
should
be
present
as
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long
as
the
partners
need
each
other,
and
should
decrease as such need declines.
An important point
respect
to
control
variables
needs
correlation
(and
to
be
among
some
some
of
made
of
here
the
the
with
nineteen
twenty-three
cooperation variables) used in the analysis.
Even though
correlation
analysis
(see
appendix)
indicates that some of these variables are related, in a
conceptual
or
theoretical
sense
dimensions that are
independent
example, production
and
they
of
production
functions used in this study.
are
each
distinct
other.
planning
the
partners
and
the
IJV
split
management.
partner may have control over production planning
the
IJV
management
Therefore,
has
control
eliminating
methodological
grounds
either
because
they
that
is
happen
them
on
to
be
theoretically,
That is, a data-driven
significant
among
real organizations and does not
One
while
production.
of
since
they are independent dimensions.
coincidental inter-relation
over
one
correlated would be inappropriate
correlation
two
While the two may seem to
be related, control over the two functions may be
between
For
are
only
reflects
a
these
variables
in
imply
that
these
two
dimensions are the same and hence interchangeable.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Further, the use of the full set of variables would
enable a comparison
of
significant
control
across the U.S. firm, the foreign partner
variables
and
the
management.
Thus, normative guidelines that may
would
be
then
theory-driven
and
not
IJV
emerge
data-driven
(McGrath, 1964).
3.
DEPENDENT VARIABLE
IJV Performance— In line with the conclusions drawn
from the review
of
the
literature
and
definition of joint venture performance,
the
proposed
four
measures
of performance are used for this study.
The use of multiple measures of performance in this
study is in line with research findings
kinds of measures (financial,
and
subjective,
etc.)
are
performance of joint ventures
that
different
non-financial,
objective
used
to
(Schaan,
evaluate
1983).
the
It
is
also in keeping with current research practice (Killing,
1983; Lecraw, 1984).
The four measures of performance used
were
derived
by asking the U..S. firms to indicate:
(1)
on
criteria
expectations
How well the joint venture met its expectations
the
parent
fall
into
considers
two
important.
categories:
These
financial
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(JVPFIN) and non-financial
(JVPNOFIN).
Each
category
was measured separately.
(2)
How
well
the
joint
venture
has
performed
relative to competitors in its industry (JVPIND).
is similar to
Lecraw*s
(1984)
"country
corrected success" although no
country
and
This
industry
correction
was
made in this study.
The
fourth
performance
measure
(IJVP).
It
was
an
was
derived
average of the three measures
of
overall
by
measure
taking
performance
of
the
(JVPFIN,
JVPNOFIN, and JVPIND).
B.
DATA COLLECTION
This section describes
the
sample,
questionnaire
and data analysis techniques used for this study.
1.
THE POPULATION AND SAMPLE
The published listings of FDI in the United
(see
public
list
below)
sources
contain
only.
This
information
means
formation of an IJV is reported in
that
the
its existence may not be generally known.
States
gathered
from
unless
the
popular
The
press,
size
of
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the target population is, therefore, unknown.
However,
several sources were available for the development of
list of U.S. firms engaged in IJVs in the United
a
States
with foreign firms.
2. DATABASE DEVELOPMENT
A number of different sources were
purpose.
1.
used
for
this
These are:
Lists generously provided by the Conference
2.
Mergers & Acquisitions.
3.
Yearbook On Corporate Mergers, Joint
4.
FTC listings of foreign investments in
5.
Department of Commerce— International
Ventures and Corporate Policy.
the United States.
Trade Administration.
Although
there
were
several
overlaps,
sources provided exactly the same listings.
no
Out of
two
the
several sources, a list of 228 IJVs in the manufacturing
sector (SIC 20-39) was developed.
partners from Europe and Japan.
These U.S. firms
Addresses for the
had
U.S.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
partners in these IJVs were
obtained
from
Standard
Poor’s Register of Corporations and Executives, and
&
The
Directory of Corporate Affiliations.
The selection of joint venture
different continents with
partners
entirely
from
different
orientations— Europe and Asia— was expected
two
cultural
to
provide
insights into the different patterns and strategies used
by different parents from these two continents.
In an effort to (1) increase the number of IJVs
the study, and (2) check the accuracy
and
of the sources used to develop the JV list,
list was compiled using the firms
list.
in
the
in
completeness
a
separate
Fortune
500
From the FORTUNE 500 list, 210 firms that had not
been listed in any of the
sources
indicated
above
as
having IJVs in the United States were selected.
3.
QUESTIONNAIRE ADMINISTRATION
Ideally,
data
should
be
collected
through personal interviews with all the
joint
venture.
This
would,
first
parties
however,
of
all
Such a procedure is
not feasible due to the costs and time
limitation may explain the use
a
necessitate
travelling to several European countries, Japan and
over the continental United States.
hand
to
involved.
secondary
This
published
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
data by some researchers on joint ventures
like
(1980) and Crick (1981), and the small sample
studies that have utilized
personal
Duncan
sizes
interviews
in
(Good,
1972; Schaan 1983; Dang 1977).
While
personal
information,
the
interviews
small
sample
meaningful statistical analysis.
of
secondary
published
generali zabi1ity
of
severely
studies
motivations of partners cannot be
post facto statistics.
needed
preclude
any
On the other hand, use
data
the
provide
sizes
limits
since
determined
the
the
true
from
ex
It was therefore decided to use
a mail questionnaire (Appendix 1) to elicit the required
information.
questionnaire
The questionnaire is an adaptation of
developed
by
Tomlinson
the
(1970).
The
questionnaires were mailed only to the U.S. partners.
In October 1985, a letter and a form were mailed to
439 CEOs (229 in
the
JV
list
and
210
Fortune
500)
soliciting their help with the study.
They
were
also
asked to list on the
IJVs
they
were
and
(2)
the
involved
with
in
forms:
the
(1)
United
the
States
executive(s) to whom the questionnaire(s) should be sent
for
completion.
As
the
forms
questionnaires with cover letters
mailed to the
indicated
executives.
calls were made to determine if the
were
(see
returned,
appendix)
Follow-up
questionnaires
were
phone
had
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
been received and
return.
to
Table 5.1
encourage
below
early
summarizes
completion
the
sequence
and
of
events.
By December 15, 1985, 53 of the
had returned their forms.
no
IJVs
in
the
Fortune
United
States.
participate in the study.
firms,
65
had
returned
indicated they had no IJVs in
refused to
Seven
participate.
their
the
Two
refused
Of
United
States.
Twenty
of
States.
eight
IJVs
Twenty-five
the
JV
Thirty
to participate and had a total of twenty-eight
United
to
from
the
forms.
listed
located outside the United States.
the
list
Only one of the returns
this group was useable (1/53=.018 percent).
list
500
Forty-four indicated they had
Ten
all
agreed
IJVs
in
questionnaires
returned by this group were usable.
TABLE 4.1
PATTERN OF RESPONSES TO QUESTIONNAIRES
NONE REFUSED AGREED TOTAL
JV LIST MAILINGS
First
30
10
Second
29
5
25
14
65
48
TOTALS
USABLE
IJVS
20
19
28
20
59
15
39
113
48
39
F 500 (210)
First
44
7
2
53
2
1
22
29
156
50
40
GRAND
TOTALS
103
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
For the second mass mailing on January 6, 1986,
was decided to send
follow-up
letters
(see
it
appendix)
only to the 164 CEOs on the JV list that had not earlier
responded.
the
Twenty-nine indicated they had
United
States.
Five
refused
Fourteen agreed to participate and had
IJVs.
Again, the
mailing
of
the
no
to
IJVs
in
participate.
a
total
of
questionnaires
20
was
followed by numerous phone calls urging early completion
and return of the questionnaire.
Forty
of
the
fifty
questionnaires returned were usable.
The
fact
that
59
firms
on
the
compiled
indicated they had no IJVs may be explained by a
list
number
of factors :
t Some of the sources used
did
not
indicate
the
location of some of the IJVs.
*
Some
of
the
listed
IJVs
turned
out
to
be
wholly-owned subsidiaries (WOS) and were never IJVs.
* A number of the
IJVs
had
been
bought
by
one
partner, sold or dissolved.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
C.
DATA ANALYSIS
The research model incorporates several
relationships.
The technique most
suited
dependence
to
this
Multiple Regression Analysis (Hair, Anderson,
Qrablowski, 1979).
Multiple regression
statistical technique that can
be
analysis
used
to
This was used
is
predict
single dependent variable from the knowledge of
more independent variables.
is
Tatham
to
two
&
a
a
or
estimate
the direct causal relationships between variables.
The
BMDP9R
statistical
package
was
determine the best subset of variables for
and cooperation variables
performance.
that
explain
variables on joint venture performance.
to
control
joint
venture
Two-way analysis of variance
used to estimate the combined effects of
used
the
(ANOVA)
the
was
mediating
In the interest
of parsimony, only the overall measure of joint
performance (IJVP) was used for the ANOVAs.
A
venture
detailed
presentation of the data analysis procedures is given in
the next chapter along with the results.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Chapter V
RESEARCH RESULTS: ANALYSIS AND INTERPRETATION
This chapter presents the results of the study and the
interpretations derived
from
the
analysis.
findings on the motivations for setting up
in the United States are
examined.
First,
joint
Next,
the
the
ventures
tests
of
hypotheses are presented.
A.
MOTIVATIONS FOR JOINT VENTURE
Table 5.1 indicates that business factors were
ranked
as the top three motivations for European and Japanese MNCs
setting up IJVs in the United
need to gain access into
overall with a mean of 6.24.
image
was
ranked
second
States.
U.S.
markets
The need to
with
a
mean
Specifically,
was
ranked
create
of
opportunity to diversify was ranked third with
the
first
a
local
5.08.
The
a
mean
of
4.89.
The
table
also
indicates
that
U.S.
government
regulations and attitudes (GRA) do impact the decisions
foreign MNCs to engage in IJVs in the United States.
is indicated by the moderately high means {3.42
and
of
This
3.39)
110
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and rankings (4th and 5th, respectively) of
existing
U.S.
government regulations and/or attitudes (GRA) and potential
GRA.
Additionally, the need to obtain
technology,
scale economies and match competitors were also
attain
moderately
important motivators.
MEANS AND RANKINGS OF MOTIVATION FOR JOINT VENTURE
VARIABLES FOR FOREIGN PARTNERS
OVERALL
MOTIVATION FOR IJV
MEAN
STANDARD
DEVIATION
GOVERNMENT FACTORS
1. EXISTING U.S. GRA
2 . POTENTIAL
GRA
3. GOVT. INCENTIVES
4. TARIFF BARRIERS
3.42
3.39
2.09
2.10
1.75
2.08
1.32
1.63
4
5
10
9
BUSINESS FACTORS
1. LOCAL IMAGE
2 . NEW MARKETS
3. PROTECT MARKET
4. MATCH COMPETITORS
5. RAW MATERIALS
6 . DIVERSIFICATION
7. TRANSPORTATION
8 . FOREIGN EXCHANGE
9. OBTAIN TECHNOLOGY
10. SCALE ECONOMIES
5.08
6.24
2.71
3.00
2.00
4.89
2.10
2.00
3.32
3.32
1.40
.82
1.65
1.74
1.33
2.06
1.58
1.63
2.06
2.00
2
1
8
7
11
3
9
11
6
6
RANKING
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Overall, the business factors were significantly
important motivators than the government factors.
more
The
"t"
test of differences between the two groups was. 12.64 at
39
(n-1) degrees of freedom.
These findings provide support for earlier findings by
Beamish
(1985)
importance
and
of
Killing
business
(1983)
and
on
the
government
relative
factors
in
the
motivations for setting up IJVs in the developed (DCs)
lesser
developed
support
earlier
researchers
findings
(Webley,
Franko, 1971)
establish
countries
that
IJVs
and
1974;
the
The
assertions
Negandhi
foreign
in
(LDCs).
MNCs
United
and
were
States
made
being
also
by
Baliga,
some
1980;
forced
because
government regulations and/or attitudes.
and
findings
of
to
U.S.
These findings
imply that business factors, or the need for resources, are
a mere powerful influence in the decision of foreign
to set
up
joint
ventures
governmental factors.
with
local
In the LDCs,
U.S.
however,
(La
Palorobara
and
Kolmanoff, 1961; Friedmann
Blank,
and
1979;
Beguin,
than
governmental
factors constitute the major motivations for the
of IJVs
firms
firms
formation
Friedmann
1971;
and
Tomlinson,
1970) .
Tests were also conducted to determine if
there
were
differences in the impacts of the motivational variables on
European and Japanese firms.
The "t"
tests
presented
in
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 5.2 indicate that the motivational
European and
Japanese
firms
variables
differently.
Japanese firms are more likely to have IJVs in
States as a result of existing and
GRA
and
potential
the
potential
regulations than are European firms.
existing
The
GRA
United
governmental
"t"
are
impact
Specifically,
tests
for
significant
at
alpha=G.10.
Furthermore, Japanese firms have
a
greater
need
to
develop a local image, or to be perceived as "locals", than
European
firms.
The
"t"
significant at alpha=0.05.
test
for
this
factor
was
This finding may be due to
similarity between the cultures of European
countries
the
and
the United States.
Japanese culture is much more different
than
of
the
culture
countries.
Also, in
the
the
United
United
States
and
States,
European
there
is
more
protectionist sentiment against the Japanese.
Lastly,
Japanese
firms
are
influenced
more
by
fluctuations in foreign exchange rates than European firms.
While the explanation
apparent, the
for
difference
this
may
strategies used by European and
finding
be
due
is
to
Japanese
the European firms keep their funds in
not
the
readily
financial
firms.
the
while the Japanese repatriate them either to
United
Japan
Perhaps
States
or
to
other countries.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
"T" TESTS OF MOTIVATION FOR JOINT VENTURE VARIABLES FOR
EUROPEAN AND JAPANESE FIRMS
EUROPEAN
FIRMS
JAPANESE
FIRMS
MOTIVATION FOR IJV
GOVERNMENT FACTORS
1. EXISTING US GRA
2. POTENTIAL
GRA
3. GOVT. INCENTIVES
4. TARIFF BARRIERS
•1.81»
1.60»
0.14
0.24
4.61
.17
2.50
3.00
1.72
4.72
1.72
1.44
3.39
3.44
5.50
6.30
2.90
3.00
2.25
5.05
2.45
2.50
3.25
3.20
■1.95»»
■0.73
0.00
■1.23
■0.49
•1.18
•1.49
•2.30»»
0.20
0.36
2.11
BUSINESS FACTORS
1. LOCAL IMAGE
2 . NEW MARKETS
3. PROTECT MARKET
4. MATCH COMPETITORS
5. RAW MATERIALS
6
DIVERSIFICATION
7. TRANSPORTATION
8 . FOREIGN EXCHANGE
9. OBTAIN TECHNOLOGY
10 . SCALE ECONOMIES
.
1.78
3.90
3 90
2.05
2.40
2.88
2.83
Significance Level:
»» - 0.05
»
- 0.10
Generally, the above findings are in line with current
American attitudes towards the
factors
like
trade
embargoes
Japanese
on
as
indicated
Japanese
cars
by
and
persistent charges of dumping goods in the United States.
Table
5.3
shows
that
possessed by foreign firms is
access
to
the
single
the
most
technology
important
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
motivation for U.S. firms that engage in IJVs with
firms in the United States.
for technology has
followed by
the
the
need
highest
to
foreign
The table shows that the
mean
attain
(5.84).
market
need
This
growth
increased scope of operations with a mean of 4.92
was
through
and
the
need to save time by pooling resources with a mean of 3.95.
This finding, when taken with the earlier finding that
access to the U.S. market and a local image are
motivations
for
Japanese
and
European
the
firms,
empirical support for the assertion by Rugman,
Booth (1985) that MNCs generally
have
FSA
major
provides
Lecraw
in
and
technology
while local firms contribute an understanding of the
local
environment.
This implies that foreign
MNCs
provide
local
firms
access to their technology in exchange for access into U.S.
markets, a local image, and the opportunity
to
diversify.
This, clearly, is contrary to the position taken by foreign
direct investment theorists who recommend the
of the firm-specific advantages possessed by
internalization,
preferably
through
preservation
MNCs
through
wholly-owned
subsidiaries (Magee, 1976; 1977; Dunning, 1977; 1979).
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 5.3
MEANS AND RANKINGS OF MOTIVATION FOR JOINT VENTURE
VARIABLES FOR U.S. FIRMS
MEAN
REDUCE RISK
FINANCING
ACQUIRE TECHNOLOGY
PRODUCTION EFFICIENCY
USE SLACK RESOURCES
EXTERNAL MARKETS
RAW MATERIALS
GROWTH
AVOID TAKEOVERS
PREFER COLLABORATION
SAVE TIME
3.76
2.78
5.84
3.00
2.05
2.89
1.97
4.92
1.47
2.18
3.95
STANDARD
DEVIATION
1.88
1.66
1.44
1.85
1.29
1.90
1.31
1.94
.78
1.34
1.94
4
7
1
5
9
6
10
2
11
Since IJVs do present opportunités for the dissipation
of M N C s FSA, perhaps an area for future research should be
the determination of strategies for preventing
or
slowing
down the rate of dissipation of firm-specific advantages in
IJVs.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
B.
TESTS OF HYPOTHESES
Hypothesis 1 :
The more superior one
power (EBP),
venture.
the
better
partner’s
the
relative
performance
of
bargaining
the
joint
That is, one would expect a positive relationship
between EBP and JVP.
Before
running
components
of
the
EBP
multiple
(Tables
5.4,
regressions
5.5,
and
with
the
5.6),
the
correlation matrix (see appendix) was first examined.
was
dropped
because
it
correlated
highly
with
MF13
other
variables.
Table 5.4
shows
that
the
r-squares
for
measures of performance range from .35 to .53.
F-ratio for the regression
significant.
models
are
not
This non-significance could
performance is a
function
of
variables
components of EBP examined here.
The
the
four
The overall
statistically
imply
that
IJV
other
than
the
non-significance
of
the F-ratios could also be due to the small sample size (40
IJVs)
used
in
this
study.
On
the
basis
of
the
non-significant F-ratios, hypothesis 3 was not supported.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 5.4
REGRESSION ANALYSIS— COMPONENTS OF RELATIVE BARGAINNING
POWER VS THE MEASURES OF PERFORMANCE
R-SQUARED
OVERALL F-RATIO
SIGNIFICANCE LEVEL
JVPFIN
.38
.82
.65
GRA
-0.308
PCOUNTRY
-0.254
RELSIZE
-0.192
MFl-PLANT
-0.093
MF2-TECHNOLOGY
-0.022
MF3-TECH. PERS.
-0.425
MF4-MGT.
0.256
MF5-BRANDS
-0.505
MF6-DISTRIBUTION
0.121
MF7-R&D
0.422
MF8-FINANCE
0.207
MF9-RAW MATERIALS 0.606**
MFIO-MKT. POSITION 0.016
MF11-PATENTS
0.129
MF12-LOCAL ID.
-0.215
MF14-GOOD IMAGE
-0.065
Note: 1.
2.
JVPNOFIN
.35
.72
.74
-0.305
-0.197
-0.002
-0.059
-0.137
-0.373
0.089
-0.577
0.115
0.465
0.327
0.621
0.022
0.113
-0.272
-0.068
JVPIND
.53
1.46
.20
IJVP
.39
.84
.63
0.001
-0.107
-0.281
-0.315
0.175
-0.239
0.241
-0.204
0.373
0.658***
-0.253
0.116
0.064
0.080
0.238
-0.324
-0.245
-0.209
-0.152
-0.142
-0.017
-0.382
0.206
-0.485
0.191
0.524*
0.147
0.521*
0.032
0.118
-0.133
-0.137
The coefficients are standardized betas.
MFl to MF14 are the components of RBP.
Significance Level
* **
.01
**
.05
*
.10
Table 5.5 summarizes
tests of hypotheses
4
the
through
empirical results
4c.
of
To maintain
focus, it is reiterated that relative bargaining power,
conceptualised
in
this
resources (MFl to MF14 in
study,
relates mainly
the
proper
to
as
the
Table 5.5) that the partners are
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
willing
to
contribute
to
the
IJV.
The
more
contributes, therefore, the higher its relative
a
firm
bargaining
TABLE 5.5
REGRESSION SUMMARY— RELATIVE BARGAINING POWER VS CRITERIA
FOR SELECTING PARTNERS
R-SQUARED
OVERALL F-RATIO
SIGNIFICANCE LEVEL
GRA
PCOUTRY
RELSIZE
MFl-PLANT
MF2-TECHNOLOGY
MF3-TECH. PERS.
MF4-MANAGEMENT
MF5-BRANDS
MF6-DISTRIBUTI0N
MF7-R&D
MF8-FINANCE
MF9-RAW MATERIALS
MFIO-MKT. POSITION
MF11-PATENTS
MF12-LOCAL ID.
MF14-GOOD IMAGE
JVBUS
.89
3.77
.03
0.369****
0.117***
-0.320***
0.372***
0.605***
-0.516***
-0.672****
0.255
0.422**
0.351**
-0.034
-0.077
0.058
-0.370***
0.552****
-0.218
URBUS
.67
1.85
.00
COMPRES
.45
3.47
.09
PASTASSO
.50
2.27
.00
0.158
0.130
-0.311
0.230
0.129
-0.253
0.571***
0.104
-0.625***
-0.190
-0.107
0.440**
0.524**
-0.361
-0.069
0.016
0.271
0.290
-0.232
0.023
0.744*
-0.403
0.649**
0.118
0.044
0.164
0.028
-0.150
0.771**
-0.404
0.236
-0.474
-0.230
-0.002
0.096
0.233
0.208
-0.449
-0.173
-0.541
-0.110
0.126
0.838*
0.359
0.102
0.077
-0.290
0.072
Note: The coefficients are standardized betas.
Significance
**** - .001
t*t
- .01
**
- .05
*
— .10
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 2:
The higher the relative bargaining power, the
more
a
firm would select a partner that is in the same business as
the IJV.
This
hypothesis wassupported
significant
regression
(Table
coefficients
adequately accounts for the selection of
IJV* s
business.
This
provides
5.5).
indicate
partners
empirical
or
RBP
in
the
support
internalization theory which asserts that MNCs
their FSAfor use in similar industries
The
that
for
internalize
operations
other countries (Magee, 1976; 1977; Dunning,
1977;
in
1979).
That is, high RBP or firm-specific advantages, leads to the
need to internalize those FSA in the same industry.
An examination of the signs of the
in
Table
account for
business.
5.5
the
The
indicates
the
selection
U.S.
firm
technology, (3) distribution
local identity.
personnel,
beta
particular
of
a
partner
that
IJV’s
R&D
(2)
and
(5)
The foreign partner supplies (1) technical
(2) management and (3) patents.
closer look indicates
the
the
plant,
(4)
While on the surface this may appear
plant,
in
supplies (1)
channels,
coefficients
resources
technology
that
the
coincidental,
U.S. firm
(hardware)
and
facilities within which the foreign partner’s
provides
the
a
the
research
patents
are
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
used by its technical personnel and management.
Obviously,
such a combination of resources provides opportunities
the U.S. firm to absorb
the
foreign
partner’s
for
technical
knowhow.
The most important
is
local
identity
resource supplied by the U.S. firm
(significant
at
alpha=0.001
Local image was also a very important
level).
motivational
factor
(significant at alpha=0.0005, Table 5.1) in the decision of
foreign firms to set up IJVs in the United Staates.
findings here also provide support
Rugman, et al. (1985) that MNCs
for
the
provide
These
assertion
by
technology
while
their local partners provide an understanding of the
local
environment.
Hypothesis 2a:
The higher the relative bargaining power, the
more
a
firm would select a partner in its own business.
This
hypothesis
findings here are also
smaller number of
was
supported
interesting.
resources involved.
is completely different from that noted
partner in the same business
as
the
(Table
5.5).
First,
there
The
is
for
IJV.
selection
The
US
supplies (1) management (MF4), (2) raw materials (MF9)
(3)
a strong market position
(MF1Û).
a
Second, the pattern
The foreign
of
firm
and
partner
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
provides access into foreign markets (MF6).
This and the earlier finding would indicate
separate strategies are involved
States.
in
IJVs
in
that
the
two
United
U.S. firms and their foreign partners appear to be
careful where both of them are in the
such cases, the range of resources
same
The U.S. firm provided the management,
and a strong market position.
the
if
was
such
raw
materials
United
access
was
In
limited.
The partner provided
into its distribution channels outside the
It is not clear, however,
business.
provided
access
States.
into
the
partner’s home country market.
Hypothesis 2b:
The higher a firm’s relative bargaining
the more it is able to select
partners
on
their complementary resources (COMPRES).
power
the
(RBP),
basis
of
Stated otherwise,
there is a positive relationship between RBP and COMPRES.
This
significant
alpha=0.10,
hypothesis
variables
was
were
supported
(1)
(2) management (MF4)
(Table
5.5).
technology
at
local markets (MFIO) at alpha=0.05.
alpha=0.05,
The beta
the more the U.S. firms
can
supply
This
(1)
at
and
(3)
coefficients
for all these variables are positive indicating a
relationship between RBP and COMPRES.
The
(MF2)
positive
implies
technology,
that
(2)
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
management, and (3) access to local markets, the more
they
would select partners with resources complementary to their
Hypothesis 2c:
Relative bargaining power is significantly related
the favorableness
of
the
past
association
between
to
the
partners.
This hypothesis was supported.
Table 5.5 above
that finance (MF8) has a positive sign and
at alpha=0.10.
This implies that U.S. firms
partners on the basis of the favorableness
association when the U.S. firm supplies the
is
would
of
shows
significant
select
their
past
financing
for
the IJV project.
Interestingly,
GRA,
RELSIZE
and
PCOUNTRY
were
significant for only the selection of a partner in the same
business as the IJV.
GRA and PCOUNTRY
significant at alpha=0.001 and 0.01
were
positive
repectively.
was significant at the alpha=0.01 but had a negative
These
results
imply
strategies for entering
that
foreign
the
U.S.
MNCs
market.
use
The
support internalization theory in that when GRA
MNCs internalized their FSA in IJVs in their
(market
integration).
Their
own
and
RELSIZE
sign.
specific
findings
was
high,
industry
country-attractiveness
and
size gave them superior bargaining power in these IJVs.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 3:
The higher the bargaining power of a firm, the
the level of relative equity ownership (RELEO)
it
higher
attains
in the IJV.
TABLE 5.6
REGRESSION SUMMARY— RELATIVE BARGAINING POWER VS EQUITY
OWNERSHIP, CONTROL AND COOPERATION
RELEO
R-SQUARED
.98
OVERALL F-RATIO
120.47
SIGNIFICANCE LEVEL
.00
GRA
PCOUTRY
RELSIZE
MFl-PLANT
MF2-TECHN0L0GY
MF3-TECH. PEES.
MF4-MANAGEMENT
MF5-BRANDS
MF6-DISTRIBUTI0N
MF7-R&D
MF8-FINANCE
MF9-RAW MATERIALS
MFIO-MKT. POSITION
MFl1-PATENTS
MF12-LOCAL ID.
MF14-GOOD IMAGE
-0.045
-0.025
0.993***
0.014
0.207
0.006
-0.020
-0.020
-0.055
0.013
0.017
0.011
0.004
0.021
-0.004
-0.005
MCU
.54
1.55
.17
0.051
0.100
0.155
-0.231
-0.378
0.319
-0.106
0.275
-0.408
-0.747***
0.134
-0.254
0.165
-0.110
-0.558**
0.143
MCP
.40
.88
.59
0.217
0.334
0.167
0.363
0.338
0.027
-0.417
0.489
0.076
-0.232
-0.399
-0.262
-0.080
-0.580*
-0.069
0.034
CO
.48
1.68
.13
-0.261
0.148
0.252
-0.150
0.157
-0.385
0.590**
0.014
-0.330
-0.057
0.415
-0.114
0.180
-0.205
-0.174
-0.165
Note: The coefficients are standardized betas.
Significance
* * * — .01
** - .05
*
-
.10
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
This hypothesis was supported
was significant at
the
0.01
(Table
level.
5.6).
The
coefficient leads tc the conclusion that higher
power results in a higher level of
equity
also
is
indicates
positively
attained.
that
related
large
to
the
size
level
RELSIZE
positive
beta
bargaining
ownership.
It
significantly
of
equity
and
ownership
This finding supports earlier findings by
Fagre
and Wells (1982) and Lecraw (1984).
Hypothesis 4:
The higher the relative bargaining power of the
the greater the level of
effective
control
it
firm,
exercises
over the operations of the joint venture.
This hypothesis was not supported for
both
firms and their foreign partners (Table 5.6).
F-ratio of 1.55 was only significant
This implies that the
at
the
between
0.17
RBP
U.S.
overall
level.
and
the
control actually exercised by partners over the IJV is
not
a simple one.
relationship
the
The
Parent control (MCU/MCP), in the context
this study, refers to the ACTUAL control exercised
partners, not the POTENTIAL control
they
could
by
of
the
exercise.
The resources brought forth to the IJV determine the extent
of potential control enjoyed by the contributor.
the actual control exercised may be a function
other variables.
Also,
the
partner
with
the
However,
of
several
potential
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
control may not
actually
exercise
the
control
(Wright,
(1977) .
This
control.
result
supports
Schaan’s
(1983)
findings
on
Control was exercised through other means such as
organizational
processes— (1)
visits,
influence over the partner, (4)
use
(2)
of
reports,
negative
(3)
control
(preventing decisions from being implemented).
Hypothesis 5:
The
higher
the
relative
bargaining
power
partner relative to that of the other partner,
the level of cooperation between them.
of
the
one
higher
That is, there is a
positive relationship between relative bargaining power and
cooperation.
As with control,
the
relationship
cooperation appears not to be a
The regression was only
simple
significant
between
one
at
the
and
5.6).
0.13
Perhaps the power and conflict concept of "power
not applicable in the case of IJVs.
RBP
(Table
level.
over"
is
That is, mere resource '
contributions would not ensure high levels
of
cooperation
in IJVs.
This is especially the case where cooperation
lack of disagreements over specific functions of
The
pursuit
of
competition all
"sub
provide
unit"
goals,
opportunities
goal
for
implies
the
IJV.
blocking
and
conflict
and
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
disagreements (Robey, 1982: Salâncik and Pfeffer, 1S77).
Hjrpothesis 6-9 relate to the four intervening variables and
their impact on IJV performance.
Hypothesis 6:
The greater the relatedness of the partner’s
to that of the joint venture,
the
greater
business
would
be
the
joint venture’s performance.
This hypothesis was not supported (Table
5.7).
This
implies that the same level of joint venture performance is
achievable in joint ventures that
are
either
related
or
unrelated to the partner’s business.
Hyppothesis 6a:
The greater the similarity of the
partners,
the
greater
would
be
businesses
the
joint
of
the
venture’s
performance.
This hypothesis was
different
measures
(Table 5.7).
of
supported
across
performance
used
the
this
However, the beta coefficients are
indicating that there is an
the
all
in
similarity
of
venture performance.
the
inverse
partners’
negative,
relationship
businesses
This would imply that joint
four
study
between
and
joint
ventures
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
with
partners
in
different
industries/businesses
achieve higher levels of performance.
due to
the
larger
base
different industries
joint venture.
of
This,
resources
that
would
perhaps,
is
parents
in
would be able to bring to bear on the
Also, parents
in
the
still competitors in spite of their
joint venture.
The need to
advantages and
future
same
business
collaborating
preserve
competitiveness
their
in
are
the
firm-specific
could,
therefore,
hamper the performance of the joint venture.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
EBGBBSSIOH SÜMMAEY TABLB--PAETHBE SBLBCTIOH CEITBEIA VS PBEFORMANCB
PBEPOEMANCB HBASUBB
JVPFIN
JVPNOFIN
JVPIND
IJVP
B-SQUABB
SIG. OF E-SQUABB
BETA
.0089
.5631
-0.1354
.0445
.1913
-0.2865
.0497
.1668
-0.2010
.0343
.2525
-0.1654
B-SeUAEB
SIG. OF B-SQUABB
BBTA
.0720
.0941
-0.4267»
.0709
.0969
-0.4001»
.0831
.0713
-0.2878»
.0854
.0673
-0.2888»
B-SQUABB
SIG. OP B-SQUABB
BBTA
.0286
.3130
0.2958
.0867
.0651
0.5030»
.0120
.5017
0.124!
.0411
.2097
0.2277
PASTASSO
B-SQUABB
SIG. OF B-SQUABB
BBTA
.0061
.6316
0.0732
.0128
.4870
O.lOCl
.0273
.3086
-0.0907
.0002
.9322
=0080
.0102
.5351
-0.0006
.0009
.8566
-0.0018
.0230
.3497
-0.0064
.0099
.5414
-0.0041
JVBUS
UBBOS
COBPBBS
BBLBO
E-SQUABB
SIG. OF B-SQUABB
BBTA
* significant at the .10 level.
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Hypothesis 6b:
The more the partners contribute complementary resources to
the joint venture, the higher would be the joint
venture’s
performance.
This
hypothesis
non-financial
5.7).
is
measure
supported
(JVPNOFIN)
for
of
only
performance
the
(Table
This finding supports one of the basic premises
setting up joint ventures— the desire
to
acquire
for
missing
factors from the partner (Killing, 1983; Beamish, 1985).
Hypothesis 6c:
The
more
partners,
favorable
the
the
higher
past
would
association
be
the
between
joint
the
venture’s
perf ormance.
This hypothesis is not supported for any of
performance measures (Table 5.7).
This
finding
the
Tomlinson’s (1970:36) finding that even where partners
been selected on the basis of favorable
that
was
a
less
important
past
selection
four
parallels
had
association,
factor
than
the
resource contributions the partners were able
to
make
to
the joint venture.
This
history,
by
itself, is
significant
performance.
not
a
implies
that
past
predictor
of
future
A normative guideline that emerges from
IJV
this
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
finding is that joint venture
partner
selection
must
be
based on the merits and prospects of the venture itself and
not on past association or history with partners.
Hypothesis 7:
Where
one
partner
holds
a
distinct
minority) equity ownership, the performance
majority
of
the
(or
joint
venture will be higher.
As
Table
5.7
indicates,
this
hypothesis
supported for any of the four performance
is
not
measures.
This
implies that there is no relationship between the level
equity
ownership
performance.
attained
and
the
joint
This finding is contrary to those of
(1383), and Beamish and Lane (1S82) who found a
relationship
between
equity
ownership
and
of
venture’s
Killing
"U-shaped"
performance.
This difference in findings may be due to the focus of
the
studies. This study focuses on U.S.-based IJVs between U.S.
firms and partners from Europe
the selection was limited to
sector.
and
those
Japan.
Additionally,
in
manufacturing
the
The Killing study used thirty-four joint
in DCs and two in LDCs while the
Beamish
and
ventures
Lane
study
focused on joint ventures in LDCs.
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Hypothesis 8:
Where control over a particular function or
of the joint venture is exercised by only
the
operation
U.S.
firm,
the
joint
the partner, or the joint venture’s management,
venture’s
elements of
performance
control
would
that
venture performance would
be
higher.
That
significantly
vary
for
is,
determine
the
U.S.
the
joint
firm,
the
partner and the joint venture’s management.
The significant R-squares (with p-values ranging
0.000 to 0.07) indicate that this hypothesis was
(Tables 5.8, 5.9 and 5.10).
from
supported
That is, a distinct allocation
of control with respect to the joint
venture’s
operations
enhances performance.
This is in line with Schaan’s (1983)
finding that partners
exercised
control
contexts or decisions rather than
overall
control.
A
more
one
detailed
within
partner
specific
exercising
examination
results reveals important differences in
the
of
elements
the
of
control that are significant for the U.S. firm, the partner
and the joint venture’s management.
The specific
of control that are important for each party are
elements
described
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SIGNIFICANT ELEMENTS OF CONTROL FOR U.S. FIRM
For the U.S. firm,
that
determine
the
significant
performance
are
control
(1)
factors
pricing,
(3) accounting procedures,
and imports.
All these four factors are significant across
all four measures of performance.
and
However,
(4)
(2)
organization,
the
exports
signs
the beta coefficients indicate an inverse relationship
pricing and organization, and a positive
accounting
procedures
and
exports
relationship
and
imports.
of
for
for
This
implies that the joint venture’s performance would
improve
if the U.S. firm exercises LESS control
pricing
over
the
and organizing functions of the joint venture and exercises
MORE control over the accounting procedures and exports and
imports.
Furthermore, for each measure
elements of control were
found
to
of
performance,
be
other
significant.
For
example, for the financial measure of performance (JVPFIN),
(1) product planning and (2) purchasing
The signs of the
relationship
for
beta
coefficients
product
relationship for purchasing.
were
significant.
indicate
planning
and
a
positive
an
inverse
For the non-financial measure
of performance (JVPNOFIN), control over (1)
administration
and (2) supervision were significant with the signs of
the
beta
for
coefficients
indicating
inverse
relationships
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For both
(IJVP)
the
measures
industry
of
level
performance,
(JVPIND)
elements are (1) production planning,
and (3) wage and labor
policy.
and
additional
The
(2) costing
signs
overall
significant
of
methods,
the
beta
coefficients indicate positive relationships for production
planning _ id an inverse relationship
for
costing
methods
and wage and labor policy.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 5.8
SOHMâ B? TiBLE-CONTBOL VS PEBFOBHAHCE FOB U.S
PEBFOBHANCE HEASUBE
JVPFIN
ÜCPBICE
JVPNOFIN
-0.455»
(-1.96)
ÜCDIVID
UCOBG
UCPBOD
-0.782»*
(-2.58)
0.605*»
( 2.60)
-0.464»
(-2.00)
-0.257
(-0.257)
-0.622*
(-1.84)
0.331
( 1.43)
ÜCPPLAN
ÜCPUBCH
1.011**»
( 3.97)
-0.738**
(-2.33)
0.360
( 1.32)
0.573*
( 1.69)
-0.406****
(-2.76)
0.855****
( 4.64)
0 .744»»
(-3.30)
-1.021***
(-2.50)
0.773****
{ 3.51)
-1.502***
(-2.55)
(-2.55)
0.522***
( 2.66)
0.752**
( 2.40)
-0.453*
(-1.66)
0.878***
I 2.56)
1.117****
( 4.21)
1.069***
( 3.20)
.34
.024
.33
.051
.53
.000
.43
.015
UCHAGES
B-SQUABE
P-VALÜE
IJVP
-0.519»
(-2.40)
0.557***
( 2.98)
UCADHIN
ÜCBXIH
-0.400»
(-2.36)
-0.613»
( 2.41)
ÜCCOSTS
UCACCT
JVPIND
Note: T-values in parentheses.
«t: significant at
tt» significant at
tt significant at
» significant at
.001
.01
.05
.10
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SIGNIFICANT ELEMENTS OF CONTROL FOR PARTNER
For the
partner, the significant control
factors are
(1) pricing,
(2) budgetary control, and (3) training.
these
factors
three
are
measures of performance.
significant
However,
across
the
beta
All
all
four
coefficients
indicate a positive relationship for budgetary control
and
inverse relationships for pricing and training.
is,
joint venture performance
exercises
LESS
control
would
over
improve
the
if
That
the
pricing
and
functions of the joint venture and MORE
control
budgeting function.
level
performance
For
(JVPIND),
the
industry
additional
control
significant.
These are (1) purchasing,
policy,
administration
(3)
reporting procedures.
and
training
over
the
measure
of
factors
were
(2) wage and
labor
supervision,
The signs of the
partner
beta
and
(4)
coefficients
show a positive relationship for purchasing, wage and labor
policy,
and
reporting
procedures
and
an
inverse
relationship for administration and supervision.
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TABLE 5.9
EBGBBSSIOS SUSSAS! TASLB-COSTEOL VS PBEFOEKAHCB FOR FOEBIGN PAETNBE
PBEFOEHAKCB HEASUEB
JVPFIN
PCCAP
PCPEICB
PCDIVID
-0.186
(-1.32)
-0. 37 3 m
(-2.74)
-0.197
(-1.51)
PCPUECH
JVPNOFIN
-0.398»
(-2.40)
-0.358»
(-1.89)
0.288
( 1.39)
0.350»
( 2.17)
-0.320
(-1.451
0.915»»»»
( 3.52)
-0.309»
( 2.00)
-0.444
(-1.48)
-0.802»»»
(-2.95)
-0.454»»
(-2.05)
0.735»
( 2.45)
PCCOSTS
PCBÜDGBT
0.59im
( 3.42)
0.535»»»
{ 2.79}
-0.557»»
(-3.17)
-0.587»»»
1-3.10)
.42
.001
.28
.019
PCNAGBS
PCBÏEC
PCTBAIN
PCADMIN
PCEBPORÎ
E'SQUAEB
P-VALUB
JVPIND
.45
.014
IJVP
-0.444»»»
(-2.84)
-0.213
1-1.54)
0.242
( 1.54)
0.504»»»
( 3.35)
0.559»»»»
(-3.58)
.38
.005
Note: T'values in parentheses.
»«» significant at .001
ttt significant at .01
tt significant at .05
t significant at .10
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
SIGNIFICANT
ELEMENTS
OF
CONTROL
FOR
JOINT
VENTURE
MANAGEMENT
For the joint venture's
management,
the
significant
control elements that determine performance are (1) pricing
and
(2)
selection,
executives.
promotion
and
These control factors are
all the four measures of performance.
beta
coefficients
indicate
that
compensation
significant
The
there
signs
is
a
relationship between performance and both pricing
of
the
positive
and
selection, promotion and compensation of executives.
is, the joint venture's performance would
of
across
the
That
improve
if
the
joint venture's management exercises control over these two
functions.
For the financial
measure
of
performance
five other control elements are significant.
product planning,
(2)
control, (4) reporting
imports.
production
procedures,
planning,
and
(5)
(JVPFIN),
These are (1)
(3)
quality
exports
The signs of the beta coefficients indicate
the joint venture’s
venture management
performance
exercises
would
MORE
improve
control
over
if
and
that
joint
product
planning, reporting procedures and exports and imports
LESS control over production planning and quality
and
control.
For the non-performance measure (JVPNOFIN), purchasing
was
significant with an inverse relationship to performance.
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TABLE 5.10
BBGBESSION SUHHABY TABLE--COHTBOL VS PEBFOBHANCE FOB JOINT VSNTOBS HANAGEHENT
PEBFOBHANCE HEASUBE
JVPFIN
JCCAP
JCPBICB
JCPBOD
JCPPLAN
JCQUAL
0.255
( 1.39)
0.804m
( 2.82)
0.485
{ 1.92)
- D.712m
(-2.60)
-0.617»
(-2.01)
JCPUECH
JCEIEC
JCTBAIN
JCBEPOBT
iCEilB
0 .5 52 m
( 2.55)
0.347
( 1.56)
0.787»»
(-2.48)
0.424»
( 1.75)
B-SQUABE
P-VALUB
.44
.021
JVPNOFIN
0.198
( 1.23)
0.483»
( 2.19)
JVPIND
0.468»»»
( 2,58)
IJVP
0.217
( 1.43)
0.457»
( 2.28)
-0.259
(-1.43)
-0.415*
(-1.80)
0.347»
( 1.88)
0.534»»»»
( 3.82)
.22
.070
.34
.001
-0.287
(-1.32)
0.422»
( 2.42)
.30
.012
Note: T-values in parentheses.
significant
significant
significant
significant
at
at
at
at
.001
.01
.05
.10
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Collectively,
the
above
findings
indicate
important features about the roles of the parties
in joint ventures.
significant
tend
two
involved
First, the elements of control that are
to
differ
for
each
party.
Second,
pricing— the element of control that is significant for all
three
parties— reveals
responsibility.
an
important
That is, to improve
performance, control over the pricing
the
allocation
joint
function
should
exercised MORE by joint venture management and LESS by
U.S. firm and
the
partner.
Table
5.11
signficant control elements for the three
of
venture’s
be
the
summarizes
the
parties and
the
signs of the beta coefficients.
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MBBCTIOS OF SIGNS OF BBGBESSION COBFFICIBNTS-CONTBOL VS PEBFOBHANCE
PEBFOBHANCE HEASUBE
PBICINC
OBGANIZING
PRODUCTION
PBODUGTION
PLANNING
QUALITE
CONTROL
PURCHASING
COSTING
HETHODS
ACCOUNTING
BUDGETING
WAGES
ADHINISTBATION
ElECUTIVES
TRAINING
REPORTING
PROCEDURES
EXPORTS &
IHPOETS
JVPFIN
JVPNOFIN
JVPIND
IJVP
US PT JV
US PT JV
US PT JV
US PT JV
-
-
i
_
.
f
_
_
+
-
-
+
+ •
1. ÜS-US FIBK
2. PT--FOBEIGN PABTNEB
3. JV-JOINT VENT
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 9.
The
partners,
higher
the
the
level
higher
of
would
cooperation
be
the
between
joint
the
venture *s
performance.
This hypothesis was supported across all four measures
of performance (R-squares range
matching p-values
ranging
from
from
0.43
0.006
to
to
0.54
0.055)
with
(Table
5.12).
Specifically, the common (across all four
measures) significant dimensions
costing methods (2)
funds (financing).
reporting
of
performance
cooperation
procedures,
are
and
if
there
agreement between partners with respect to costing
and loan funds (financing).
for reporting procedures
reporting
venture performance.
However, the beta
is
negative,
procedures
would
of
the
control
function
that
decrease
This, perhaps, is due
to
the
joint
established
above).
formats.
an
joint
in
Another
reason could be the varying country reporting needs of
partners that would require different
is
methods
coefficient
implying
venture management’s need for autonomy (as
the analysis
loan
The signs of the beta coefficients show
that joint venture performance would improve
agreement on
(1)
(3)
A
the
single
format may, therefore, not serve their diverse needs.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
BEGBESSIOH SÜKMABÎ TÂBLE-COOPEBATION VS PEEPOEMANCE*lnl
PESFOBHANCE HEASUBE
JVPFIN
'
JVPNOFIN
ÏPBICE
ÏDIVID
lOBG
XPPLAN
ÏQUAL
0.343U
{ 2.04)
0.407*
( 1.70)
1.110****
( 3.71)
-1.592****
(-3.80)
Tims
XADHIN
XBEPOBT
XEXIH
ILOANS
R'SQDABE
P-VALUE
1.157***»
( 3.54)
-0.773***
(-3.08)
1.140***
( 3.51)
-0.339
(-1.34)
-1.599****
(-4.14)
0.725****
( 4.19)
0.416**
( 2.37)
.54
.009
0.776***
( 3.12)
-1.072***
(-2.66)
-0.491***
(-2.76)
-0.422**
(-1.99)
0.660***
( 3.39)
ÏFUBCH
ÏCOSTS
IJVP
0.206
( 1.37)
0.305
( 1.66)
0.448*
( 1.72)
1.002***
( 3.06)
-1.453
(-3.18)
MIG
XACCT
JVPIND
-0.410***
(-2.85)
1.041***
( 3.59)
ÏCAP
1.075***
( 3.00)
-0.643**
(-2.34)
0.937***
( 2.64)
-0.397
(-1.43)
-1.578**** -0.890****
(-3.73)
(-3.54)
0.673****
( 3.59)
0.414**
0.671***
( 3.21)
( 2.16)
.45
.055
.44
.006
1.013***
( 2.96)
-0.514**
(-2.35)
0.836***
(2.58)
-1.338****
(-3.55)
0.489***
( 3.07)
( 1.99)
.43
.026
NE: I-values for beta coefficients in parentheses
s « t significant at .001 ttt significant at .01
** significant at .05
* significant at .10
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For
the
measures
of
financial,
non-financial
performance,
cooperation are
four
significant.
planning, (2) quality control,
(4) wage and labor policy, and
The
signs
of
the
beta
relationship
for
policy,
exports
and
These
(3)
and
the
(i)
exports
procedures,
and
imports.
a
positive
show
planning,
imports,
of
production
accounting
(5)
overall
dimensions
are
coefficients
production
and
other
wage
and
and
an
labor
inverse
relationship for quality control and accounting procedures.
For the financial and non-f inancial
measures,
cooperation
along the dimension of organization is significant
positive sign.
cooperation
on
positive sign.
For the financial measure
dividend
policy
is
of
significant
Finally, for the industry-level
of performance, other
significant
with
a
performance,
cooperation
with
a
measure
dimensions
are (1) capital expenditure, (2) pricing, (3) marketing and
sales
and
(4)
purchasing.
The
signs
of
coefficients show a positive relationship for
inverse relationships for
capital
the
pricing
expenditure,
beta
and
marketing
and sales and purchasing.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
EXPLORATORY ANALYSIS
The third
set
of
hypotheses
exploratory parameters of
this
(10-13)
study.
examines
These
the
hypotheses
relate to the interrelationships among the four intervening
variables
and
how
these
inter-relationships
affect
performance.
Hypothesis 10;
IJVs
with
higher
resources (COMPRES) and
complementarity
lower
control
(MCU/MCP), that is, higher IJV autonomy,
those
with
lower
complementarity
of
by
in
contributed
both
partners
would
outperform
the
resources
contributed by partners and higher levels of control by the
partners.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 5.13
COMPLEMENTARY RESOURCES
HI
LO
MEAN=4.55
MEAN=4.45
SD=1.17
SD=1.10
HI
MANAGEMENT
N=8
N=17
PO
OT.
W
IK
W TXRfvVij
(U.S. FIRM)
MEAN=5.53
MEAN=3.21
SD=0.70
SD=2.22
LO
N=5
N=10
TABLE 5.14
COMPLEMENTARY RESOURCES
HI
LO
MEAN=4.66
MEAN=4.15
SD=0.86
SD=1.52
HI
MANAGEMENT
CONTROL
(PARTNER)
N=9
N=9
MEAN=5.26
MEAN=3.91
SD=1.31
SD=1.79
LO
N=6
N=16
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The hypothesis was supported for both the
and the foreign partners.
was
For this
U.S.
hypothesis,
Ho:cell 3 = cell 2 and Ha: cell 3 > cell
firms
the
test
2.
The
"t" calculated was 2.056 for the U.S. firm (Table 5.13) and
2.77 for the foreign partner (Table 5.14).
therefore,
rejected
significance
respectively.
with
at
20
alpha=0.05
and
14
and
The
degrees
This result implies that
null
0.01
the
was,
levels
of
of
freedom
provision
of
highly complementary resources by the partners, matched
by
a low level of parent control or IJV autonomy, would result
in higher ,UV performance.
Hypothesis 11:
IJVs formed by partners who have
had
associations and in which partners exercise
favorable
less
past
control,
that is, a more autonomous IJV, would outperform those with
partners who have had unfavorable past associations and
in
which the partners exercise higher levels of control.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 5.15
PAST ASSOCIATION
FAVORABLE
UNFAVORABLE
MEAN=4.21
MEAN=4.95
SD=1.04
SD=1.09
HI
MANAGEMENT
N=16
N=9
(U.S. FIRM)
MEAN=3.67
MEAN=3.63
SD=2.15
SB=1.87
LO
N=7
N=8
TABLE 5.16
PAST ASSOCIATION
FAVORABLE
UNFAVORABLE
MEAN=4.55
MEANS4.22
SD=1.06
SD=1.46
HI
MANAGEMENT
N=10
N=8
nI
nN
’
M T1 ’
priT.
W
ItVij
(PARTNER)
MEAN=3.66
MEAN=4.42
SD=1.60
SD=1.82
LO
N=13
N=9
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
This hypothesis was supported.
Ho: cell 3
was tested against Ha:cell 3 > cell 2.
was -1.55 for the
partner.
U.S. firm
The null
and
degrees of freedom for the US
alpha=0.05 for the
(Table 5.16).
1.78
was rejected at
partner
for the
(Table
19
cell
foreign
with
14
and
at
5.15)
degrees
2
calculated
alpha=0.10
firm
with
=
The "t"
of
freedom
This may imply that regardless of the nature
of the past relationship between partners,
levels of control
over important
it is
functional areas
current
that
would enhance IJV performance.
Hypothesis 12.
IJV’s
resources
with
and
higher
high
complementarity
levels
of
of
cooperation
outperform those with lower complementarity of
contributed
(CO)
would
contributed
resources and low levels of cooperation.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 5.17
COMPLEMENTARY RESOURCES
HI
LO
MEAN=5.18
MEAN=4.32
SD=1.16
SDzl.44
N=3
N=22
MEAN=4.35
MEAN=2.52
SD=0.89
SD=2.03
N=10
N=5
This hypothesis was supported (Table 5.17).
= cell 4 was tested against Ha:cell 1 > cell
calculated was 1.56 with six degrees of freedom.
was
rejected
at
alpha=0.10.
This
Ho:cell 1
4.
implies
The
"t"
The
null
that
the
contribution of highly complementary resources coupled with
higher levels of
cooperation
would
lead
to
higher
IJV
performance.
Hypothesis 12a:
IJVs in which partners have had more unfavorable
associations
and
higher
levels
of
cooperation
outperform those in which partners have had favorable
past
would
past
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
association and lower levels of cooperation.
TABLE 5.18
PAST ASSOCIATION
FAVORABLE
UNFAVORABLE
MEAN=4.51
MEAN=4.35
SD=0.84
SD=1.78
N=ll
N=14
MEAN=3.36
MEAN=4.19
SD=1.75
SD=0.19
N=12
N=3
This hypothesis was supported (Table 5.18).
2 = cell 3 was tested against Ha:cell 2 > cell 3.
Ho:
The
cell
"t"
calculated was 1.42 at 24 degrees of freedom.
This supports the earlier finding (hypothesis
the
relationship
performance.
between
past
association
Past relationships do not seem
the outcome of current operations.
This is
with
that
Tomlinson's
(1970)
finding
association between partners only impacted
conjunction
with
other
variables,
to
also
6c)
and
determine
in
favorable
performance
like
on
IJV
line
past
in
resource
contributions.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Hypothesis 13:
IJV’s with low levels of
high IJV autonomy, and high
partner
levels
outperform those with high levels of
control,
of
that
cooperation
partner
is,
would
control,
or
low IJV autonomy, and low levels of cooperation.
TABLE 5.19
COOPERATION
HI
. LO
MEAN=3.64
MEAN=3.65
SD=2.08
SD=1.94
HI
MANAGEMENT
CONTROL
(US FIRM)
N=7
N=8
MEAN=4.73
MEAN=3.84
SD=0.99
SD=1.17
LO
N=18
N=7
This hypothesis was supported for both the U.S.
and the foreign partners.
against Ha:cell 3 > cell 2.
Ho: cell 3 = cell 2
The "t"
calculated
was
was
with 24 degrees of freedom for the U.S. firm (Table
firms
tested
1.89
5.21),
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and 1.59 with 13 degrees of freedom for the foreign partner
(Table
5.22).
The
null
was,
therefore.
alphas0.05 and 0.10 respectively.
rejected
This implies
that
levels of cooperation between partners accompanied by
IJV autonomy (less parent control) would result
in
at
high
high
higher
IJV performance.
TABLE 5.20
COOPERATION
HI
MANAGEMENT
CONTROL
(PARTNER)
LO
MEAN=4.26
MEAN=3.20
SD=1.41
SD=2.25
N=16
N=S
MEAN=4.72
MEAN=4.09
SD=1.47
SD=0.90
N=9
N=9
The tests of hypotheses and findings
presented
above
are summarized in Table 5.21 below.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
TABLE 5.21
SÜHHAEY OP EESBABCH HYPOTHESES AND FINDINGS
QUEST
#
HYP
t
EHPIEIUAL EESULTS AND COMMENTS
Q2
IMPACT OF GBA ON
DECISION TO FOEM
IJV
EXISTING AND POTENTIAL
GEA DOMINANT. DIFFEEENTIAL IMPACT ON
EUEOPEAN AND JAPANESE MNCS.
Q2
IMPACT OF BUSINESS
FACTOES ON DECISION
TO FOEM IJV
NEW MABKETS, LOCAL IDENTITY
AND DIVEESIFICATION MOST
DOMINANT FACTOES.
TECHNOLOGY IS
STEONGEE THAN
OTHEE FACTOES FOB
U.S. FIEnS
SUPPOETED.
Q1
3/
1
EBP— -IJV
PEEFOEHANCE
24,25
NOT SUPPOETED. EELATIONSHIP BETWEEN
EBP AND IJV PEEFOEHANCE NOT A SIMPLE
ONE.
3,4
2
EBP. . . . JVBUS
SUPPOETED.
3,4
2A
EBP- - - - ÜEBUS
SUPPOETED.
3,4
2B
3,4
20
EBP- - - COMPEES
EBP- - - PASTASSO
SUPPOETED. POSITIVE EELATIONSHIP
EVIDENCED. MF2 (TECHNOLOGY), MF4
(MGT) i HFIO (STEONG MAEEET POSITION)
SIGNIFICANT.
MF8 (FINANCE) SIGNIFICANT.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
QUEST
I
B!î
t
SBSEABCB
PHENOMENON
3,13
3
EBP- - - SBLBO
3,22
4
EHPIBICAL RESULTS 1
SUPPORTED. POSITIVE EELATIONSHIP.
EELSIZB SIGNIPICANÎ.
EBP- - - BCU
EBP- - - HOP
NOT SUPPORTED.
HOT SUPPOETED.
NOTE: HCU + HCP + HCJ = CONSTANT.
NOT SUPPOETED.
3/
28,
31,32
5
EBP- - - CO
4/
24,25
5
JVBUS-- PEEP
NOT SUPPORTED.
4/
24,25
6A
UEBUS-- PEEP
SUPPORTED ACROSS ALL POUR MEASURES
OF PEEFOEHANCE.
4/
24,25
SB
4/
24,25
SC
PASTASSO—
PEEP
NOT SUPPOETED.
7
EELEO- - - - PEEP
NOT SUPPOETED.
8
HCU. . . . . PEEP
MCP. . . . . PEEP
SUPPOETED ACROSS ALL POÜE MEASURES.
SUPPOETED ACROSS ALL POUE MEASURES.
COMPEES— PEEP
SUPPOETED POE JVPNOFIN.
13/
24,25
22/
24,25
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
QUEST
BY?
t
}
SBSEABCB
PBENOMENON
28,31,
32/
9
CO- - - - - - PEEP
EMPIRICAL RESULTS AND COMMENTS
SUPPORTED ACROSS ALL FOUR MEASURES.
24,25
COMPEES I MCU/nCF
4/22
24,25
10
•
11
SIGNIFICANT INTEECELL DIFFERENCES.
212 CONTINGENCY
ANALYSIS
PASTASSO I MCU/MCP
SIGNIFICANT INTEECELL DIFFERENCES.
212 CONTINGENCY
ANALYSES
4/2Ô,
31,32/
COMPEES à CO
12
12A
28,31
32/22/
24,25
SIGNIFICANT INTEECELL DIFFERENCES.
212 CONTINGENCY
ANALYSIS
24,25
PASTASSO A CO
212 CONTINGENCY
ANALYSIS
SIGNIFICANT INTEECELL DIFFERENCES.
CO A MCU/MCP
13
SIGNIFICANT INTEECELL DIFFERENCES.
212 CONTINGENCY
ANALYSIS
GSA— Goyersaeat regulations and/or attitudes.
EBP— Relative bargaining power of partners.
JVBUS— Partner in sane business as IJV.
UEBUS— Partner in saae business as U.S. fir».
COMPEES— Coapieaentarity of resources supplied by partners.
PASTASSO— Past association between partners.
BELEO— Relative equity ownership.
MCU— Management control by U.S. firm.
MCP— Management control by foreign partner.
CO— Cooperation between partners.
PERF— Joint venture performance.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Chapter VI
CONCLUSIONS, IMPLICATIONS, LIMITATIONS OF THE STUDY AND
AREAS FOR FUTURE RESEARCH
The purpose of this chapter
is
to
summarize
the
research findings and describe the implications of these
findings.
Furthermore, the limitations of the study are
addressed and areas for further study
chapter
is
divided
into
four
delineated.
sections.
The
The
first
section summarizes the research findings
presented
the previous chapter.
discusses the
The second section
implications of the findings for researchers
managing
IJVs.
The
third
section
and
in
those
addresses
the
limitations of the study, and the fourth delineates
the
areas for further study.
A.
SUMMARY OF RESULTS
Several important
this study.
These are
empirical findings
presented in the
the hypotheses that were examined.
issues examined in this study,
for
out of
order
The presentation
the summary results will be centered
joint venture, bases
come
same
around
namely,
bargaining
the
of
major
motivation
and
as
outcomes
for
of
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
bargaining between partners, and bargaining outcomes and
joint venture performance.
The focus will be on
that emerge from the research
meaningful
for
findings
academicians,
that
issues
would
practitioners
be
and
government (lawmakers).
The first issue that the empirical findings provide
insights into involves the role of motivational
in the formation of IJVs.
factors
This research study
examined
the motivational factors from the perspectives
foreign partners and
that, from
the
US
firms.
standpoint
The
of
foreign
groups of factors provide significant
of
findings
partners,
for
the
These
are
(1)
government regulations and/or attitudes towards
for
two
impetus
formation of IJVs in the United States.
investment, and (2) the need
both
reveal
resources
foreign
or
assets
possessed by local firms.
Specifically, both
potential
and
regulations
attitudes
existing
government
stimulate the formation of IJVs in
and
the
United
States.
However, these factors are more significant for Japanese
firms than for European firms.
In order of importance, access
to
local
the need to develop a local image,
and
are
influences
the
decision
three
to
most
engage
Japanese firms.
The
significant
in
IJVs
findings
for
also
both
markets,
diversification
in
European
reveal
that:
the
and
(1)
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Japanese firms have a greater need to
develop
image, and (2) are affected by fluctuations
exchange rates to a greater extent than
a
in
local
foreign
their
European
counterparts.
For U.S. firms engaged in IJVs, the need to acquire
technology from the
importance.
foreign
partner
This was followed by
is
the
of
need
paramount
to
attain
market growth through increased scope of operations, and
the need to save
time
by
pooling
apparent from these findings
that
resources.
U.S.
foreign MNCs access into U.S. markets
It
firms
in
is
provide
exchange
for
access to the technology possessed by the MNCs.
Thus,
these
findings
extend
foreign
direct
investment (FBI) theory in an important way.
That is, a
structure dimension
explicitly
has
been
added
which
accounts for the form the FDI takes and the factors that
determine
such
structure.
The
structure were found to be host
and/or
attitudes
toward
inability of the MNC
operation due
to
the
to
determinants
government
foreign
engage
lack
operating in the host country
of
investment
in
a
of
FDI
regulations
and
the
self-sufficient
resources
needed
for
(M-Factors).
Since
the
same factors have been found to motivate MNCs
into IJVs in the LDCs, the implication is that
is a universal and viable form of business
to
the
enter
IJV
organization
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
rather than a means for exploiting markets in LDCs.
Also, the findings modify
need to
before
acquire
significant
internationalizing.
the
premise
that
firm-specific
MNCs
advantages
Additionally,
the
prime
motivations for IJV formation in the United States
have
been empirically identified to be government regulations
and/or
attitudes
development of a
(GRA),
local
access
image,
to
local
foreign
markets,
exchange
rate
fluctuations and technology.
Any integrated research framework should,
ideally,
include both structural as well as behavioral aspects in
order to realistically study organizational
situations.
The behavioral issues assume even greater importance
in
the study of IJV performance because JVs, by definition,
would
involve
negotiation,
important
in
multiple
parties.
bargaining,
at
studying
IJVs.
The
cetera,
The
therefore, focuses on the bases for
role
are,
of
therefore,
second
issue,
bargaining
between
partners and the outcomes of bargaining.
The
second
issue
provide insights into
that
the
relates
power and its outcomes for IJV.
two
categories.
First,
there
between RBP and IJV performance.
empirical
to
relative
This issue
is
The
the
findings
bargaining
falls
findings
that RBP does not significantly impact IJV
into
relationship
reveal
performance.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
This implies that the relationship between RBP
performance is not a direct
or
simple
one
factors intervene in this relationship.
Second
relationship between RBP and the outcomes of
between
relative
partners— criteria
equity
cooperation.
for
ownership,
and
and
is
the
bargaining
selecting
management
IJV
other
partner,
control,
and
The findings here appear to be mixed.
RBP is significantly and positively related to
four
criteria
for
selecting
partner:
of
partner in IJV’s business, selection of partner in
firm’s
business,
the
selection
complementarity
of
U.S.
resources
contributed to the IJV by partners, and past association
between
partners.
RBP
was
also
significantly and positively related
found
to
the
to
be
level
of
equity ownership attained in the IJV.
However, RBP was not significantly related
level of actual
managerial
partners or to the level of
control
cooperation
This would imply that the level of RBP
partner does not necessarily lead
possessed
to
the
partner
could
result of its RBP may not be the same as
control actually exercised in an IJV.
the
by
between
the
them.
by
exercise
managerial control over the IJV’s functions.
the potential control a
to
exercised
That
exercise
the
With
a
of
is,
as
a
level
of
respect
to
cooperation, the findings imply that the mere possession
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
of a more superior RBP would not grant one
power to "force" the other partner to
means that the notion of power
another
to
do
certain
enabling
things
as
partner
one
individuals
whereas in IJV
force
in
the
hold
in
This, perhaps, could be rationalized
by noting that the concept
pertains to
This
to
described
organizational theory (OT) literature does not
IJV relationships.
the
cooperate.
the
of
or
power
described
organizational
relationships
in
OT
sub-units,
examined
units of analysis are organizations and not
here,
the
individuals
or sub-units.
The third
determinism
(bargaining
broad
of
issue
the
outcomes)
involves
four
in
the
performance
intervening
variables
the
research
intervening variables (bargaining
four categories: (1) criteria
outcomes)
for
In
terms
management
of
the
The
fall
selecting
(2) relative equity ownership; (3)
and (4) cooperation.
model.
into
partners;
control;
criteria
for
selecting partners, the research findings indicate
that
selection of partners in the same business as
U.S.
the
firm significantly, but negatively, impacted performance
across
all
four
performance
measures
used.
The
complementarity of resources contributed by partners was
positively related only
(JVPNOFIN).
non-financial
measure
Finally, no relationship was found
to
the
between
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
as
the
IJV, (2) the past association between the partners,
(1) selection of a partner in the same business
and
IJV performance.
This implies that
would not automatically ensure
mere
future
past
success
success
in' IJV
relationships.
While past research examining IJVs in LDCs and
found
the
performance
enhancing
nature
equity ownership significant, this study
this to be significant for IJVs in
study
focused
solely
on
of
did
thisis
IJVs
U.S.-based
not
find
States.
due
to
studied.
IJVs
DCs
relative
the United
One could speculate that, perhaps,
characteristics of the sample
of
the
This
in
the
indicated
that
manufacturing industry (SIC 20-39).
The findings on management control
the U.S. firm, the foreign partner
exercise
control
along
and IJV
different
management
dimensions.
The
findings for each party are summarized according to
the
performance
the
measure
results show
procedures,
that
and
control over (1)
used.
more
(2)
For
the
control
exports
pricing
over
and
and,
U.S.
(1)
imports,
(2)
firm,
accounting
and
less
organization
were
related to higher performance across all
four
used.
control
over
purchasing
were
performance.
For
In
addition,
more
production
and
control
associated
with
less
higher
U.S.
firm
over
financial
measures
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
JVPNOFIN, less control over administration
of
was associated with
Furthermore,
higher
performance.
more control over production planning and
the
less
IJV
control
over (1) costing methods, and (2) wages were related
higher
industry-related
(JVPIND)
and
higher
to
overall
(IJVP) performance.
In the case of the foreign
partner,
the
show that more control over budgeting and
over (1) pricing,
higher
and
performance
addition,
(2)
training
across
all
industry-related
were
four
performance
findings
less
control
related
to
measures.
In
(JVPIND)
was
related to higher performance when the partner exercised
more control over (1) purchasing,
reporting
procedures
and
(2)
wages,
less
and
control
(3)
over
administration.
For IJV
management,
IJV
performance
across all four measures when IJV
more control over (1) pricing, and
(2)
the
promotion and compensation of executives.
JVPFIN was higher when
IJV
control over (1) production,
management
(2)
was
management
findings
planning,
on
the
and
(2)
exercised
reporting
quality
control-perf ormance
described here clearly indicate that
IJV
selection,
Additionally,
more
procedures,
and (3) exports and imports, and less control
production
higher
exercised
over
control.
(1)
The
relationships
partners
and
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
IJV management should exercise control only in
areas
in
order
to
enhance
IJV
selected
performance^
Such
clearly-defined areas of control for each
party
reduce the opportunity for goal
and
blocking
should
conflict
and lead to higher IJV performance.
For the fourth intervening
performance
was
higher
variable,
across
all
cooperation,
four
performance
measures when there was more agreement between
partners
over (1) costs, and (2) loan funds (financing), and less
agreement over reporting procedures.
performance
dividend
improved
policy,
with
(2)
control,
Also, for
agreement
organization,
planning, and (4) wages, and
quality
more
and
less
(2)
(3)
JVPNOFIN was higher when there was more
(1) organization,
(2) production
and (4) exports and imports.
For
and less agreement over (1)
marketing,
and
(3)
capital
purchasing.
performance was higher when
over
agreement
JVPIND,
(3)
over
wages,
performance
over
pricing,
expenditures,
Finally,
there
was
(1)
procedures.
planning,
was higher when there was more agreement
(1)
production
agreement
accounting
JVPFIN,
over
more
for
(2)
IJVP,
agreement
over (1) production planning, (2) wages, and (3) exports
and
imports,
and
less
agreement
over
(1)
quality
control, and (2) accounting procedures.
It
is
apparent
from
the
above
results
that
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
different dimensions of cooperation are to be managed in
order
to
improve
IJV
performance.
This
dimensions also varies with the type of IJV
set
of
performance
measure that is to be enhanced.
The final issue on which
empirical
made in this study relates to the
the
intervening
variables
findings
combined
on
IJV
effects
were
of
performance.
Contingency or situational analysis has
become
popular
in the study of organizational strategies.
For example,
2x2 matrices
formulation.
Using
this
emerge.
are
With
examined in
prominent
approach,
respect
this
in
strategy
several
to
study,
interesting
all
pairwise
significant
differences were evidenced.
For the
findings
combinations
inter-cell
2x2
IJVP
contingencies
examined, the contingency that would lead to the highest
IJV performance is described here.
Specifically, a high level
of
complementarity
in
the resources supplied to the IJV by the parents coupled
with low parent
control (i.e. IJV autonomy) resulted in
higher IJV performance relative to other
contingencies.
Secondly, the nature of the past association between the
partners was found not to affect
partners
granted
autonomy.
higher
the
Thirdly, IJV
when
there
was
IJV
performance
management
performance
high
was
when
the
operational
found
complementarity
to
in
be
the
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
resources supplied by partners
there
was
high
cooperation
Fourthly, high levels
collaborations
was
of
performance in spite of
the
IJV
to
lead
unfavorable
and
the
cooperation
found
between the partners.
to
between
in
to
past
where
partners.
current
IJV
higher
IJV
associations
Finally, high cooperation between
partners coupled with low parent control,
or
high
IJV
autonomy, was found to result in higher IJV performance.
The above results show that
certain
contingencies
or contexts lead to better IJV performance than
others.
Thus IJV relationships should be managed in such
a
that the contingencies or contexts that lead
better
to
way
IJV performance predominate.
B. IMPLICATIONS OF THE STUDY
As joint
ventures
proliferate,
the
better understanding of their functioning
imperative.
Research on joint
focused mainly on questions
ventures
of
ownership
need
thus
their
use
will
increase
in
the
has
control
ownership
It is apparent that
ventures are here to stay and all predictions
a
more
far
and
because partners are having to share not only
but decision-making as well.
for
becomes
are
foreseeable
joint
that
future
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(Harrigan, 1984; Killing, 1983; Gullander,
1976).
For
business organizations, the question of performance is a
critical one and for joint
ventures
it
is
even
more
critical since one partner may not have control over all
the important variables that determine performance.
IJVs
is
endless, and this study does not purport to provide
The
all
the
list
answers.
of
questions
However,
pertaining
it
does
to
provide
a
better
understanding of joint ventures and the determinants
of
their
an
performance
through
the
presentation
of
integrative framework embodying contextual
factors
the
among
indication
of
the
interconnections
and
these
factors.
The contributions of this
should be beneficial
to
governments (both state
study
academics,
and
are
national).
particular contributions to these
several
practitioners
groups
Some
are
of
and
and
the
detailed
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
FOR ACADEMICS/RESEARCHERS
* Theoretical Contribution:
- The research model presented in this study
provides an integrative framework linking
(1) the motivation for IJV, (2) bases for
bargaining between partner and bargaining
outcomes, and (3) the relationship
between
bargaining
outcomes
and
IJV
performance.
- FDI theory has been conceptually extended
by explicitly including a structure dimension
that accounts for the form FDI takes.
- This research identifies significant
prerequisite conditions that provide the
sufficient and necessary motivations for
IJV formation in the United States.
- In terms of IJV theory development and
testing, this study examines the bases,
outcomes and performance implications of
relative bargaining power.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The study adopts an integrative research
perspective that includes multiple
determinants cf performance.
* Methodological contribution:
- Earlier studies on IJVs were predominantly
done in the LDCs.
This study examines the
IJV phenomenon in the United States.
- This study uses contingency frameworks as
a methodological means to identify
contingencies or contexts that lead to
higher IJV performance.
- It provides operational procedures for
measuring the research constructs used
in this study.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
FOR PRACTITIONERS
In general, there are two
broad
contributions
to
practitioners :
- This study provides a better basis for
identifying the important variables that
contribute to joint venture performance
and indicates how to manipulate them for
better results.
- The study shows which IJV control elements
are to be emphasized and which are to be
deemphasized in order to enhance IJV
performance.
- The study indicates that cooperation is a
prerequisite for higher IJV performance,
rt also indicates which
elements of
cooperation need to be managed in order
to achieve higher IJV performance.
Specifically,
several
managerially
meaningful
assertions emerge from the research findings.
presented here in the form
of
normative
These are
prescriptions
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
that may be drawn from the
action.
study
to
guide
managerial
While the presentation of these ideas may sound
rather definitive, it is
conceded
being aimed at
"soft
1980)-i.e,
is
only
correct
on
the
here
that
what
determinism"
average,
substantial error occassionally.
It may
that the following is apt only for IJVs
but
subject
be
in
is
(Scherer,
to
reiterated
the
United
States.
- For increasing IJV performance, both
partners should provide it as much resources
(specifically, R&D, raw materials and
components) as possible.
- Three factors are predominantly affected
by RBP.
These are past history of
association, present contributions to both
equity and resources, and the degree of
agreement (lack of conflict) in current
IJV operations.
Since past history is not
a manipulable variable, partners with
unfavorable past association should
(1) increase their present contributions
and (2) refrain from interfering in the IJV’s
operations in order to make it successful.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
- Finally, the research findings show that
managing certain contingencies is a viable
means to increase IJV performnce.
Specifically, performance enhancing
contingencies are identified empirically
towards which managers may strive.
FOR GOVERNMENT
- This study identifies the role of existing
and potential government regulations and/or
attitudes as significant motivators for the
formation of IJVs.
This indicates
that, besides the tangible infrastructural
requirements, the intangible GRAs are
significant factors that
promote the
formation of IJVs in the United States.
This implies that the role of government
is very important, even though, unlike in
the LDCs, direct governmental involvement
in IJV formation is low.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
C. LIMITATIONS OF THE STUDY
Recognition of the limitations
of
this
study
is
important because it qualifies and tempers the findings,
and provides rationale for areas recommended for further
study.
The results of this study should
be
viewed
in
light of the following limitations:
1. IJVs in the United States represent only
sub-set
efforts.
of
possible
international
joint
a
small
venturing
Therefore, a replication of the study in other
national settings would enhance the generalizability
of
the findings of this study.
2. The dynamics involved in joint venturing
explored
in
evaluate the
this
study.
changing
A
nature
parties to the IJV over time
longitudinal
of
would
are
not
study
to
cooperation
be
between
desirable.
An
interesting outcome of such research efforts would be an
empirical documentation of a "cooperation lifecycle"
in
IJVs.
3. This study is based on the perceptions of the U.S.
partners.
It may be desirable, if resources permit,
elicit the perceptions of foreign partners and
the
to
IJV
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
managers to better understand the
IJV
phenomenon
from
the standpoint of these multiple stakeholders.
D. AREAS FOR FUTURE RESEARCH
Future research on IJVs can develop
dimensions.
here.
Two
several
recommended
The first approach would address the
limitations
so
as
approaches
along
are
of this study
general
to
develop
a
more
robust
self-corrected theory of the IJV phenomenon.
approach involves the
investigation
interesting ramifications of the
conscious effort to develop
a
of
IJV
more
and
The second
other
equally
phenomenon
in
comprehensive
a
and
cohesive body of knowledge about the IJV phenomenon.
On the basis
of
enumerated earlier,
the
the
limitations
first
expansion of the scope of this
replications
in
different
of
approach
study
through
countries
reinforce its generalizability.
Such
this
study
suggests
in
the
multiple
order
expansions
to
would
involve the incorporation of other relevant variables of
interest to
managers.
efforts would lead
with
to
action-oriented
Perhaps
an
such
integrated
implications
future
research
for
the
research
stream
better
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
management of IJVs.
The second approach is more speculative in that
provides for an unfettered journey of the mind into
possible ramifications of this study.
Several of
it
the
these
are listed below.
1. Is there a "country" effect on the IJV phenomenon?
That is, do IJVs in LDCs differ from IJVs in developed
countries?
If yes, how do
themselves in the actual
these
contributions made by partners?
a
need
for
the
differences
management
examination
of
the
differences in production functions.
of
along
analysis
comparative
manifest
IJVs
and
the
Specifically, there
be to determine the level
which
of
The objective will
technological
between and within industries and
is
international
can
across
complexity
be
undertaken
international
boundaries.
2. The stakeholder approach, involving all parties in
an IJV,
would
phenomenon.
enrich
the
understanding
of
the
IJV
This would bring to the surface conflicting
goals and objectives and how they are managed in IJVs.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
3. Just
as
prerequisite
the
research
conditions
stream
that
innovation and entrepreneurship,
issue of prerequisite
explored
would
be
one
to
explore
the
may
infrastructural
certain
conducive
motivators
that
would promote the formation of IJVs.
4.
The
inducements
and
contributions
Barnard (1938) may also be explored
as
theory
an
of
interesting
research stream in IJVs to identify the inducements
and
contributions of the parties involved.
5.
The
tradeoff
economies of scope
theme.
That
is,
between
would
should
be
economies
an
MNCs
of
scale
interesting
grow
through
and
research
size
or
through variety?
6 . Is there an IJV lifecycle just
product lifecycle?
like
the
That is, are IJVs enduring
that are infused with newer and
newer
popular
entities
technologies
as
older technologies become obsolete?
7. Globalization is
an
intensifying
1980s (e.g,: the auto industry).
trend
in
the
What role do IJVs play
in the internationalization (global networking) of major
industries.
What factors induce the location
of
nodes
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
in such global networks?
That is, what
determines
location
activity
what
of
production
and
the
are
the
consequences of such a trend at the societal level
(for
example, "the hollowing of America"
as
articulated
by
Morita. Chairman of Sony, in 1986).
8 . Do IJVs reduce or enhance competition?
Are
they
implicit mechanisms of collusion among incumbents in
an
industry?
9. Certainly all IJVs are not homogeneous.
could focus on
a
classification
scheme
develop a conceptual taxonomy which may
A
for
be
study
IJVs
to
empirically
validated subsequently.
10, Joint venturing is a phenomenon that
various levels
of
international joint
analysis.
This
ventures.
cuts
research
However,
domestic
(e.g. IBM and NYNEX) are also quite prominent
business enterprise.
Thus, the
JV
levels
of
JVs
forms
of
may
be
done
in
phenomenon
studied not only at each level of analysis, as
this study, but also across
across
examined
analysis
in
a
comparative mode.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
11.
Since
IJVs
present
opportunities
dissipation of firm-specific advantages (FSA)
by partner firms, it would be insightful
strategies partners use to prevent, or
for
the
possessed
to
study
the
slow
down,
the
study
would
(1)
dissipation of their FSA.
Finally, it is hoped
that
this
provide impetus to further research on IJVs, (2) lead to
a closer examination
of
management option for both
IJVs
as
a
national
viable
and
strategic
multinational
firms, and (3) assist in the accumulation of a knowledge
base on the joint venture phenomenon.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
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190
Division of Research and Development
College of Business Administration
Lo
u i s i a n a S t a t e U n i v e r s i t y and agricultural and mechanical college
BATON ROUGE • LOUISIANA • 70803-6318
M388-6640
October 22, 1985
Your assistance is required in a study of international joint
ventures in the United States between firms such as yours and
foreign partners.
Please indicate on the attached form the number of joint ventures
in which you are engaged in the United States with foreign
partners and the name(s) of the executive(s) in your company to
whom questions
relating
to the
joint
ventures
should
be
addressed.
Please return the form in the enclosed envelope. The executive(s)
you list will receive a questionnaire shortly after you have
returned the form.
Thank you for your cooperation.
Sincerely,
Winston Awadzi
Project Director
Ben L. Kedia
Faculty Advisor
WA:BLK;nf
Enclosures
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Name of Joint venture
Executive In Your Firm To Contact
for Information on Joint Venture
Please check here if you have no joint ventures in the U.S.
with foreign partners.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Small Business Development Center
3139 CEBA
Lo
u is ia n a
St a t e U
n iv e r s it y
BATON ROUGE • LOUISIANA • 70803-633?
and agricultural and mechanical college
Tfu / 3SS-<W<!0
January 2, 1986
Dear Mr.
Perhaps my earlier letter soliciting your help with our study of
international joint ventures in the United States was overlooked
in your hectic year-end activities. I am renewing my request
since your help is indispensable to our study.
The study is an
attempt to catalog the experiences of US firms like yours with
joint ventures operating in the US and involving foreign partners
in an effort to (1) gain a better understanding of these joint
ventures
and
(2)
develop
new
management
strategies
for
structuring and operating such joint ventures.
Please indicate on the attached form the joint ventures you are
(or have been) engaged in in the United States with foreign
partners and the name of the executive(s) in your company to whom
questions relating to the joint ventures should be addressed.
Please return the form in the enclosed envelope. The executive(s)
you list will receive a questionnaire shortly after you have
returned the form.
Thank you for your cooperation.
Sincerely,
Winston Awadzi
Project Director
Ben L. Kedia
Faculty Advisor
WA:BLK:nf
Enclosures
Sponsored by: State of Louisiana
Louisiana Small Business Development Center
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Small Business Development Center
3139 CEEA
Lo
u is ia n a
Sta te U
n iv e r s it y
BATON ROUGE • LOUISIANA • 70803-6337
and agricultural and mechanicalcollege
504,388-8480
February 5, 1986
Dear Mr.
Mr.
President of
has consented to
take part in our study of intematioinal joint ventures operating
in the United States and has directed that the enclosed
questionnaire be sent to you for completion for your joint
venture,
. Please fill it out
completely and return it as soon as possible in the enclosed
envelope.
The questionnaire was designed to take as little of your time as
possible and require mainly that you check or circle items. All
information provided will be kept in strict confidence.
I shall be glad to send you a copy of the Executive Summary of
this study. Just indicate in the appropriate section at the end
of the questionnaire that you would like a copy.
Thanks again for your cooperation.
Yours Sincerely,
Winston Awadzi
Project Director
Ben L. Kedia
Faculty Advisor
Sponsored by; State of Louisiana
Louisiana Small Business Development Center
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Small Business Development Center
3139 CEBA
Lo u i S i A N A S t a t e U n i v e r s i t y and agriculturaland mechanical coluce
BATON ROUGE • LOUISIANA • 70803^3?
5W/3SS-S4SÜ
February 5, 1986
Dear Mr.
Your company's willingness to participate in our study of
intematioinal joint ventures operating in the United States is
greatly appreciated. Enclosed is the questionnaire to be filled
out for your joint venture,
• Please
fill it out completely and return it as soon as possible in the
enclosed envelope.
The questionnaire was designed to take as little of your time as
possible and require mainly that you check or circle items. All
information provided will be kept in strict confidence.
I shall be glad to send you a copy of the Executive Summary of
this study. Just indicate in the appropriate section at the end
of the questionnaire that you would like a copy.
Thanks again for your cooperation.
Yours Sincerely,
Winston Awadzi
Project Director
Ben L. Kedia
Faculty Advisor
Sponsored by; State of Louisiana
Louisiana Small Business Development Center
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
T1
Small Business Development Center
3139 CEEA
Lo
u i s i a n a S t a t e U n i v e r s i t y amd agricultural and mechanical college
BATON ROUGE • LOUISIANA • 70803-633?
March 27, 1986
Dear Mr.
Enclosed is a copy of the questionnaire we talked about this
afternoon.
Please fill it out completely and return it as soon
as possible in the enclosed envelope.
The questionnaire was designed to take as little of your time as
possible, requiring mainly that you check or circle items. All
information provided will be kept in strict confidence.
I shall be glad to send you a copy of the Executive Summary of
the results. Just indicate in the appropriate section at the end
of the questionnaire that you would like a copy.
Thanks for your cooperation.
Yours Sincerely
Winston Awadzi
Project Director
Sponsored by: State of Louisiana
Louisiana Small Business Development Center
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Executive Oueetlonnmire
EXPÉRIENCES OF US MANAGERS KITH INTERNATIONAL JOINT VENTURES
IN THE UNITED STATES
Winston Awadzi
Project Director
(504) 388-6645
Dr. Ben L. Kedia
Faculty Advisor
(504)388-6645
College of Business Administration
Louisiana State University
Baton Rouge, LA 70803
November, 1985
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
k To fflTMd rli* by luring « prtiwrj
7
k. Wttnr accMf to Tlnandol «onrcif tHrnugk a partavi
7
E. To ootun tadmology troo pirtoari
7
I. To ittiin/incrotM cort tfficiincy througk joint yoductioo:
7
I. (IM of (lack rnourcM idthin your flri (laclwdlmg Htntt/liCMWoli 7
r. kccttt to titrai cbannolB of diitriiaitioo ttragli a partaor:
7
). flbtain rat Htarlilt and Inttraadiarltii
7
t. attain Birkit groitk tkroagh inataitd acopa of cparatiimi
7
t. «told takaovar ty otnar firaai
7
Prafar collaboration imtaad of coapatitioo rith partnari
7
I.
Sa*a tita by pooling rsioareaf uitk a partaari
7
2.
To tnj) KIOUME, hot japortant tara Uia foliating in you- MRTIER’S deciaioa to aat up tidi joint nnture?
I. Eiiiting ikiitad Statu govirnaant ragulationa/attitudaai
I. Potantial Unitad Stitaa goramaant ragulatiam/attitudasi
teCMS to loam fundf/capital/prafarantial traataeat
I. To attaoliib "local• imagti
». Otralop nat aarkets:
F.
Futura protection of aiiiting aarkati
Mattb co^atitors!
I. Obtain rss aatarialsi
t. Saographlcal oivaraificationi
j. Ovarcoae tariff barritrii
I. Reduca transpxUtion conta»
I. fortign Rctiangt fluctuation»
1 To obtain tachnology froi you- firai
u To attain/inraa* coat affidancy thrcugb joint prodistieai
I. Otnar raaiooa (plaaaa apacify)---------------- ;—
.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
3.
Ulocitt 100 minis bibMii yott and raur prtair IPWff) to iadiuti tkt RBATIVE ntmt to tdiich wdl CONIRIBUIED the
resoircti lilted bolec. (For cnaple, FMMCEi W-75; PMinO*21| IOTM.-100). Indlcets the IMPIKTMT RLE cedi factor
playM In the EELECTIiW of your partmr by CÜSUNE ONE nueber.
a.
Memt/tacilitwi:
b.
Technology (including patentili
e.
Technical (wnomeli
a. Eitabliihed braMit
f.
Chanmeli of diitributiooi
i. hateriUs/coaponentii
j. Strong airket poiitim:
k. Patents/licencssi
1. Capacity ta proride local identity:
a. Bovemeent relaticni:
0.
Other: (Pleast cpecify)
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
i.
PlHsi IIROE (ME OMbtr to iMÜate tht IiratTMCE ef tu, folW ot i* saKTIIC TOUT prtMr.
iipartMit
itrartint
In sane line of business as proposed JV:
In sane line of business as you*
7
6
5
4
3
2
1
Resovces/facilities cnepleeentery to these of your fire:
7
6
5
4
3
2
1
nationality of partner:
7
6
5
4
3
2
1
Favorable past assodatien (ex. agent, licensee):
7
6
5
4
3
2
1
Stnerai soundness of partner:
7
6
5
4
3
2
1
Other reasons* (Please specify)
7
6
5
4
3
2
1
Site of partner:
»o Mdi ti» first #proKA or swRaüon rogaiisg * i¥ and ii wwt ytar?
a. tour coipanyï________
k. Y#ar:_
1.
b. Y#ir:__
tour Partnart______
a. Son other party: (please specify)____________
, tkm aany years had you tnoM y«r partner BEFORE the JV was fcreed?
______ Years.
, Hut mas the nature of this prior knooiodqe («. cuftooar, supplier etc.)____________________________
, ttM long ad you negotiate with your partner BEFORE tiM JV was fcreed? Please CIROE one Use period below.
a.
Less than 1 year: b. 1-2 yrsi
c. 2-Î yrsi
d. 3-4 yrw
t. 4-5 yrs:
, Mrs the negotiations longer/shorter then, or noreel for your fire? a. longer:
). were other potential partners available?
II.
a. Yes:
b. Me:
f. S-6 yrst
k. Horaali
|. 6+ yrs:
c. Shorter:
If Yes, how many?_______
To «hat extent oid you negotiate with the other potential partners?
7
Yes
6
5
4
3
Reyte
2
1
le
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
13. swt li ti» WESBff distribution of equity ountrrtlp lo tin JV7
«.Your coupooyi
% b. hrtRun
%
14. OMt «M tiw equity Oistrloutlco Aon tie JV first started?
«. Your couposyi
% u. rortoon
%
15. ttwt is vaut cespsny’s MBEMIED level of equity ouRershlp Is « iV? Pleese CKSX 9 ^ btlou.
«. uiîii
8 UCAL porter;lujorityi Gqusli
Hnorltyi
Ho prefroocot
0. 01th
« FOREIGN portnuriMsjoityiEquili
Hlnorltyi
Ho preferoocu:
16. Hou IMPORTANT Is «iiorlty equity omrsMlp Is « JV to yor coopony?
17. Mease UKK t/the SERVICES tht bive been CONTRACTED tdtb tbs JV either by your coopany or your partner.
Also UC(X M the basis of COMPENSATION for each contracted service.
MSIS OF COMPENSATION
ODER
Manaqesentt
Ucenses/patentsi
Technical assistance:
Distribution, «rketingi
Contract eantrfacturci
Turnkey or settinj i*i
Sipply of oaterials/lnteroediatesi
Sovemeent relations:
Financing (loans)i
use of plant/facilities:
FuBlic relations:
Purchase of JV’s output:
Other: (please spKlfy)
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Ht ef ttd i mnONtm t n m lv t ti «t mch Itw l W»s?
CHIEF EXECUTIVE
arewsow
OTKR
kited State*,
Ptrtner'* hete caaitry,
Other foreiy nttiontlei
». To ohtt Binr ooMtteW *p#xl « MOTTEN PGUCIES to gel<# It# dKlHon^ng? Circle OK nu*tr fir etch.
CIRCU UE Miast FORt
t. free your to^itnyi
». free pytoeri
net tt til
1
2
1
2
3
3
• little
4
4
5
5
4
6
trtenfinly
7
.
7
24. In t typiol tenth, HON onoi are moiyer# It the JV centecteV by oeut of teleohone, telex, letter or visit*?
ciRat UE amKR fdri
t. Itur C39pe>i
». Partner,
7
7
6
6
5
5
21. Etployinj the tetie tiloe, |letw DECK f/ HH CFTEN the JV «
TOYOFCOIWW
One*/
Prrdoction oetpeti
Sale# terectxtti
Production Kheduleii
t KPmr centtinlei the felloelm, liintticn.
TO rout FARnBt
2.
alloat* 100 MUNIS tatatn you, yo» yarti
to intieato too fSJtnVE EDENT to Miich
£AOi tiirutH imrmi ov*r th* liNtW fumctian#. (El. m C I A YOMO, MR)-20t JV-N; TOT«l«lO0>. OBX IV)
(you, pirtixr or JV) ElfUHS tte EXECUTIVE ii-dwrj* of EXOi TwcUn. M m IMIcato tk* IfflMTMBE e< «adi (m
EXERCISE (F CONTia
UPSRTAKK 8F «JCnS!! T5 ÏSK f:RI
UUiUIIVt WVUM k
OF EKK FUCTHM
■ iM nursi
TSU
PART.
(P19I6E QBX (/]
JV
Inportant
iMortiat
Capital npmaltorti
I
2
1
2
liportan
Priemgi
«YiariO polity:
Orgamiaatiom:
Product plaining:
Production plamlngi
5
4
5
4
7
4
5
6
7
Suality control:
Narkating aid tain:
Purthaiing:
Ccïüng Mtlndii
Budgetary Cdntrol:
Accounting pronduritt
Wag* and laPdr policy:
StliCtion, proaotiott and
coipensaclon of neoitim
Trainings
MMniotration and
tuptrviiioni
Ropxting prKCdurnt
Eiporti and iMorti:
Loan fund* (financing):
2J. a. Mat (wrcntagt o< Htcrlalf/intoratdiitM ooh It* JV get (row
k. knit porcntaqi of tto JV*i outgut ii nggllM tot
1. Too_
1. Teu__
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
24.
For tht tin t sctlr UapcrUnct) CIKIB UE tita
tmi JV* PERFOtgwCE. For tht iteontf tctlt, (
on the liettd ftctor* «et year EffECTATlOIS.
i ISa TO WICH EXPECTSTIOe hET
tClROEDEFCREACHKASWE]
1
I
J
1
1
1
1
1
1
1
:
1
1
9. Acqtusitioo/u*e of p*t«nt*/Ucen*e»i
1
25 4 5 6 7 B 9
23 4 5 * 7 B 9
2 3 4 5 6 7 B 9
23 4 5 6 7 B 9
2 3 4 9 0 7 8 9
23 4 5 6 7 8 9
2 3 4 5 6 7 8 9
23 4 5 6 7 8 9
2 3 4 5 6 7 8 9
23 4 5 6 7 8 9
2 3 4 5 6 7 8 9
23 4 a 6 7 8 9
23 4 5 6 7 8 9
23 4 5 6 7 8 9 10
1 2 3 4 5 6 7 8 9
25.
W
JO
10
JO
10
10
10
10
10
10
i0
10
10
10
Mette rite the PERFORMANCE of thi* JV RELATIVE to iti COfETlTORS ilong the follotim; diaeniionsi
Return on tsset
Ssrtet share
Sales groath
26.
Do
you perceive the returns fro*
the
a. Your contributions?
Yes:______
No:_____
b. Your partner’s contributions?
Yes:______
No:_____
JV as beingequitablydistributed, i.e. is line aith:
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
M o»t*n la»
WSflaŒBBlTSatorrfi «ith yur pirtocr ovr
tht {ollwdng itM t? Plttit CHECK t/tht«
iJriy Rrtly Siatti..:
VryOft..
«»y:
Cwital nfineitBrit
fricing:
W«dtnB pollcyi
Orginizitioni
lYoauct plumngi
Prodwcticn plimtngi
Suaiity Esatroli
lUrtetiR* isi Hlesi
fte-oaiingi
Coiting Mthout
Buojiriinf control1
hctowtlDD procttfurni
Ha;t and Itoor policy:
StliCtion, promotion and
coiptnaation of encutivni
Trainingi
Miiniitration ma
wotndfiooj
RtporUng procidurtii
Export: and iepertii
loan aid: (financingli
Othiri (pltaw wtcify)
Reproduced with permission of the copyright owner^ Further reproduction prohibited without permission.
29. To Kilt UIEMT iMvo tn# tollodog bfti oiW dtMr Ir rw or |oir pirtMr? Mono K R
mver rarely R«ly
SUtUlH
tkt ippropriitt celum.
Often VaryOftu
Always
ChiUtngs ef eedsiSRst
veto power:
Nitholaini contributions to JV:
bithdrwfl of personmti from JV:
Eitrgency oofd meetings:
iittrtrtnct uitk JV's operations:
Negative sanctions:
fPftast discus)
It LEWLS of COOPERATION bft«Mn yoi M ytnr prtMr by plicing • CNER
in tht
Wry
Wgh
High
Average
Lou
Before the JV agreeaent:
During the early years:
Daring later years:
At present:
ji. Wilt If tht txiftimg Itnl of TRUST bttMKi you and yow pvtnr?
firy hijk
J2. Mould you Mdtrtiki anothir JV with your prnnt pirtnir?
Ttii
toi
«Kiritt
a. On you fnl tiit JW «ith foreign partners sro a satisfeAcry osans of doiiig buftnm in tht US? Ttti
PlNit nplain your anweri
'
■■
■"
■- ■ ■■■■■
-
nont
IHybti____
- -
Not
... .
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
J». «Ml» prorite t» fellBdnii
«. Toor cAirf orcdortii
t.
c.
SIC CMti___
cMtf prooactsi____________________________________
PirtMT’i ehiof iroductit
IK Cote;___
SIC Cote;___
& Portow'i HMt_______________________________________
SoUom#litn_
I. JV’i MMi
TMr <orood:_
i.
1. «Mtts ($ HUisa
«. Totol nuteor ôf jVt ysu «t onfifte Im
S. iüst » siUies;
loi lo tW tEi________
3. &A:
k. Oatilte tht !»;_
nWK TOU FOR Y M amMTIDN
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Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Winston Swashie Awadzi was born in Lagos,
on
February
Ghanaians.
9,
1941.
Both
of
his
Nigeria,
parents
were
When he was six years old, the family
moved
back to Ghana.
After graduating from the Accra
General Certificate of
Education
Academy
with
(Advanced
Level)
the
in
June, 1962, Winston taught at the Aquinas College and at
the Nungua Secondary School.
Agency as a Sub-Editor
1965.
on
He joined the
the
Ghana
Africa-Europe
News
Desk
in
In March, 1966, Winston was awarded a certificate
in Professional Journalism after completing a course
study with
the
African
Journalism
Institute
International Federal of Journalists based in
of
of
the
Brussels,
Belgium.
In December, 1968, Winston passed the
of the British Institute of
Public
and was awarded the Institute’s
Associate
In April, 1969, he joined the Ghana
London-based S.H. Benson
Account Executive.
the
Limited
banning
London,
Certificate.
subsidiary
International
Following
examinations
Relations,
of
as
the
an
of
foreign
firms from the public relations and advertising
sectors
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
213
of Ghana’s economy in 1971, Winston was invited
to
set
up an in-house Advertising Department for Benson’s major
client- the Pioneer Tobacco Company, a subsidiary of the
British-American
Tobacco
Group.
By
Winston had decided to leave his job
August,
with
the
1973,
Pioneer
Tobacco Company to pursue further studies in the
He arrived in the United States on a
day
in
1974,
and
enrolled
at
the
University for the Spring semester.
semester, he was sure he had made
cold
January
Louisiana
By the end
the
United
right
State
of
the
decision.
He went back home and brought his wife, Susie, and their
two children, Winston, Jr. and Jacqueline.
Winston graduated with a Bachelor of Science degree
in b'ârketîng in December, 1976.
He started the Master’s
degree program at LSU but transferred to the
of New Orleans (UNO) for the Fall of 1977.
University
He graduated
from UNO with a Master of Business Administration degree
in May, 1978 and a Master of Arts in Economics degree in
May 1979.
Winston joined the faculty of Xavier University
New Orleans
as
an
Instructor
in
August,
August, 1982, he started the Ph.D program at
part-time basis.
1979.
LSU
After a year of commuting, he
it would be better to
move
back
to
Baton
in
In
on
a
decided
Rouge
and
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
214
become a full-time student.
Winston was a Graduate
from
Teaching
Assistant
at
August, 1983 until June, 1986 when he was made
Instructor.
LSU
an
At present, he is an Assistant Professor at
Southern University in Baton Rouge.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
' DOCTORAL EXAMINATION AND DISSERTATION REPORT
W inston Kwashie Awadzi
Major Field:
Business A d m in is tr a tio n (Management)
Tide of Dissertation:
DETERMINANTS OF JOINT VENTURE PERFORMANCE: A STUDY OF
INTERNATIONAL JOINT VENTURES IN THE UNITED STATES
Approved:
r
Major Professor aVd Chairman
Dean of the^raduate*' Sc
E X A M IN IN G CO M M ITTE E :
ttcuA
_____________
Date of Examination:
March 18, 1987
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