Strategic Management Journal
Strat. Mgmt. J., 22: 1033–1053 (2001)
DOI: 10.1002/smj.195
COMPOSITIONAL GAPS AND DOWNWARD SPIRALS
IN INTERNATIONAL JOINT VENTURE MANAGEMENT
GROUPS
DONALD C. HAMBRICK,1 * JIATAO LI,2 KATHERINE XIN2 and ANNE S. TSUI2
1
Columbia Business School, Columbia University, New York, U.S.A.
Department of Management of Organizations, Hong Kong University of Science and
Technology, Clear Water Bay, Hong Kong
2
We argue that compositional gaps in international joint venture (IJV) management groups,
along parent company lines, will accentuate distinct managerial coalitions. Such gaps can
occur on dimensions of observable demography, less apparent demography, or psychological
characteristics. While compositional gaps in IJV management groups can provide the basis
for healthy substantive conflict, such gaps—particularly if they are large—also tend to induce
relationship conflict and heighten substantive conflict beyond its beneficial range. This can set
off a downward spiral of relationship conflict, substantive conflict, and behavioral disintegration
in the group. These harmful group processes further interact reciprocally with any tensions that
might exist between the IJV parents, engendering a second downward spiral. Our model has
implications for the performance of international joint ventures, and it serves as a foundation
for designing interventions to avoid the downward spirals we portray. Copyright  2001 John
Wiley & Sons, Ltd.
Major corporations are relying more than ever
on joint ventures for executing their international
strategies. A mounting trend since the 1970s,
the use of joint ventures allows companies to
rapidly and economically complement their own
resources with those of other firms. As one prominent observer put it, the rapid proliferation of
joint ventures represents an “explosion of cooperation” (Harrigan, 1988). In an international context,
such alliances can facilitate quick entry to new
geographic markets, access to specialized or lowwage labor, meshing of complementary technologies, learning from partners, and other advantages
of cross-border combinations (e.g., Barkema et al.,
1997; Contractor and Lorange, 1988; Hamel, 1991;
Inkpen and Beamish, 1997; Li and Shenkar, 1996).
Or so the logic goes. For, although some joint
ventures achieve their parents’ objectives, success
Key words: management groups; joint ventures; international organization
*Correspondence to: Donald C. Hambrick, Columbia Business
School, Columbia University, 711 Uris Hall, 3022 Broadway,
New York, NY 10067-6902, U.S.A.
Copyright  2001 John Wiley & Sons, Ltd.
is far from assured. Indeed, there is consistent
evidence that international joint ventures (IJVs)
have high failure rates (Chowdhurry, 1992; Harrigan, 1988; Hennart, Kim and Zeng, 1998; Park
and Ungson, 1997; Schaan, 1988; Yan, 1998). For
example, several empirical studies have shown
instability rates of close to 50% for IJVs (e.g.,
Bleeke and Ernst, 1991; Kogut, 1988, 1989). Other
studies question whether joint ventures add benefits to partners (Kent, 1991). Numerous vantages
have been taken to explain differing degrees of
success of international joint ventures (see Yan,
1998; Yan and Zeng, 1999; for reviews). For
instance, research has informed our understanding of differentials in IJV performance by examining partners’ strategic complementarities (Hill
and Hellriegel, 1994; Saxton, 1997), partners’
relative size and bargaining power (e.g., Harrigan, 1988; Park and Ungson, 1997; Yan and
Gray, 1994), partners’ experience with joint ventures (Barkema, et al., 1997), joint venture control
mechanisms (Geringer and Hebert, 1989; Yan and
Gray, 1994), and trust between partners (Sheppard
Received 15 june 1999
Final revision received 1 February 2001
1034
D. C. Hambrick et al.
and Tuchinsky, 1996; Walsh, Wang, and Xin,
1999).
Some research has contributed to our understanding of the relationships between conflict and
performance in IJVs and other partnerships. For
instance, Ding (1997) found that conflict significantly hindered joint venture performance. In contrast, Yan and Gray (2001) did not find a significant
relationship between perceived conflict between
joint venture partners and firm performance. Mohr
and Spekman (1994) found the “joint problem
solving conflict resolution technique” to be associated with positive firm performance. And Hebert
(1996) observed a positive relationship between
trust between IJV partners and performance, especially in partnerships where one partner held a
dominant position.
Missing in all prior research on international
joint ventures, however, has been any attention
to the composition and functioning of the management groups placed in charge of the ventures.
Yet, from an abundance of theory and empirical
research (summarized in Hambrick, 1994; Jackson,
1992), there is considerable evidence that management group composition and behaviors are of
great consequence to organizational outcomes. For
instance, management group composition has been
shown to affect organizational innovation (Bantel
and Jackson, 1989), strategic persistence (Finkelstein and Hambrick, 1990), competitive moves and
countermoves (Hambrick, Cho, and Chen, 1996),
and performance (Eisenhardt and Schoonhoven,
1990). The few studies that have examined management group processes reveal, as expected, that
senior group composition affects information processing, power and influence patterns, and other
elements of intra-group dynamics, which in turn
affect strategic choices and performance (e.g.,
O’Reilly, Snyder, and Boothe, 1993; Smith et al.,
1994).
Management group composition is expected to
have particularly great implications for international joint venture outcomes, because joint venture managers not only bring their individual experiences and biases to the group, but also typically represent their respective parents in an inherently conflict-laden exchange relationship (Newman, 1995). Moreover, in IJVs the managers are
almost always of differing nationalities—often
(but not necessarily) the nationalities of the parent firms’ headquarters. And, because of systemic
differences in the social and economic institutions
Copyright  2001 John Wiley & Sons, Ltd.
of their home countries, as well as differences in
the career patterns and cultures of their respective
parent firms, the managers may also differ on other
demographic dimensions, such as age and education, and also on psychological dimensions, such
as values and beliefs, further accentuating the gaps
between the managerial subgroups. As a result, in
IJVs, there are likely to be schismatic, factionalized perceptions and behaviors among top managers, with accompanying implications for business effectiveness.
In this paper, we provide a complementary, not
competing, perspective to the literature on IJVs by
exploring the implications of the composition of
an international joint venture management group
(IJVMG) for the group’s functioning and the IJV’s
performance. We integrate a set of ideas from
the literature on top management teams, small
group behavior, organizational demography, crosscultural behavior, and joint ventures. We start with
a descriptive section on the concept of an international joint venture management group. We then
develop a model of how IJVMG compositional
gaps, which occur along parent company lines,
influence group functioning and IJV effectiveness.
We argue that compositional gaps in the IJVMG
provide different skills and perspectives that may
lead to healthy substantive (or task) conflict. However, such compositional gaps also tend to reduce
identification with the whole team and lead to
relationship (or emotional) conflict. Relationship
conflict, in turn, may heighten substantive conflict beyond its beneficial range. This can set off
a downward spiral of relationship conflict, substantive conflict, and behavioral disintegration in
the group. These harmful group processes further
interact reciprocally with any tensions that might
exist between the IJV parents. That is, IJVMG conflict is both aggravated by and aggravates parent
tensions—a second downward spiral. Although
our paper deals specifically with IJVMGs, our central ideas and model are potentially applicable in
any group setting in which members are expressly
assigned as delegates from larger social entities
(e.g., merger integration teams).
INTERNATIONAL JOINT VENTURE
MANAGEMENT GROUPS: CONCEPTS
AND AN EXAMPLE
Very little research has examined managerial staffing and behaviors in international joint ventures.
Strat. Mgmt. J., 22: 1033–1053 (2001)
International Joint Venture Management Groups
The few existing works have focused primarily on
the general manager position. For instance, Schaan
and Beamish (1988) described the distinctive roles
and challenges of general managers of IJVs in
lesser-developed countries, and Shenkar and Zeira
(1992) studied the antecedents of role conflict and
role ambiguity for IJV general managers.
Our focus, instead, is on the top management
group responsible for the joint venture. Although
little attention has been paid to such groups
(Pearce, 1997, is an exception), it may be within
these social units that many issues of trust and conflict are manifested—phenomena which have been
the subject of considerable discussion by joint venture researchers (Koenig and Van Wijk, 1992; Ring
and Van de Ven, 1992). Moreover, the broader literature on managerial effects consistently indicates
that management group characteristics (including
composition and processes) explain much more
variance in organizational outcomes (e.g., strategies and performance) than do characteristics of
the individual top executive alone (summarized
in Finkelstein and Hambrick, 1996). We anticipate that IJV top management groups may have
extraordinary effects on the success and failure of
international joint ventures.
Properties of international joint venture
management groups
We define the joint venture management group as
the relatively small group of highest-ranking managers of the IJV. This group typically includes the
general manager, deputy general manager (if such
a position exists), and other managers who report
directly to these two positions (typically heads of
functional areas). This definition is in keeping with
how most researchers of top management groups
define such entities, and it is in line with how
CEOs tend to define their top groups (Hambrick,
1995). For IJVs, the top management group generally consists of five to ten individuals.
Control of management positions is a central
issue in IJV negotiations, and joint venture partners consistently seek to have “due representation”
in the management of the IJV (Koot, 1988; Lewis,
1990, Lorange and Roos, 1991). The general manager position is seen as most crucial. If a partner
has a dominant equity position or some other basis
of power (such as critical technology), it can usually secure this top position (Child and Yan, 1999).
Copyright  2001 John Wiley & Sons, Ltd.
1035
The parent who does not win the general manager position will argue strongly for other slots,
sometimes even proposing the creation of special
positions (such as deputy general manager or director of administration) as a way of obtaining the
desired level of representation in the management
of the IJV. There is a tendency for functional areas
to be headed by managers from whichever parent
has a comparative advantage in that domain. However, even these demarcations are not clear-cut. For
example, we have seen Chinese partners who insist
on heading up manufacturing that involves proprietary Western technology (as part of their own
learning efforts), and American partners who negotiate to head up marketing of consumer products
in China.
In order to warrant distinct analytic treatment,
IJVMGs must have special properties that render the literatures on top management teams and
small groups incomplete. In our view, the primary special property of significance is that many
IJVMGs are inherently coalitional, as joint venture managers also serve as “representatives” or
“delegates” of their respective parents. On the one
hand, the managers are expected to focus on the
IJV’s success. But, as an outgrowth of the inherent
strains in having two (or more) owners who may
have conflicting agendas, the JV managers are also
expected to protect their own parent’s interests and
ensure that their counterparts do not try to abuse
those interests (Child, Yan, and Lu, 1997; Mjoen
and Tallman, 1997; Schaan, 1988; Yan and Gray,
1994). This group condition, in which representative coalitions are highly salient, may commonly
occur in other contexts—for example, in mergers, when two subunits are combined, or when a
new CEO arrives from the outside with several
lieutenants—allowing our model to be applicable
beyond the joint venture setting.
Not all IJVMGs, however, have the coalitional
properties we describe. At a minimum, a group
would need to have representatives expressly
drawn from the two parents. Killing’s (1983)
typology of joint venture control structures, as
extended by Geringer and Hebert (1989), helps
us anticipate when this would be the case and,
hence, helps frame the scope of our primary interest. Two types of joint ventures generally would
not have managerial representatives drawn from
the two parents. The first is the “dominant parent”
JV, in which the venture is managed entirely by
one of the parents, with the other parent playing
Strat. Mgmt. J., 22: 1033–1053 (2001)
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D. C. Hambrick et al.
a more passive role (often supplying only capital).
The second type of JV falling outside our scope
is the “independent” JV, in which the JV general
manager is given considerable autonomy, including in managerial hiring; in many such cases, most
or all of the JV’s senior managers are hired externally, with no particular ties to the parents, and
hence, little potential to form coalitions along parent company lines.
The two remaining types comprise our analytic
scope. The “shared control” JV is one in which
both parents exercise a high degree of influence
over the venture’s full range of decisions; in such
a case, the parents tend to place their own delegates into as many managerial positions as they
can reasonably secure; and the parents are interested in, and feel dependent upon, the managers
in the positions filled by the other parent (Child
and Yan, 1999). The second type that lies within
our scope is the “split control” JV (introduced by
Geringer and Hebert, 1989). In this instance, both
parents are involved in the management of the JV,
but they agree to control distinct functional areas.
In this case, the IJVMG would consist largely of
managers drawn from the two parents, but the
two coalitions may structure their tasks so as to
have little interdependence with each other, and
hence relatively little occasion to interact. To a
great degree, the IJVMG might actually approximate two sub-groups, working in parallel, while
referring any conflicts to the JV general manager
for resolution. It can be expected, however, that
the two subgroups will have some dealings with
each other.
It is evident that shared control and split control
JVs differ in the degree of interdependence and
interaction between the management coalitions.
Any coalitional dynamics will be more intense
in the more interdependent shared control setting
than in the more parallel-functioning split control
setting. We will incorporate this contrast into the
model and propositions we develop, particularly
arguing that there is greater potential for coalitional conflict in shared control IJVs. Although the
evidence on the performance tendencies of different JV control types is mixed (see Geringer and
Hebert, 1989; Yan and Gray, 1994; Yan and Zeng,
1999; for reviews), to the extent that JVs involving
managers drawn from both parents encounter difficulties, it may be precisely because of the coalitional properties of the management groups and the
Copyright  2001 John Wiley & Sons, Ltd.
processes that are triggered (Killing, 1983; Mohr
and Spekman, 1994; Ding, 1997).
Two brief elaborations are useful for further
establishing the context of our argument. First, the
coalitional or representational nature of IJVMGs
is likely to be most pronounced at the early stage
of the IJV and may diminish over time. At the
outset, the partners are especially unsure of each
other, have no successes to reassure them, and tend
to appoint their own trusted managers to represent
them in running the new venture—often putting a
premium on the perceived loyalty of the managers
they designate. Over time, if the IJV lives beyond
its perilous first few years and achieves some
successes, the managerial staffing of the IJV can
change a great deal. It becomes more likely that the
IJV general manager will not be a career employee
of one of the parents (having risen through the
IJV itself or having been hired externally); and
the GM will be granted more leeway for hiring
other key managers, including from the outside.
Thus, with time and success, the IJV takes on
the characteristics of the “independent control”
JV (Killing, 1983), and the IJVMG becomes less
coalitional and more like other top management
groups. However, since only a minority of IJVs
survive beyond a few years (Kogut, 1989; Park
and Ungson, 1997), our conception of coalitional
IJVMGs is widely apt.
A second clarification is that, as legal entities,
IJVs have boards of directors that provide additional oversight, particularly over strategic issues,
such as use of any JV profits, reinvestment policy, and setting strategic priorities (Child and Yan,
1999; Yan and Gray, 1994, 1996). The boards typically consist primarily of representatives of the
partners, in proportion to their equity and nonequity contributions to the ventures (Child and
Yan, 1999). These boards are an important control
mechanism, and their composition and processes
(so far, largely unstudied) are potentially interesting in their own right. Indeed, the group processes
we will model may occur similarly at the level
of the IJV board. In order to maintain our analytic focus, however, we explicitly consider the
IJV management group, where operational issues
(such as sales and distribution policy, pricing, and
production planning) are resolved (Child and Yan,
1999). Such operational matters have been found
to be of major significance to JV performance
(Yan, 1993; Hebert, 1996; Yan, 1997). Eventual
Strat. Mgmt. J., 22: 1033–1053 (2001)
International Joint Venture Management Groups
extension of our model to IJV boards would seem
reasonable, even promising.
The role of boards still may bear on the IJVMG
processes we will discuss. In particular, we will
theorize about the effects of relationships between
the IJVMG and their parents; boards may be an
unspecified, but major, conduit by which these
relationships occur. Therefore, we will revisit IJV
boards briefly when we examine hypotheses relating to parent tensions.
An example
To simplify our conceptual analysis, we focus on
IJVs with two parents.1 In order to provide a frame
of reference, an illustration of an IJVMG is useful.
Although no standard group profile exists, the one
we will discuss has many characteristics in common with other IJVMGs we have observed. The
(disguised, but actual) IJV is Pharmex-Tianjin, a
newly created alliance between Pharmex, a large
U.S.—based pharmaceutical company, and the
government of Tianjin, China. The purpose of the
IJV was to produce anti-inflammatory drugs, a
specialty of Pharmex, at a greenfield plant in Tianjin, and to market the drugs throughout China.
Pharmex viewed the IJV as a way to increase their
global scope, in a rapidly expanding economy. The
Tianjin government was interested in creating new
outlets for their raw chemical production and in
learning about Western technology.
Executives in the two companies agreed at the
outset that the equity holdings would be 50-50.
However, the remaining negotiations were protracted (over three years) and tense. Debated issues
included the plant location, number of employees, benefits for employees, and Chinese access
to Pharmex technology. The deal almost unraveled over Pharmex’s resistance to sourcing chemical ingredients solely from a state-owned chemical
factory, due to concerns about ingredient purity.
The Tianjin officials were proud of their relatively new chemical plant and were offended by
Pharmex’s concerns. Nevertheless, they agreed to
allow a Pharmex technician to serve in a passive
quality assurance capacity at the chemical plant for
the first two years of the IJV.
Negotiations about initial managerial staffing
were also contentious. The Chinese partner argued
1
In some cases, IJVs have more than two parents (sometimes
including relatively passive minority partners). Extension of our
ideas to such cases could be considered in future research.
Copyright  2001 John Wiley & Sons, Ltd.
1037
that the general manager should be from its ranks,
because of complex external relations that must
be managed in the Chinese environment, because
all but a few employees would be Chinese, and
because the product was going to be sold in China.
Pharmex felt strongly that the GM must be one of
theirs, asserting that their proprietary product formulation and extensive pharmaceutical manufacturing expertise were the most critical and complex
resources for the success of the venture. Pharmex
prevailed, and it was agreed that the GM would be
nominated by Pharmex, with Tianjin holding veto
power. Tianjin then insisted that a deputy GM position be held by one of its managers, responsible
primarily for external and government relations.
The remaining management positions were similarly contested. The Chinese partner insisted on
assigning a Director of Personnel and a Controller. Pharmex itself wanted control of accounting, because it did not trust Tianjin’s financial
expertise; Pharmex succeeded in negotiating for a
Director of Finance who, like the (Chinese) Controller, would report directly to the GM and who
would somewhat duplicate the Controller counterpart. The Director of Manufacturing and the
Director of Marketing were designated to be from
Pharmex. Thus, the IJV is of the “shared control”
type (Killing, 1983).
Figure 1 shows Pharmex-Tianjin’s initial management group in the form of an organization chart
and also gives brief biographical data on each manager. What should be clear from the example is
that: 1) the negotiations that precede IJV managerial appointments create an important part of
the context in which the management group will
operate; sometimes considerable tension lingers
between the partners, which is transmitted to the
assigned managers; 2) the partners tend to strive
mightily to have due representation on the top
team; and, accordingly; 3) IJV managers, especially at the outset of a venture, are thrust into
roles not only as managers, but as delegates of
their respective parents.
COMPOSITIONAL GAPS IN
INTERNATIONAL JOINT VENTURE
MANAGEMENT GROUPS
Research on management group composition has
drawn upon two complementary conceptions of
Strat. Mgmt. J., 22: 1033–1053 (2001)
1038
D. C. Hambrick et al.
General Manager
(Griggs)
Director
of
Personnel
(Peng)
Director
of
Manufacturing
(Estevan)
Deputy
General
Manager
(Liu)
Director
of
Marketing
(Rogers)
Controller
(Chu)
Director
of
Finance
(Blackburn)
Blackburn (Director of Finance): BS., Accounting, Ohio State University; Price Waterhouse, Auditor (5
years); Becton Dickinson, Accounting Manager (3 years);Pharmex, Plant Controller (5 years), Assistant
Treasurer (4 years); age 40.
Chu (Controller): Accounting Diploma, Tianjin School of Commerce (2-year program); Tianjin Special
Chemical Plant #1, Shift Accountant (14 years), Inventory Accountant (8 years), Accounting Supervisor
(8 years); age 50.
Estevan (Director of Manufacturing): B.S. (Chem. Eng.), Texas A & M University; Merck, Process Engineer
(4 years), Team Leader, Plant Design (4 years); Pharmex, Assistant Plant Manager (3 years), Plant
Manager (5 years); age 38.
Griggs (General Manager): B.S. (Bus. Ad.) University of Minnesota, MBA, University of Michigan;
Pharmex, Assistant Marketing Manager (3 years), Marketing Manager (6 years), Director of Strategic
Projects (4 years), Country Manager — England (6 years); age 43.
Liu (Deputy General Manager): General Diploma, Tianjin Polytechnical School (2-year program); Port
of Tianjin, Clerk (6 years), Municipal Contract Liaison (8 years); Tianjin Special Chemical Plant #1,
Municipal Compliance Supervisor (9 years), Director of Plant Safety and Hygiene (8 years); age 53.
Peng (Director of Personnel): Administrative Diploma, Tianjin School of Commerce (2-year program);
Tianjin Household Chemical Plant #1, Employee Records Clerk (8 years); Tianjin Special Chemicals
Plant #1, Employee Housing Clerk (6 years); Employee Housing Supervisor (7 years); Employee
Benefits Administrator (8 years), age 48.
Rogers (Director of Marketing): B.A. (English), Williams College; Pfizer, Sales Representative (4 years),
District Sales Manager (4 years); Pharmex, District Sales Manager (3 years), Director, Sales Planning
(4 years), Director of Market Research — Latin America (3 years), age 41.
_______________
During the time when the Chinese managers received their education, it took a person ten years to finish high school
(five years of primary school and five years of secondary school).
Figure 1.
Management group of Pharmex-Tianjin
group makeup. One approach has been to examine the average compositional characteristics of the
group, on the premise that the average reflects the
prevailing orientation of the group—a bias that
will be manifested in the group’s choices (e.g.,
Finkelstein and Hambrick, 1990; Bantel and Jackson, 1989). A second focus has been on the heterogeneity, or dispersion, of compositional characteristics of all members of the group. Here, the
logic has been that diverse backgrounds can provide either an informational endowment or act as
an impediment to effective group processes (Jackson, 1992).
In the case of joint ventures, a third
conception of management group composition is
Copyright  2001 John Wiley & Sons, Ltd.
required—one that is based upon the inherently
coalitional nature of the group, which occurs
because the managers are delegates from their
parents. The existence of coalitions in a group
generally causes members to be competitive, turfconscious, and rigid (Eisenhardt and Bourgeois,
1988; Mannix, 1993). In addition, the existence
of coalitions sets up a demarcation, or “faultline”
(Lau and Murnighan, 1998), which deepens and
widens as a function of the other differences
between the coalitions.
As Lau and Murnighan pointed out, group faultlines—particularly along demographic lines—can
go unnoticed without the presence of external
forces. What Lau and Murnighan did not consider,
Strat. Mgmt. J., 22: 1033–1053 (2001)
International Joint Venture Management Groups
however, is that an external factor can itself be the
primary basis for a faultline. An important version of this occurs, we believe, when members
of a group are expressly appointed as delegates
or representatives from another entity, as in an
IJVMG. An example used by Lau and Murnighan
helps convey the distinction we are drawing. Consider a four-person group that consists of two
individuals (A and B) who share several demographic characteristics and two other individuals
(C and D) who share several different characteristics. Among Murnighan and Lau’s examples, this
is a case of a very strong faultline. But, what
if A and C are one unit’s designated representatives to the group and B and D are representatives
from another group? The faultlines are essentially
erased (or at least dramatically altered), as each
coalition is now demographically identical, with
very different implications for group processes
(Marcus-Newhall et al., 1993). For example, if
there are Chinese in each group, conflict between
the two groups might be ameliorated. Note that
other variations can occur—as when a seemingly
diverse group, when considered along a coalitional
axis, might reveal notable demographic schisms.
If these schisms are then coupled with social or
political pressure from each coalition’s respective
constituency, the resulting group processes can be
much more extreme than would be predicted by
looking only at the demographic faultlines or other
more conventional indices of group composition.
A large number of possibilities exist, indicating the
importance of noting possible areas where faultlines may hint at possible downward spirals, and
where complementarities or similarities might help
minimize downward trends.
In the next section, we propose that the “compositional gap” between the managerial coalitions of
an IJVMG will have a substantial effect on group
functioning and IJV performance. Our model,
however, may be applicable for explaining the
dynamics in any of an array of groups in which
the members are representatives from other social
entities, including, for instance, merger integration
teams and contract negotiation teams.
Concept of the compositional gap
A compositional gap, in the context of an IJVMG,
is the difference between the managerial coalitions on one or more compositional dimensions
Copyright  2001 John Wiley & Sons, Ltd.
1039
of potential importance to the group’s functioning. Such differences could be in readily observable demographic characteristics (such as nationality, age, language), in less visible demographic
attributes (such as education, functional background, company tenure), or in psychological
attributes (such as values, beliefs, cognitions)
(Jackson, May, and Whitney, 1995; Markoczy,
1997; Milliken and Martins, 1996; Tsui, Egan, and
O’Reilly, 1992; Wiersema and Bird, 1993).
Differences on any one dimension do not necessarily mean there will be differences on other
dimensions, nor will our line of argument presume such. In actuality, however, gaps on one
dimension often may occur along with gaps on
other dimensions—particularly in the context of
IJVMGs—because the coalitions are drawn from
distinctly different managerial populations, which
are embedded in systematically different institutional arrangements. At a broad level, different
national cultures tend to have fundamentally different sets of social institutions—including education systems, labor markets, and geographic mobility—which tend to lead to wholesale differences in
managers appointed to IJVs from those countries
(Calori et al., 1997; Whitley, 1992). At a narrower
level, each parent firm will have its own internal culture, including management selection and
staffing practices, yielding a distinctly skewed set
of managers who are eligible for IJV assignments.
As a result, the pervasive differences that exist in
national institutions and parent companies create
the likelihood of differences on multiple dimensions in the IJVMG.
In the Pharmex-Tianjin example, the two coalitions differed substantially in their ages (a mean
difference of ten years), their amount of formal
education (mean difference of five years), and their
tenures with their parent companies (difference of
12 years). Seventy-five percent of the Pharmex
coalition had primarily line experience (marketing,
manufacturing, and sales), while the Tianjin managers all had primarily staff experience (accounting, external relations, and human resources). We
have no data on the psychological attributes of
the managers, but the two coalitions probably differed substantially in their values and cognitions,
as well.
An eventually elaborated model of IJVMG compositional gaps may integrally consider various
kinds of gaps. Here, we consider gaps at two levels. First is the overall “aggregate gap” between
Strat. Mgmt. J., 22: 1033–1053 (2001)
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D. C. Hambrick et al.
the two coalitions on all dimensions thought to
be relevant. If n dimensions are being considered,
the aggregate gap might be roughly thought of as
the summed Euclidean distance between the two
groups of managers in n-dimensional space, akin
to calculations for cluster analysis. Figure 2 shows
several possible profiles, based (for simplicity) on
only two compositional dimensions. In Figure 2a,
the aggregate gap is large, in Figure 2b it is moderate, and in 2c and 2d the gaps are essentially
non-existent.
The second way we consider gaps is according to more specific classes of compositional
characteristics—a) readily observable demographics (e.g., race, nationality, gender), b) less observable demographics (e.g., education, functional
background), and c) psychological characteristics
(e.g., values, personality, cognitive style). Here
again, the gap would be calculated as the multidimensional distance between the two coalitions on
all relevant and/or available dimensions within one
of these classes. As we shall discuss, prior research
has found that these different forms of diversity
may have differing effects on group processes.
Implications of compositional differences
As summarized by Williams and O’Reilly (1998),
a substantial stream of research has identified three
major mechanisms by which compositional differences can affect group processes. First, and
perhaps most examined of the three, is social
categorization. In an effort to define their identities and protect their self-esteem, individuals classify themselves and others into social categories
(Tajfel and Turner, 1986). Categorization can be
on the basis of overt characteristics, such as nationality, age, race; or, after behaviors have been
revealed and observed, classification can occur on
more psychological dimensions, such as personality (extroverts vs. introverts), values (individualists
vs. collectivists), or cognitive style (intuitives vs.
analytics). Research has consistently found that
when categorizing occurs, even on trivial criteria,
b: Moderate Gap
Dimension Y
B
B
B
Dimension Y
a: Large Gap
A
A
A
Dimension X
B
A
A
B
A
Dimension X
A
B
B
A
Dimensions X
Figure 2.
d: No Gap
Dimension Y
Dimension Y
c: No Gap
B
A
B
A
B
B
A
A
B
Dimension X
Illustrative compositional gaps (each IJVMG consists of managers from Parent A and Parent B, arrayed on
two compositional dimensions)
Copyright  2001 John Wiley & Sons, Ltd.
Strat. Mgmt. J., 22: 1033–1053 (2001)
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members perceive the outgroup as less trustworthy, capable, and cooperative than members of
their own ingroup (Brewer, 1979; Tajfel, 1982).
This categorization affects how groups interact. In
his essay outlining the embedded intergroup relations perspective, Alderfer (1986) indicates that
the basic idea here has a long history. When
the seeds of ingroup–outgroup categorization take
root, there is a:
“. . .view of things in which one’s own group
is the center of everything, and all others are
scaled and rated with reference to it . . .Each
group nourishes its own pride and vanity, boasts
itself superior, exalts its own divinities, and
looks with contempt on outsiders”. (Sumner,
quoted in Alderfer, 1986: 191)
These words were from a work originally published in 1906, helping Alderfer make the point
that the concept of social categorization is not new.
A second implication of group composition,
related to social categorization, is the welldocumented tendency for people to like, trust, and
interact with others who are similar to them (e.g.,
Berscheid and Walster, 1978; Tsui and O’Reilly,
1989). The similarity/attraction paradigm has
been validated on group attributes ranging from
demographic to psychological (summarized in
Williams and O’Reilly, 1998).
Third, a group’s composition has direct implications for the information and knowledge that is
available within the group (Tsui and Gutek, 1999).
Demographic characteristics, such as nationality,
education, and functional experiences, tend to confer members with certain information. Additionally, psychological characteristics, such as values and personality, affect how members interpret
information (e.g., Gruenfeld et al., 1996). Diverse
groups thus have a broader base of information,
knowledge, insights, and skills at their disposal
than do homogeneous groups. Such breadth has
both advantages and drawbacks for the group’s
processes, to which we now turn.
COMPOSITIONAL GAPS, COGNITIVE
DIVERSITY, AND SUBSTANTIVE
CONFLICT
The strategic logic of joint ventures lies in
the complementarities of the partners, with each
Copyright  2001 John Wiley & Sons, Ltd.
1041
supposedly bringing something different of value
to the venture. So, too, do managerial groups
comprised of widely differing characteristics
bring a diverse stock of knowledge and skills
to the JV (Hoffman, 1959; Hoffman and
Maier, 1961; Milliken and Martins, 1996). For
example, IJVMGs consisting of widely different
nationalities have greater cognitive diversity—the
variety of cognitive resources available within
a group—than groups consisting all of one
nationality or of highly similar nationalities.
This cognitive diversity stems from the influence
that nationality has on one’s knowledge, values,
cognitive schema, and language (Roberts and
Boyacigiller, 1984; Laurent, 1991; summarized
in Hambrick et al., 1998). Similarly, differences
on other dimensions also confer more diverse
cognitive capabilities than would exist in more
homogeneous groups. Managerial coalitions that
vary in their ages, functional backgrounds, and
education bring diverse informational insights to
the joint venture management situation (Jackson,
1992; Triandis, Hall, and Ewen, 1965; Watson,
Kumar and Michaelson, 1993).
Although there may be a general tendency for
the magnitude of a compositional gap to be associated with the cognitive diversity of a group, this is
not always the case, at least not enough to allow a
cogent proposition. For example, a small compositional gap could exist either because a) the two
coalitions are each very homogeneous but similar
in their profiles (as in Figure 2c), thus conferring
little cognitive diversity or b) the two coalitions
are each very heterogeneous, but similarly so (as
in Figure 2d), thus conferring substantial cognitive
diversity.
Cognitive diversity can be considered a resource
for effective management of joint ventures, as
divergent points of view and knowledge bases
are brought to bear on problem solving (Jackson, 1992). Bantel and Jackson (1989:109), for
instance, argued that “when solving complex, nonroutine problems, groups are more effective when
composed of individuals having a variety of skills,
knowledge, abilities, and perspectives.” It is particularly valuable if the compositional gaps in the
IJVMG correspond with the “requisite variety” of
the business situation (Ashby, 1956). For instance,
in the case of Pharmex-Tianjin, the venture benefits from having Liu’s understanding of the Tianjin government, Peng’s experience with Chinese
Strat. Mgmt. J., 22: 1033–1053 (2001)
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D. C. Hambrick et al.
workers, Estevan’s knowledge of Western pharmaceutical production technology, and so on. This
IJV, by its nature, calls for diverse resources in the
management group.
The compositional gaps that accompany these
cognitive complementarities, however, often will
lead to conflict. Indeed, an abundant stream of
research indicates that group diversity engenders
conflict (summarized in Milliken and Martins,
1996; Pelled, 1996). Although there is a substantial body of literature on inter-group relations and
conflict (see Alderfer, 1986, for a comprehensive review), recent theorists have concluded the
importance of distinguishing between two types of
conflict: substantive conflict and relationship conflict. Substantive conflict—sometimes called “task
conflict” (e.g., Pelled and Adler, 1994) or “cognitive conflict” (Amason and Schweiger, 1994) is
intellectual opposition among participants (Guetzkow and Gyr, 1954: 380), regarding the group’s
agenda, priorities, choices, and so on. Relationship conflict—sometimes called “emotional conflict” (Jehn, 1994) or “affective conflict” (Pelled,
1996)—involves interpersonal incompatibilities,
typically including mistrust, animosity, and annoyance (Jehn, 1995). These two forms of conflict
have different effects on group outcomes (Jehn,
1995; Pelled, 1996) and therefore warrant separate discussions. Accordingly, in this section we
address substantive conflict; below we address
relationship conflict, as well as the interaction
between the two types.
Large compositional gaps can be expected to
give rise to substantive conflict. When the managerial coalitions are of widely differing nationalities, for instance, they bring divergent experiences and frames of reference to problem solving, which they each take to be valid and supported by their own prior successes (e.g., Markus
and Kitayama, 1991; Trompenaars, 1993). Beyond
the tendency for people of different nationalities to differ in their interpretation and processing of information, is their additional tendency to have fundamentally different preferences
for how the group should operate (Heller and
Wilpert, 1979; Hofstede, 1991).2 As a direct result
of differing values and experiences, managers
2
We leave outside our analysis any tendencies for national
cultures to differ in whether and how they express conflict. For
instance, it has been observed that overt expression of conflict is
generally frowned upon in collectivist cultures (Tinsley, 1997).
Consideration of cultural tendencies of the specific nationalities
Copyright  2001 John Wiley & Sons, Ltd.
may stridently disagree on matters encompassing
supervisory policies, risk-taking, control systems,
urgency, and others (e.g., Perlmutter and Hennan, 1986).
Other demographic and psychological gaps
also will create substantive conflict (Hoffman
and Maier, 1961; Milliken and Martins, 1996;
Strauss, 1964). Managerial coalitions that differ
widely in their ages, education, values, and
cognitions diverge in the “givens” they bring to
an administrative situation (March and Simon,
1958), including their knowledge of alternatives
and their knowledge or estimates of consequences
attached to alternatives (Hambrick and Mason,
1984; Pelled, 1996). These differences will emerge
as substantive conflict in the group’s functioning:
Proposition 1: The greater the IJVMG aggregate compositional gap—in terms of readily
observable demographic characteristics, less
observable demographic characteristics, and
psychological characteristics—the greater the
substantive conflict between the coalitions.
Although we have argued that all forms of diversity tend to give rise to substantive conflict, some
research has found that visible demographic factors (such as race and gender) do not have as
much effect on task conflict as do those factors
that are more informationally- or professionallyladen (such as functional background or education)
(e.g., Pelled, 1996; Pelled, Eisenhardt and Xin,
1999; Jehn, Chadwick and Thatcher, 1997). These
authors did not formally consider psychological
factors. But an extension of their argument would
place psychological characteristics (such as cognitive style) in the domain of substantive factors that
can greatly affect members’ points of view on task
matters, in contrast to visible demographic factors
which may have more incidental effect. Thus:
Proposition 1a: Compositional gaps on observable demographic dimensions will be less
strongly related to substantive conflict than will
gaps on less observable demographic dimensions or on psychological dimensions.
The effect of IJVMG compositional gaps on
conflict can be expected to differ depending on the
nature of the JV control structure. As discussed
represented in joint ventures could be an interesting future
extension of our model.
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earlier, group dynamics will be more intense in
the more interdependent “shared control” setting
(as typified by our Pharmex-Tianjin example) than
in the more parallel-functioning “split control”
setting. Therefore:
Proposition 1b: The positive association between the magnitude of IJVMG compositional
gaps and substantive conflict will be greater for
shared control IJVs than for split control IJVs.
There is considerable evidence that, up to a
point, substantive conflict enhances effectiveness
for groups performing non-routine tasks (although
it may be harmful to group effectiveness when the
task is highly routine) (Jehn, 1995). Substantive
conflict causes facts and perceptions to be put
under scrutiny and subjected to extensive debate
(Jehn, 1994); it helps in minimizing “groupthink,”
or an excessive striving for unanimity (Janis and
Mann, 1977); and it injects a healthy tension and
ferment into group processes, which allow better
and more creative choices to emerge (Jackson,
1992). Studies generally have found a positive
relationship between substantive conflict and group
effectiveness (e.g., Amason, 1996; Jehn, 1994;
Nemeth, 1986; Torrance, 1957).
However, extremely great degrees of substantive
conflict can be expected to cause breakdowns in
information processing and decision-making (Gersick, 1989). If the gulf is very wide, the group
will have no middle ground, no ready ability to
translate each other’s perceptions or preferences,
and particularly a difficulty in matters of execution
(Jehn, 1995). Rather, it is with a moderate compositional gap (such as shown in Figure 2b) that
IJVMGs are expected to perform best. Such groups
experience constructive substantive conflict, possess complementary information and capabilities,
and are compositionally close enough (maybe even
having some overlapping or shared characteristics)
that they can understand and interpret each other’s
perspective. Thus, we propose:
Proposition 2: There will be a curvilinear (inverted-U) relationship between substantive conflict and IJV performance, with moderate levels
of substantive conflict most positively associated
with IJV performance.
The discussion so far suggests that IJVMG compositional gaps provide complementary capabilities and also engender substantive conflict, which,
Copyright  2001 John Wiley & Sons, Ltd.
1043
if held to a moderate level, enhances IJV effectiveness. If we could stop here, the prognosis for many
IJVs would be favorable, and their success rates
would be greater than they are in fact. Unfortunately, however, IJVMG compositional gaps have
additional negative effects, including the tendency
to propel substantive conflict beyond its constructive range.
COMPOSITIONAL GAPS AND IJVMG
PROCESSES: DOWNWARD SPIRAL #1
Compositional gaps and relationship conflict
Compositional differences generate not only substantive conflict, but also relationship conflict—or
interpersonal disaffection (Milliken and Martins,
1996; Jackson, 1992). This well-known tendency
is a direct outgrowth of the fundamental human
tendency for people to be drawn to, like, trust,
and communicate with others like themselves, and
to avoid, distrust, and dislike those who are dissimilar (e.g., Byrne, 1971; Tsui and O’Reilly,
1989). Differences in readily-apparent personal
characteristics (e.g., gender, race, age) have been
found to particularly give rise to mistrust and
dislike in group settings, as a result of stereotyping (Pelled, 1996; Jackson, 1992). However,
even differences in less visible traits (e.g., functional background and values) can stir relationship
conflict, as group members personalize the differences in their professional paradigms and priorities (Pelled and Adler, 1994). As telling evidence that even sub-rosa differences can give rise
to relationship conflict, Jehn (1994)—in a study
of 88 student groups—found that consensus (or
homogeneity) of values (personal traits with no
readily apparent outward signs) was more negatively related to relationship (“emotional”) conflict (r = −0.26; p < 0.001), than to substantive
(“task”) conflict (r = −0.16; p < 0.01).
Nationality differences are among the gaps that
have been found to affect relationship conflict
(e.g., summarized in Adler, 1986; Bochner and
Hesketh, 1994; Verkuyten, de Jong and Masson,
1993). In the case of nationality, the accompanying
traits that cause disaffection range from the readily apparent (e.g., language and demeanor) to the
underlying (cognitive schema and values) (summarized in Hambrick et al., 1998). Language barriers are well known for directly causing mistrust
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and miscommunication, and also making it difficult to surmount mistrust that stems from other
sources. Also, seemingly minor behaviors—such
as eye contact, body language, speech rhythms,
and punctuality—vary systematically by nationality, further causing interpersonal unease and mistrust (LaFrance and Mayo, 1978; Mesquita and
Frijda, 1992). Differences in cognitive schemas
and values, due to cultural distance, similarly cause
mistrust (e.g., Pelled, 1996).
In joint ventures, the likelihood of compositional gaps engendering relationship conflict is particularly great, because of the coalitional nature
of the management groups and the accompanying tendency for in-group/out-group social categorization to occur (Alderfer, 1970, 1986; Tajfel,
1982; Taylor, Sheatsley and Greeley, 1978), as
well as for members to identify with their in-group
rather than with the full group (Tajfel and Turner,
1986). These cognitive processes gives rise to ingroup/out-group hostility, or seeing the in-group as
worthy and efficacious, and seeing the out-group
as uniformly unworthy and inept (Tajfel, 1982).
If the two coalitions differ not only in nationality
but also on other demographic and psychological dimensions (such as in the Pharmex-Tianjin
example, and as we expect to often be the case),
social categorization will be further accentuated
and intergroup polarization will be even more pronounced (Brewer and Kramer, 1985). Thus:
Proposition 3: The greater the IJVMG aggregate compositional gap, the greater the relationship conflict between the coalitions.
In line with some previous research (Pelled,
1996; Jehn et al., 1997; Jehn, Northcraft and Neale,
1999), it can be expected that gaps on observable
demographic dimensions (e.g., nationality, age,
gender) have particularly pronounced influences on
stereotyping, categorization processes, and, in turn,
on relationship conflict. Therefore:
Proposition 3a: Compositional gaps on observable demographic dimensions will be more
strongly related to relationship conflict than will
gaps on less observable demographic dimensions or on psychological dimensions.
Again, we expect the implications for group
processes to be greater in shared control IJVs than
in split control IJVs:
Copyright  2001 John Wiley & Sons, Ltd.
Proposition 3b: The positive association between the size of IJVMG compositional gaps and
relationship conflict will be greater for shared
control IJVs than for split control IJVs.
Essentially all available evidence indicates that
relationship conflict harms group performance
(Jehn, 1997, 1999). We expect the same in the
context of IJVMGs:
Proposition 4: The greater the relationship conflict between managerial coalitions, the lower
the IJV’s performance.
Reciprocal escalation of substantive and
relationship conflict
Although substantive and relationship conflict are
conceptually distinct, they have been found to
interact reciprocally, often propelling each other
(Pelled and Adler, 1994). Disagreements which
start on substantive grounds can become personalized and emotional (e.g., Pelled and Adler, 1994;
Hambrick, 1995). And, even more likely, relationship conflict will heighten the likelihood that
substantive conflict will emerge and accelerate. If
there is antipathy within the group, members will
tend to take strong stands—opposing their adversaries—on issues that otherwise might have been
of little interest to them, and a polarization occurs.
Essentially all studies that have empirically examined the two types of conflict have found a positive, significant association between them (Amason, 1996; Guetzkow and Gyr, 1954; Jehn, 1994).
In a review of eleven prior studies, Simons and
Peterson (in press) report an average correlation
of 0.47 between the two types of conflict.
Compositional gaps in an IJVMG give rise to
stereotyping and mistrust, which will accentuate
the reciprocal conversion of substantive conflict
into relationship conflict and vice versa. Particularly when there are multiple stark cues that
the out-group is different, even someone who
is generally open-minded and tolerant of diversity will tend to succumb to stereotyping (Lau
and Murnighan, 1998). In the Pharmex-Tianjin
case—where the coalitions differ widely in their
nationalities, ages, education, functional experiences, and possibly also values and beliefs—we
can envision a generally open-minded manager
thinking (or even speaking) in terms of “old Communist bureaucrats” or “immature and insensitive
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American cowboys.” This stereotyping, and the
behaviors it prompts, cause substantive disagreements to become more emotional. Further, members take the other coalition’s substantive stances
as rooted in that group’s inferiority rather than in
its legitimate viewpoint. Thus, beyond its respective effects on substantive and relationship conflict,
a large compositional gap can cause an iterative
cycling between the two:
Proposition 5: The greater the IJVMG aggregate compositional gap, the greater the reciprocal escalation of substantive and relationship
conflict between the coalitions.
Since stereotyping and categorization are particularly pronounced as a result of differences in
observable demographic characteristics, we propose the following:
Proposition 5a: Compositional gaps on observable demographic dimensions will be more
strongly related to the reciprocal escalation of
substantive and relationship conflict than will
gaps on less observable demographic dimensions or on psychological dimensions.
The relationship is also moderated by the IJV’s
control structure:
Proposition 5b: The positive association between the size of IJVMG compositional gaps and
reciprocal escalation of substantive and relationship conflict will be greater for shared control IJVs than for split control IJVs.
1045
is related to, but distinct from “social integration,”
which places more emphasis on members’ sense
of “group pride” or “team spirit” (Seashore, 1977;
Shaw, 1981; Smith et al., 1994).
The obverse of behavioral integration, disintegration, can be expected to be an integral part of
the IJVMG downward spiral that is triggered by
compositional gaps.3 An absence of substantive
conflict will be accompanied by behavioral disintegration, from a simple lack of interaction; moderate amounts of substantive conflict will enhance
integration, as information is exchanged and vigorously processed; but extremely great amounts of
substantive conflict will cause behavioral disintegration, as managers tire of constant argument and
attempt to insulate their own activities from those
of others.
Relationship conflict will interact reciprocally
with behavioral disintegration in an escalating
direction: In-group/out-group antipathy will cause
the coalitions to try to avoid each other and compartmentalize their tasks to minimize interaction.
The reduced interaction gives the coalitions less
chance to adjust their categorizations, stereotypes
and mistrust of each other (Cook, 1978). In the
context of an IJVMG with wide compositional
gaps, this spiral of substantive conflict, relationship conflict, and behavioral disintegration is very
likely to occur and will be quick to accelerate. Thus:
Proposition 6: The relationship between IJVMG
substantive conflict and behavioral disintegration is curvilinear—behavioral disintegration is
greatest for very low and very high levels of substantive conflict.
Conflict and behavioral disintegration
Conflict can be thought of as opposing
valences—either substantive or emotional—within a group. However, conflict does not in
itself describe behavioral interactions. In a recent
attempt to identify and assess the tendency for
some top management groups to have more “teamlike” properties than others, Hambrick (1994)
set forth the concept of “behavioral integration.”
Defined as “the degree to which mutual and collective interaction exists within the group,” behavioral
integration has three main elements for management groups: information exchange, collaborative
behavior, and joint decision-making. In emphasizing substantive interaction, behavioral integration
Copyright  2001 John Wiley & Sons, Ltd.
Proposition 7: The greater the relationship conflict in an IJVMG, the greater the behavioral
disintegration—due to 2-way causality.
Proposition 8: Under conditions of large aggregate compositional gaps, an IJVMG will tend
to spiral: substantive conflict, relationship conflict, behavioral disintegration, more conflict,
and so on.
3
We reverse Hambrick’s term, calling it “disintegration,” to simplify the wording of propositions and accompanying discussion.
We use the label to convey the direct inverse of behavioral
integration.
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D. C. Hambrick et al.
We expect Propositions 6, 7 and 8 to hold for
both shared control and split control IJVs, although
the dynamics can be expected to differ. In shared
control IJVs, where the coalitions’ tasks are highly
interdependent, a given compositional gap will
tend to engender relatively intense conflict (as laid
out in Propositions 1b, 3b and 5b), which in turn
will drive the coalitions apart behaviorally and
cycle back to cause even more mistrust, doubt, and
conflict. In split control IJVs, where the coalitions’
tasks are not as interdependent, it takes a larger
compositional gap to create intense conflict (again
as in Propositions 1b, 3b and 5b); but once that
conflict occurs, the behavioral schism will widen,
lessening the chances for improved understanding
and trust, and the cycle will continue. Thus, the
tipping point for the downward spiral is lower in
shared control than in split control IJVs; but once
the respective tipping point is reached, the spiral
ensues in each case.
Our portrayal of one type of deficiency leading to even greater deficiencies is consistent with
the thinking of prior theorists who have portrayed organizational decline as a “downward spiral” (e.g., Bozeman and Slusher, 1979; Ford, 1980;
Forrester, 1971; Hambrick and D’Aveni, 1988;
Staw, Sandelands and Dutton, 1981). There is consensus in the literature that organizational decline
produces dysfunctional consequences at both individual and organizational levels (e.g., Staw et
al., 1981; Whetten, 1980, 1987). The literature
has generally shown that as conflict, secrecy,
rigidity, centralization, formalization, scapegoating, and conservatism increase, morale, innovativeness, participation, leader influence, and longterm planning decrease (e.g., Cameron, Kim and
Whetten, 1987; Cameron, Whetten and Kim, 1987;
D’Aveni, 1989; Weitzel and Jonsson, 1989; Whetten, 1980, 1987). As discussed by Thietart and
Forgues (1995:20), “When the system is driven
by positive feedbacks, which reinforce the original change made in one of its variables, small
changes are accumulating exponentially to lead to
an explosive situation.”
Interestingly, there has been relatively little
attention to downward spirals in group processes.
In an IJVMG, such spirals can be very pronounced
and difficult to stop. Minor mis-steps, small perceived breaches of trust, and business setbacks all
fuel coalitional stereotyping, conflict and disintegration. The two coalitions are alert to evidences
of each others’ shortcomings; when they observe
Copyright  2001 John Wiley & Sons, Ltd.
any such signs, their outgroup categorizations and
conflict are magnified; the spiral is under way. Of
course, faltering performance is not only fuel for
the spiral; it is also a consequence, to which we
now turn.
Downward spiral and IJV performance
IJV management groups that experience this spiral will generate unfavorable results for their ventures. Such groups will fail to exchange information, fail to collaborate, create schisms within the
ventures, and engage in erratic decision making.
Prior studies consistently reports harmful performance effects stemming from relationship conflict (summarized in Jehn, 1997). Research has
similarly suggested that behavioral disintegration
in management groups is deleterious to organizational effectiveness (Eisenhardt and Bourgeois,
1988; Hambrick, 1994).
IJVMGs, like most other management groups,
must orchestrate numerous interdependencies.
These include conversion of marketing programs
and sales forecasts into production plans, allocation of resources across activities and regions,
setting polices and making judgements about equitable treatment of employees in different functions and locales, and (in tandem with the IJV’s
board) setting overall business direction. Namely,
the tasks of IJVMG members are not very separable or independent. If an IJVMG—which is coalitional to start with—experiences extreme conflict
and behavioral disintegration, these interdependencies will be mismanaged and the venture will
suffer.
Proposition 9: The greater the combined levels
of substantive conflict, relationship conflict, and
behavioral disintegration, the worse the IJV’s
effectiveness (in terms of survival and meeting
parents’ objectives).
In the case of Pharmex-Tianjin, our example,
such problems were severe. The two coalitions
experienced extreme mistrust and conflict; they
sharply reduced their interactions; and decisionmaking became rigid and mechanical. A particularly grave problem occurred when the Pharmexappointed managers were energetically planning
for geographic sales expansion and increased production capacity, while the Tianjin-appointed managers claimed that no further expansion could
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occur—or even be discussed—until certain employee housing benefits were improved. During
this impasse, several scheduled management meetings were cancelled, and each group of managers
conveyed their frustrations, not to each other, but
to their higher-ups in their respective parents.
These latter actions, then, fueled a second downward spiral, to which we now turn.
IJVMG PROCESSES AND TENSIONS
BETWEEN PARENTS: DOWNWARD
SPIRAL #2
No management group exists in a vacuum, and
international joint venture management groups
especially function in an interorganizational web.
In the case of an IJV, managers take cues and
direction from their respective parent firms (Shenkar and Zeira, 1992); they submit information and
impressions to their parents as well. These twoway flows create the conduits for a second downward spiral in IJVs.
As noted earlier, a central focus in prior literature on international joint ventures is on the
tensions and mistrust that can exist between the
parents. Some of this focus has been on what
might be called the “inherent tensions” between
the partners, as determined by such factors as their
strategic non-complementarities (Killing, 1983; Li
and Shenkar, 1996; Pearce, 1997), their potential
for opportunism (Hennart, 1991; Parkhe, 1993),
and the dissimilarities of their national cultures
(Child, Markoczy, and Cheung, 1994; Park and
Ungson, 1997). An additional focus, however, has
been on the “emergent tensions” between the partners, as manifested (and aggravated) by acrimonious negotiations (Adler, Brahm, and Graham,
1992; Mann, 1989), insistence on stringent checks
and controls to guard against each other’s misor malfeasance (Mjoen and Tallman, 1997; Yan
and Gray, 1994), and jostling for bargaining power
(Harrigan and Newman, 1990). For purposes of
our model, the initial sources of parent tensions
are exogenous and outside our scope. Our interest, instead, is in the degree to which such tensions exist and how they interact with IJVMG
processes.
When considerable tensions between the parents
exist, the parents will convey these tensions—wittingly or unwittingly—to their representative managers in the IJV. Each set of managers will be
influenced to be wary and skeptical about the
Copyright  2001 John Wiley & Sons, Ltd.
1047
motives, abilities, and behaviors of the other parent and its managers. Such attitudes, in turn, will
emerge in the functioning of the IJVMG. Imagine a situation in which tensions between parents are great. Minor differences in the priorities
expressed by the two sets of managers (substantive
conflict), or even minor personality clashes (relationship conflict), will be taken as validation of the
parent’s concern about the other group’s unworthiness, and the downward spiral within the IJVMG
itself will be reinforced (See Mann, 1989, for such
a case).
Unfortunately, however, the dynamic also goes
the other way: to the extent that the IJVMG is
factionalized and conflict-laden, the more negative
will be the reports of the managers back to their
respective parents. The managers will communicate upward their distrust of each other, tending
to interpret the problems within the group as evidence of systemic problems with the joint venture
and the partner. The parents, in turn, will become
more skeptical of each other and of their continuing association.
Proposition 10: The more pronounced the downward spiral within the IJVMG (that is, the
greater the combination of substantive conflict,
relationship conflict, and behavioral disintegration), the greater the tensions between the IJV
parents—due to 2-way causality.
The venture’s board of directors might often be
the conduit by which tensions, distrust, and skepticism are communicated (Gray and Yan, 1997;
Yan, 1993). In addition, the board itself might be
susceptible to the coalitional dynamics we have
portrayed, amounting in essence to a third downward spiral. We omit this possibility from our formal scope but note it as a potentially important
outgrowth of the organizationally-nested nature of
joint ventures.
In sum, compositional gaps within joint venture management groups are, at one level, a predictable outgrowth of the underlying logic for
engaging in joint ventures in the first place: strategic complementarities. And, within bounds, compositional gaps can yield benefits of cognitive
diversity and healthy substantive conflict. However, these bounds are often exceeded, with compositional gaps giving rise to a downward spiral
of substantive conflict, relationship conflict, and
behavioral disintegration. These processes within
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D. C. Hambrick et al.
the IJVMG interact with tensions between the parents, to create a second downward spiral. These
dynamics (summarized in Figure 3), so far overlooked in the literature on joint ventures, may
account in great part for the poor record of international joint ventures. Unfortunately, this was
the outcome for Pharmex-Tianjin, the example we
have cited throughout. The management group
experienced severe friction, which added fuel to
lingering tensions between the parents. After 18
months’ operation, the venture was disbanded, and
the new plant was sold at a fraction of its cost to
another U.S.–Chinese venture.
RESEARCH IMPLICATIONS AND
FUTURE DIRECTIONS
The conceptual model presented here should draw
attention to empirical research on the under-studied
topic of international joint venture management
groups. There are several promising avenues for
future research. The first priority is to examine
empirically the coalitional nature of joint venture
management groups and the key factors affecting
the salience and strength of such coalitions. It
would be valuable to study the coalitional properties of a sample of IJVMGs and the impact of
such coalitions on group processes—for example, stereotyping, social categorization, communication, learning, and joint decision making among
top management group members. We posited earlier that the coalitional nature of the IJVMG is
most pronounced at the early stages of the IJV and
may diminish over time. Therefore, future research
should also examine the role of IJV life cycles on
the coalitional dynamics in the IJVMG.
A second area for future research is related to
the concept and measure of compositional gaps.
We have defined the compositional gap as differences between the characteristics of one managerial coalition and those of the other coalition within the IJVMG. Further research, however,
is needed in refining this concept and developing measures for empirical analysis. For example, rather than just focusing on the aggregate
differences between the two coalitions, future
studies might attempt to develop compositional
gap measures that can encompass the magnitude,
Tension Between Parents
IJV Control Type
Shared Control
vs.
Split Control
+
Downward Spiral #2
+
+
Relationship
Conflict
Compositional gap*
- observable demographics
(nationality, age, etc.)
−
JV Effectiveness
+
+
- achievement of
- less apparent demographics
(education, functional
+
backgrounds, etc.)
- psychological characteristics
(values, beliefs, etc.)
+
Behavioral
Disintegration
Downward
Spiral #1
−/+
+
−
parents’ objectives
- survival
+/−
Substantive
Conflict
+
*We do not attempt to show the differing effects of
compositional gaps of different types (as conveyed in
Propositions P1a, P3a, and P5a).
Cognitive Diversity
Figure 3.
A model of compositional gaps and downward spirals in international joint venture management groups
Copyright  2001 John Wiley & Sons, Ltd.
Strat. Mgmt. J., 22: 1033–1053 (2001)
International Joint Venture Management Groups
distinctiveness, and scope of differences between
managerial coalitions on key dimensions. The
“magnitude” of difference might be gauged by the
simple difference in coalitional means. “Distinctness” of difference exists when the coalitions differ
and the members of each coalition are relatively
homogeneous. When the coalitions are homogenous within themselves, schismatic stances will
be particularly likely, with little middle ground,
and substantive conflict will be aggravated. Each
coalition will see the other as a unitary monolith; stereotypes will be accentuated, and relationship conflict will heighten (Kramer, 1991; MarcusNewhall et al., 1993). Finally, the scope of difference depends on how many managers comprise the
coalitions. The greater the number of members of
each coalition, the more that each coalition will
be self-reaffirming and confident in its own perspective; the less compromise and give-and-take
will occur; and the greater the conflict (Brewer
and Kramer, 1985). In sum, it may be very helpful to consider multiple elements of compositional
gaps and their effects on IJVMG functioning and
IJV performance.
The downward spirals resulting from compositional gaps and parent tensions are not inevitable
in international joint venture management groups.
Therefore, a third area for further research is to
explore the different types of mechanisms that
might successfully prevent the downward spirals.
For example, careful attention to group composition may be a first step in addressing the potential
negative effects of IJVMG compositional gaps.
Future research should examine whether the use
of seasoned internationalists, or managers who
have relatively short parent company tenures, or
even deliberate efforts to minimize the homogeneity of assigned managers, would help minimize
the downward spirals and improve IJV chances of
success. Other factors, such as establishment of
overarching goals for the IJV, creation of a strong
identity for the IJVMG, design of shared-fate managerial incentives, and the use of conflict management techniques may also help arrest or minimize
the downward spirals. These ideas should be examined in future research.
While we have focused our discussions on the
top management groups in IJVs, the concept of
compositional gaps can also be applied to other
organizational contexts in which representational
coalitions are salient—for instance, in mergers,
when two subunits are combined, or when a
Copyright  2001 John Wiley & Sons, Ltd.
1049
new CEO arrives from the outside with several
lieutenants.
Finally, while our study has focused on the
implications of the composition and processes of
IJV management groups on the venture’s performance, it is also important to explore the relative
contributions of this perspective versus others in
the IJV literature as explanations of IJV performance. Therefore, future empirical studies should
incorporate both management group composition
and process variables, as well as variables previously identified in the IJV literature to shed light
on this important issue.
CONCLUSIONS
International joint ventures are strategically important to today’s corporations, but often fail to meet
expectations. In fact, many simply fail. Although
scholars have examined an array of factors potentially involved in IJV success or failure, little or
no attention has been paid to the composition and
functioning of top management groups of joint
ventures. We have attempted to fill this void in
the literature by presenting an elaborated model of
joint venture management group composition and
processes.
We hope that this paper will draw attention
to the under-studied topic of IJV management
groups. The downward spirals resulting from compositional gaps between the coalitions within the
IJVMG are a potentially important explanation of
venture failure. Knowing how the spirals are triggered and accelerate can improve the likelihood of
accurately anticipating and diagnosing IJV challenges, as well as guiding appropriate preventive
or corrective actions. Moreover, our model may
be applicable to an array of situations in which
groups consist of distinct coalitions representing
larger entities.
ACKNOWLEDGEMENTS
We gratefully acknowledge support from PDI
Global Research Consortia and the companies participating in the research project. We have benefited from suggestions from: Paula Caligiuri, Jay
Conger, Larry Farh, Eric Jackson, Elizabeth Mannix, George Milkovich, Stephen Nason, Madan
Pillutla, Phyllis Siegel, and Ruth Wageman.
Strat. Mgmt. J., 22: 1033–1053 (2001)
1050
D. C. Hambrick et al.
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