International Joint Venture characteristics in
Spanish Companies: Uppsala model implications
David de Matías Batalla
Economics and Business Administration Dept.
University of Alcala
Madrid, Spain
[email protected]
to the great development of the information and
communication technologies any company will be able to
compete in another country. This globalization wave is
economical too, and it leads the current economical and
financial crisis which is the largest in the history crossing
borders, causing liquidity problems in many countries and
companies.
Abstract—This article analyses Spanish multinational firm
internationalization process under the sequential theory, based
on Uppsala and Root models. The objective is to contrast if
international experience and cultural distance play an important
role to internationalize business activities through international
joint ventures. In addition, this paper analyses what kind of
factors are important in international joint venture creation,
management and control. Finally the paper explores an
alternative sequential way in Root model, extending this model.
The case of Spain is not a minor one and due to this great
international exhibition in the field of business and economics
and domestics deep problems, lives in a great crisis
environment since 6 years ago, fact that seems be extended
until the end of this decade. It is for this reason, and seeing that
other countries show more positive economics traits, Spanish
companies have the need to internationalize their activities in a
third wave of economic openness.
Index Terms—International Joint Venture, Uppsala model,
Mahou-San Miguel, Ebro Foods.
I. INTRODUCTION
This paper presents a brief revision of internationalization
process of Spanish companies based on sequential theory,
which has a reference Uppsala Model. The paper is divided in
two parts: the first one is a review of theory about background
theory and International Joint Venture (IJV) concepts, while
the second one analyse empirically data obtained from an
original survey designed by the author.
Along academic history there have been different
theoretical bases that have explained the internationalization
process of companies, from the theory of internationalization
trade documented by Adam Smith t the Global Born theory,
going through the school of industrial organization, the theory
of resources and capabilities, the models based on the location,
theories of management and the approach of networks.
The internationalization process is defined by all modes of
entry that firms made in order to have presence within
international markets establishing links with them since
national markets, through a long process that requires
implications and international projection [1]; it is an open and
complex process of definition of international comprise grade
adopted by firms. Therefore, it provides a wide variety of
business alternatives as ways of mode of entry within
international markets, which can be modified over time, as the
company is redefining their relative levels of presence,
commitment of resources, control and operational risk at the
international level. In the last two decades, one of the main
driving forces of the internationalization process of companies
has been the globalization, which has eliminated the tariffs and
barriers to the import and export, expanding markets, which
has led up to now to compete in international markets.
In addition to them we find a theories more than greater
acceptance in the field of international management has had,
the sequential theory, represented by the Uppsala School,
which explains the international behavior of the company
through a sequential model. This model focuses on describing
its resources committed in the same [2]. The model of Uppsala
School predicts that firms will increase gradually their
resources committed in a particular country to be gaining
experience in the activities carried out in this market. The
internationalization process model can explain two patterns in
the internationalization process of firms [3]. One of them is
that the commitment of the company in a specific country
evolves according to the establishment of the supply chain,
from sporadic exports until the company decides to establish
productive structure itself, doing as intermediate steps exports
through independent representatives and trade branches. The
second of the patterns that it gets is that firms enter
successively to new countries with a psychological distance
increasing, that is, companies show a preference for those
II. THEORETICAL BACKGROUND OF INTERNATIONALIZATION
BUSINESS PROCESS
The current wave of globalization that we are living is
highlighting the fact that markets are changing from national to
transnational. Trade barriers and borders have fallen and thanks
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countries that are most similar to the origin country. The
cultural distance is defined in generally as the series of factors
that hinder the flow of information between the company and
market, as the language, culture and political system [4].
B. Cultural distance and the IJV concept
When we talk about cultural distance we need to review
the literature to perceive that there have been two types of
approaches to the revision of the concept. On the one hand, we
have the geographic distance or geo-cultural distance [6] [7]
which refer to the physical distance between the origin
country of the investment and the country which received it as
a factor that hinders business operations between two
countries.
Therefore firms begin their internationalization process in
those markets that can be understood more easily, where the
psychological distance is kept as low as possible.
Based on the Uppsala Model, other models have been
developed having in common the acquisition of international
experience as an explanation of a greater or lesser commitment
of the company toward investment to be made. Among these
we continue with the one that Root [5] develops claiming that
firms will increasingly choosing the mode of entry that
involves greater commitment and a greater degree of control
over the international operations. The grade of international
company commitment is defined by the role of each
international subsidiary, by the level of the multinational
corporate by the status of international organization and by the
attitude of the executives or managers. In addition to the
majority of firms the international commitment to them is a
long path parallel to the increase of its international experience
that is achieved after the step of a long period of time. The
success in international markets will encourage the company to
continue to invest in the same, committing more and more its
resources and to achieve increasingly higher returns.
Its analogy with cultural distance in the strict sense
(properly speaking) resides in the presumption in which as the
geographical closeness increases between both countries, the
choice of sharing same culture diminishes. Goodnow & Hansz
[8] performed a research about the importance of the geocultural distance between both countries, defining this concept
as “barriers created by the geographical separation, cultural
disparities between both countries and communication
problems resultant from difference in social perspectives,
attitudes and languages”.
On the other hand, the concept of psychic distance also
emerges as another distance to be taken into account [9] [10]
which refers to the uncertainty degree that companies have to
face in a foreign market as a result of cultural differences and
other kinds of difficulties in business, constituting barriers for
learning and the realization of business activities in
international markets. In addition, Nordström y Vahlne [11]
added that there are “factors that prevent or alter the learning
and the understanding of firms about international
environment.
III. INTERNATIONAL JOINT VENTURES AND THEIR
IMPLICATIONS
A. Definition of IJV
Joint Ventures can be defined as an integration of
operations between two o more independent companies where
conditions are: the joint venture is subject to the common
control of the parent companies, which are not subject to a
related control; each parent company makes a major
contribution to the joint venture; a joint venture exists as a
independent commercial enterprise with respect to their
parents companies; and finally the joint venture creates an
important company capacity and new, so it´s a new production
capacity, new technology and new products, or a new entry
into a new market.
The assumption on which based when we speak about
cultural distance and internationalization process of firm,
based on greater culture distance between sender and receiver
country of the investment, the company will opt for a more
flexible mode o entry and that entail less risk than
establishment of a subsidiary. Therefore, when companies
internationalize to countries that are characterized by a high
degree of risk, firms decide by modes of entry that allows
them to become a time leave the country without suffering a
substantial losses [12] [13], i.e. commit few minor possible
resources to obtain a positive return on investment [14] [15]
[16] [17] [18] [19].
Therefore the underlying with the joint venture idea is that
several companies decide to join efforts in order to
complement each other, and even losing some autonomy,
achieve common goal that an individually each firm would be
unattainable. The negotiation of joint venture has to be carried
out by analyzing to the smallest detail, since an inadequate
management will lead to failure. In addition, during the course
of the negotiations, companies concerned must analyze,
among others, the way to get the best results, if the contractual
commitment will be for long term or short term, or the
consequences of such operation among other things.
With these considerations it is possible to conclude that
companies that decide entry to countries with high risk degree
will decide by international joint ventures the mode of entry
via direct investment, assuming firms a lower cost and greater
flexibility in operations [20], at the same time that reduce
problems associated to political and social factors, as is the
case of expropriations [12] [21] [22].
C. Considerations to take into account in IJV
In this kind of alliances, companies involved are from
different countries with different cultures and institutions in
very notable occasions, unique and individual challenges to
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each company and with complex interactions, what triggers in
a significant increase in the costs of address among others [23].
in a general way the terms that have to be considered as
common to the majority of cases are: culture, reputation, trust,
values, goals, financial returns, size and collaborative
experience. More specifically, once a decision has been taken
in the search process for the ideal partner, is taking importance
a series of other factors, which are still important to make a
good selection, among which the financial solvency,
management and direction styles, operational process,
marketing plans, human resources strategy. Over last few
decades many authors have studied these factors and it is
possible to highlight the following ones: organizational
symmetry[29] [30] [31] [32], trust [31] [33] [34] [35] [36] [37]
[38], resources complementarities [30] [39], non firm
competitors[29] [40], commitment to the fulfillment of the
obligations [31] [35], corporate reputation [34] [41] and
common goals [31] [32] [35] [36] [37] [38].
Therefore IJV have associated the great challenge to be
managed by different partners (two o more) as each of them
have their own management systems, philosophies, values and
attitudes [24] [25]. Due to these differences is not surprising to
see high rates of failure in the IJV´s management. In general,
several dimensions have been used to make reference to the
suitability of the partners of IJV in the literature, among others,
the concepts of complementary tasks or activities, and the
compatibility of the same ones [26] [27]. The literature referred
to these concepts relates the same ones to “strategies
congruity” and “organizational congruity” respectively. The
strategic congruity is one of the most common and rational
explanations which strategic needs and resources of the
partners in alliance put themselves together, where the theory
of the resource and capabilities reveals everything what a
company can contribute. It is assumed that the strategy tries to
reconcile the resources of both companies and obtain benefits
of resources complementary contributing each other, according
to the stage in which they develop to alliance.
A poor partner selection process can lead to problems in the
leaderships and management of the international joint venture
that adversely affect future performance. The main difficulties
that used to be appeared at the first moments are dissimilarity
between corporate cultures of both organizations, so that
special attention must be given to this organizational concept to
select the partner. On the other hand, the day to day running of
the firms also makes visible communication and control
problems based on supranational company creation with
disparity of approaches and modes to flow the information.
Among reasons that motivate the creation of international
joint venture the literature emphasize all that concerted efforts
and share responsibilities for carrying out a project that usually
exceeds the scope that it can encompass each of partner
separately. However, there are various reasons for which firm
can create an international joint venture, as shown in Table 1.
In order to avoid that they extend to the rest of the
organization affecting performance or make it disappear, it
must be designed formal and informal communication systems
allowing establishing an adequate control and an effective and
clear evaluation of goals. There are many other problems that
hinder the management of the international joint venture and
have effect on its future, it can be highlighted both the loss of
strategic autonomy of each partner (in relation to the resources
that each company provides) as the poor decision and
resource´s coordination by partner, which can cause conflicts
to emerge for the activity and goals of the international joint
venture.
TABLE I. REASONS TO CREATE AN IJV
E. Control strategies
Over the last decades we can found plenty of studies about
international joint venture control that can be summarized in
three main lines of research. First of all, we find the concept of
control from the shareholder point of view, as an indicator of
the control of each partner [42] [43] ; other studies focus on the
operative control of international joint venture activities [44]
[45]. Finally, the third line of research it is the basis of this
paper and focuses of the strategic control, being Killing [25]
and Schaan [45] the main promoters.
Source: Aspectos jurídicos de los contratos atípicos [28]
D. Partner selection
The ideal partner in an international joint venture is a firm
with resources, capabilities, routines, knowledge and assets,
which complement the resources that other company already
has. While the international joint venture works in contractual
terms, it is very important that the corporate cultures of both
companies are similar, since the corporate culture are aligned
as a basic pillar on which daily activities of the international
joint venture and employee behaviors are developed.
Killing argues from a decision-maker strategic point of
view the existence of three different types of control: dominant,
share and independent. At the first case, one of the partners has
a dominant position over decision making and strategic control
of the international joint venture, while the other one has a
There are many factors to consider when firm has to find a
partner, each of them more or less important depending on the
type of company, industry, goals and a long etcetera. However,
23
“spectator” position. At the second case control refers both
partner take part actively and substantially within strategic
decisions activities, while the third and last kind of control is
referred when the international joint venture itself has a power
and enough autonomy to make decisions and have the control
about its activities. To these kinds of controls, we have to
include control called split added by Schaan, which reveals that
each partner has the control exclusively over its resources and
capabilities provided within the alliance.
The factors for the success of the international joint venture
management can be divided from a point of view between
internal al external factors. For this research we will focus
mainly on internal factors, those that depend directly on the
relationship between partners that make up the international
joint venture. We can find different authors that give an
approach or the other ones to deal with these kinds of factors.
For example, Lin and Germain [56] argue that the success of
an operation of this type of direct investment depends among
other factors for the daily activities and in the manner in which
partner sort out daily conflicts and formulate strategies to
achieve common goals. On the other hand, Litter, Leverick and
Wilson [57] suggest that there are three types of factors that
can affect the outcome of the international joint venture: (1)
resource contributed by each partner; (2) administrative factors
and (3) environment factors.
On the other hand we can consider another tool of control
that multinationals firms have: Expatriates. For many
companies the most important factor they have is their
employees. Economic theory has proven the importance of
human capital both at firm level and in the economy as a
whole. Therefore, this resource is crucial to achieve the
international joint ventures goals through an efficient manage
of human resources, aligning these policies with firm policies,
values, culture and goals, where the human resources
department play an important role.
Summing up, in order that a International Joint Venture be
successful there is no doubt that there must be a monetary
benefit, and this will depend on the IJV get higher
performance, affecting directly on the same consistency in
goals between partners, the complementary of partners in terms
of previous alliance experience, international knowledge, in
terms of project management experience, in the field of
management skills, human resources techniques and
management and the quality of partners relationships with
clients.
The choice between an expatriate and a local manager has
been treated under different points of view. According to
resources and capabilities theory human as an intangible is an
important key that company has to develop its core competence
in based on it. Knowledge, training and experience of
expatriates are some of arguments that justified the role of
expatriates worldwide, as well as theirs adaptation capacity,
royalty and theirs interaction with other assets of the firms
[46]. Therefore, according with this research line, the
expatriate figure is increasingly used to transfer the capacities
of the company where local employees are inadequate to
develop specific activities in the most appropriate way. These
competences include knowledge and specialized skills that key
personnel must demonstrate in their professional activity.
IV. PREVIOUS STUDIES AND HYPOTHESIS
H1: A greater cultural distance greater the chances for an
election of international joint venture as mode of entry
Most of classic approaches in the literature of the
internationalization of enterprises are based on the greater
cultural distance between sender and receiver investment,
increasingly uncertainty about the same, so it is preferred to
select a more flexible investment [58] and a lesser degree of
commitment [18], as it is the case of the international joint
venture. On the other hand the less familiarity of the foreign
market will enable this type of investment [59].
F. IJV Performance
International Joint Ventures are characterized for their
cultural and organizational crossing between two or more
partners involved, which takes place beyond national borders
of the direct investment sender, what entails an additional
complexity and challenges in the management of this
investment.
H2: Minor international experience the international joint
venture is the best mode of entry via foreign direct
investment
The firm that is becoming increasingly internationalized
under this mode is faced with a culture, governmental structure
and unknown market with strong differences with respect to its
domestic market, which makes the success of the investment
and its profits depend directly on the interdependence and
interaction between partners. Previous studies have provided
the importance of direct connection between fit,
complementary of resources and capabilities and international
joint venture performance. This inter-managerial adjustment
depends on several factors as strategic symmetry [47], strategic
alignment [48] [49], partner diversity [50], partner
characteristics [51], complementary of resources and capabilities [52] [53] [54] [55] among others.
Root [5] argues trough his sequential model the mode of
entry to international countries depending on risk and control
of the investment at the same time, that among all the possible
forms of internationalization modes., being the international
joint venture a direct investment that carries less risk and major
flexibility. This increased risk may be based on a minor
international experience and knowledge of different markets.
For this reason, such as suggest Johanson and WiedersheimPaul [3] firms undertake more resources as they gain greater
international experience.
24
each partner on the activities of the IJV [25] [45]. Insufficient
and ineffective control can make that investment does not get
the performance desired by the partner, as a consequence of the
management and coordination limitation of that undertaking
over alliance activities [15] [31] [76]. Therefore, the greater the
control exercised by the company, this will get results pursued,
at the same time protecting resources that contributes to the
alliance of misuse of the other partner.
H3: Find a trusted partner is the greatest challenge in
establishing an international joint venture
Trust is defined as the mutual confidence under both
partners in an alliance working without fear that the other one
acts in exclusive favor their interest and with opportunistic
behavior. It is very difficult because it achieved building trust
in a partner relationship, with a firm that maybe you have never
worked with. However there are a number of factors that have
a positive impact to create a greater trust a priori over partners
among them: reputation [12] [60] [61] [62], legitimacy [60],
opening up to other previous partners [60] [63], strategic and
operational abilities [64] [65], professionalism [66], social
networks [67], previous alliance experience and ethic behavior
[60] [63].
H8: If the cultural distance increases, the figure of the
expatriate is the most important tool of management and
control of the investment
Based on the study by Singh and Kogut [77] we can say
that as the cultural distance between the country sender and
receiver of the investment increases also the difficulty of
managing people members of the international joint venture
increases.
H4: The greater alignment of strategic goals will positively
affect on international joint venture performance
The organizational adjustment between the partners
depends on the alignment and congruence of the common
goals. Shared interest by companies is a key factor for the
success of an international joint venture [55] [68] [69]. On the
other hand, Tomlinson & Willie [70] argue that goals
congruency of both partner define the common interest
alignment between both.
In the same way the difficulty of integrating systems of
governance and management of the partners also increases. In
turn, these cultural differences reduce the effectiveness of the
control mechanisms based on the confidence [78], by which
the figure of the expatriate acquires a key role as it invests in
countries with a higher cultural distance.
H5: There is a direct relationship between the
complementary of resources provided by partners and the
success of the international joint venture degree
V. METHODOLOGY
The population under study in this research consists on
Spanish firms internationalized by foreign direct investment
(FDI) via IJV in some occasions. The total number of Spanish
firms with FDI is not available as it does not exist any
consolidated database. In order to have an approximate number
of firms we have revised the list of Spanish companies
established in foreign countries provided by ICEX
(International Trade Institute). Although this institution does
not collect all companies with FDI, we have obtained a total of
2.750 firms from its registers. We sent a survey to all these
firms. 166 companies have completed it in a proper manner
and from this sample we have identified 104 companies that
have been involved in at least one occasion on an international
joint venture.
Based on the theory of the resources [71] it is argued that
resources contributed by both partner are critical to the
investment success. The interdependence between partners in
terms of resources, capabilities and organizational routines
define the complementary of the partners [47]. Specifically,
Hill & Hellriegel [54] argue that complementary just takes
place when each partner brings different competencies that do
not overlap with other partners’ competencies.
H6: Communication problems and organizational
differences from the cultural point of view between
partners are the two factors that have more negative affect
within international joint venture management
The sending of the questionnaire took place from the end of
November 2013 until the beginning of March 2014, on three
waves of shipments. The answered questionnaires were
arriving since the beginning of December 2013 until the middle
of March 2014; up to receive 166 surveys that we conducted
this study. Once received the surveys they were store in Google
Drive automatically creating a database ready for their further
treatment making use of the SPSS statistical program.
Communication flows will be increasingly lower as the
cultural distance is greater between the sender and receiver
country of the direct foreign investment [72] [73], making the
relationship between partners less communicative, increasing
management problems and affecting negatively the final
performance. On the other hand, Choi, Chen & Ho [74] and
Shenkar [75] found higher rates of failure in the international
joint ventures when business cultures are distant.
The descriptive analysis constitutes the first level of
examination and its functions are to establish which is the form
of distribution of one or several variables with respect to the
collective as a whole, how many quantities are distributed in
natural categories or built to these variables, which is its
magnitude expressed in the form of a synthesis of values,
H7: International joint venture is characterized by one the
partner exerts a dominant control over the other partner.
A critical factor in the management of the international
joint venture appears in the exercise of control exercised by
25
which is the dispersion between the units of the set, and so on.
Below we describe the results of the survey. We use
comparative figures as a way to measure the importance of
each answer provided from Likert scale questions.
The major difficulties Spanish multinationals face when
they choice the international joint venture as a direct
investment are the incompatibility of business cultures (4.06)
and finding a reliable partner (4.02). In addition, it also has a
great importance to find a partner with the same goals of the
company (3.80). The other factors are less important but also
affect the success of the partnership: restriction of local
government (3.53) and to find a partner of similar size (3.34).
Fig. 1. Main geographic scope of IJV for Spanish firms
Fig. 3. Cultural distance impact on the entrance strategy
Source: Author’s elaboration
At the time when companies have to manage the strategic
alliance the main difficulty lies in the failure of the obligations
on the partner part (4.26), although it is not the only one with
relevance, because the incompatibility of styles of leadership
(4.18) and the loss of business autonomy compared to the
partner (4.04) have a high effect too. With a relative
importance appear the lack of willingness of the partners to be
more flexible (3.93), communication problems with the partner
(3.81), lack of definition of the hierarchical post (3.76) and
unforeseen changes in the environment (3.24).
Source: Author’s elaboration
Of the total of 104 companies 52.8% of them have in
European Union the scope of geographical with the largest
number of international joint ventures. Only 20.2% have the
higher number of this mode of entry in Latin America, while
10.6% of the sample creates them in the Asia-Pacific region.
With even ea lower a percentage there are 7 firms that have
developed international joint venture mainly in the rest of
Europe, 6 firms in Africa and only 3 firms in North America.
Fig. 4. Difficulties in IJV management
The first figure shows that the greater cultural distance the
Spanish multinationals prefer the option to have a strategic ally
and entry to international markets via international joint
ventures (4.18). After this entry mode, firms prefer the merger
and acquisition (3.52) probably because it carries a higher risk
and financial outlay in comparison with the international joint
venture. Opposite figures show us an inverse relationship
between culture distance and organic business growth, as
evidenced by the values obtained for the subsidiaries (2.48) and
the investment Greenfield investment (2.23). The highest level
of indifference is shown for the offshoring strategy option. This
means cultural distance is a factor that does not have an effect
on offshoring election as a mode of entrance, probably because
in this kind of investment activities that are not the core
business of the companies are also involved.
Source: Author’s elaboration
The best way to control the opportunistic behavior in an
international joint venture for the Spanish multinational
companies is through dominant control strategy (4.36). Other
ways of control are also considered important, but when
comparing them to dominant control they do not have a
significant weight: split control (3.56), shared control (3.34)
and independent IJV (3.11) show high levels but lower results
with respect to dominant control.
Fig. 2. Cultural distance impact on the entrance strategy
Fig. 5. Control strategies undertaken by Spanish firms
Source: Author’s elaboration
Source: Author’s elaboration
26
TABLE II. RESULTS OF MODEL 1
The data show that the complementary of resources
contributed by each partner of the international joint venture
obtains higher returns (4.17). On the other hand Spanish firms
have higher performance via consensus on the operating
culture, strategy and business policy (4.21); they also agree to
that through the goal consistency between partners (4.15) are
affected positively the returns of investment. The alignment of
power of purchase/sale and management (3.72) affects
positively to final gains of the alliance, although they have less
weight in comparison with the other three factors.
Fig. 6. Characteristics to obtain higher profits with the IJV
Variab le
Coefficient
value
Significance
(T test)
International experience
0.087
0.295
Cultural distance
-17.406
0.998
Company participates in an
exporter association
-0.398
0.789
Firm size
0.949
0.167
RDI investment
-0.172
0.615
Income
0.154
0.745
Constant
16.109
0.998
Source: Author’s elaboration
As it can be seen by the model presented above, the
international experience and cultural distance are not
significant, meaning that they are not important when Spanish
firms internationalize their activities thorough international
joint ventures. This may be due to various reasons such as the
sector that firms belong. For example, in the Spanish case, the
companies belonging to the sectors of energy, hydrocarbons
and construction have invested a great amount of resources in
Latin America, but through partnerships with local companies
due to large amount of resource required for each project or
governmental restrictions on these strategic sectors.
Source: Author’s elaboration
The importance of the expatriate as a mechanism of control
grows as the cultural distance increases between sender and
receiver country of the investment, at the same firms commit
more resources, such as in merger and acquisitions (4.37),
Greenfield investment (4.35) and subsidiary (4.23). The
importance of them in relation with cultural distance is not
relevant when firms do international joint ventures (3.31) and
offshoring (3.44)
These conditions force the realization of international joint
venture in countries culturally closer than the rest of countries
located to other geographical areas, altering the results.
Another reason is the development of information and
communication technologies, which enable better management
and control of investment worldwide despite a greater
geographical and cultural distance, reducing the risk associated
with the geographical distance and doing that is increasingly
decide by subsidiaries rather than by strategic alliances.
Fig. 7. Importance of the expatriate
If we remove from the previous model international
experience and cultural distance we can see that now the model
is significant at the global level and that each of the variables
included is statistically significant (p<0,05).
Source: Author’s elaboration
TABLE III. RESULTS OF MODEL 2
Coefficient
value
Significance
(T test)
1.788
0.003
Firm size
0.424
0.041
RDI investment
0.387
0.008
Income
0.419
0.014
Constant
-3.457
0.000
Variab le
To contrast empirically the hypothesis regards with
international experience and cultural distance has been chosen
two binary logit models (p<0.05). The first one contains both
variables, while the second one not.
Company participates in an
exporter association
In both models the dependent variable is the probability
that Spanish multinational firms chose international joint
venture as a mode of entry. The independent variables are the
following ones: (1) international experience, (2) cultural
distance, (3) the company participates to an exporter
association, (4) firm size, (5) RDI Investment and (6) income.
Source: Author’s elaboration
Therefore a greater probability to do an international joint
venture investment depends positively on the company
participates in an exporter association, of a greater size of the
company, greater investment in RDI and of a higher level of
income. International experience and cultural distance are
not relevant variables in our sample.
This first model contains all the six independent variables
commented previously.
27
VI. BUSINESS CASES: MAHOU-SAN MIGUEL & EBRO FOODS
Regarding to the management, performance and control of
the international joint venture also show obvious difference. As
has been pointed out previously, the internationalization
process and growth of Ebro Foods is based on mergers and
acquisitions prior learning stage through international joint
venture implementation. In the case of MSM, on the grounds
of market which are characterized by having very large
companies that form clusters of very powerful companies, the
best choice of the international joint venture or acquisition of
SMEs are the first option, for financial reasons, being these
same large companies the partners in the international joint
venture. The international strategy of MSM is characterized by
international joint ventures with international partners,
preferably with firms that have collaborated in the past, in
order to get know-how and previous international market
experience. While Ebro Foods keeps the same positioning with
regard to an exclusively international partner with large market
share, knowledge and experience about the same.
In a second level of study and analysis of the reality we
have been carried out two business cases in order to be able to
describe the reality of a most reliable way considering to each
company as an “individual” with its own characteristics that
make it different to the other.
The case studies are used for the creation of new models
different from the existing ones or for improving the current
one. The objective is to explain new business realities that can
cause the impossibility of using methodologies based on the
approach and contrast of the hypothesis on the basis of a
theoretical framework. New conditions lead to the emergence
of new methodologies that will generate new theories or
complete those already existing, as will be discussed at the end.
For them have been analyzed Mahou San Miguel (MSM) and
Ebro Foods.
The psychological distance for both companies in this case
does not play a very important role due to whose products are
of great consumption and defendants in all the countries,
satisfying primary needs (hunger and thirst). For MSM the best
mode of entry for tackling the cultural distance in internal
matters of the company such as the establishment of a
productive plant is the development of a international joint
venture, while Ebro Food international joint venture means the
first step in a way to acquire an international company,
learning about how partner works and taking knowledge about
local markets.
Finally there is a consensus between the two companies
about the characteristics that make successful international
joint venture. A higher international joint venture performance
depends on a large extent on the complementary of resources
that contribute each partner, in the way that can be obtained in
addition synergies productive, financial and commercial. In
addition to the foregoing, partners must share the same values
and have a similar entrepreneurial culture to gains of
international joint venture increase a long-term. The
relationship between the partners must be based on the
assumption “win to win”, in which both obtaining benefits
from the alliance.
In case of having a good corporate and commercial
reputation in the international market, MSM contemplates the
international joint venture in third place as a mode of entry,
behind of the trade agreements and own subsidiary. On the
other hand Ebro Foods shows a great flexibility choosing the
mode of entry, depending on countries characteristics and
competitors, showing a preference for the acquisition after
international joint venture. As both companies are
accumulating experience on international markets and
knowledge about the country on which they want invest and
transfer their RDI activities and tacit knowledge, MSM opts for
the establishment of subsidiaries and in case of difficulties of
such deployment, opts by international joint ventures.
On the control of the investment discrepancies increase
between both, because MSM prefer the expatriate playing an
important role as management and control tool greater increase
the cultural distance with the country where international joint
venture is established, while Ebro Foods prefer national
manager from its partner due to their familiarity with local
market and customer behavior, having a financial control.
In what refers to the internationalization sequential process
that have followed MSM and Ebro Foods, it is noted that both
faithfully the model described by Root [5], but show a new
internationalization path that shortens the process. If instead of
making the whole process for every each country, they decide
to make a merger or acquisition with a national company with
international presence.
However, Ebro Foods does not transfer its RDI activities to
other countries, internationalizing only products depending on
their life cycle in each international market. On the other hand,
if the industry is characterized by the use of mature technology
and standardized, Ebro Foods are hereby disclaimed by the
Greenfield Investment while MSM chooses the International
joint venture. In the case of MSM the possession and transfer
of such assets do not affect the decision to internationalize their
activities since the international joint venture is its most
desirable way before another option (subsidiary, offshoring or
merger and acquisition), while in the case of Ebro Foods by not
transferring specific assets except their products does not affect
the way of access to international markets.
This operation short the internationalization process, taking
its international experience to establish a own subsidiary more
fast without use some kind of mode of entry like license,
exports, franchise or even international joint ventures. Both
sequential shown that MSM and Ebro Food carried out a
merger or acquisition. Mahou takes international advantages of
the learning process of San Miguel with several subsidiaries
worldwide; meanwhile Ebro Food took the international
advantage of learning process of Herba (a rice firm) with
subsidiaries in Europe.
28
Fig. 8. Internationalization sequential process of Mahou San Miguel
Source: Author’s elaboration based on Root [5]
Fig. 9. Internationalization sequential process of Ebro Foods
Source: Author’s elaboration based on Root [5]
Fig. 10. Extended internationalization sequential process
Source: Author’s elaboration based on Root [5]
29
Therefore, analyzed in the first person both companies and
with many others which have been made by the same process,
we can say that the sequential model of Root [5] can us extend
adding a new step and sequence in the internationalization
process of firms. Starting from national market, firm merges or
acquires to another national firm, operation characterized by a
low risk and a high level of control, giving it an international
experience and knowledge, taking this advantage to
internationalize their activities faster than alone, shorten the
time dedicate to get enough experience and knowledge about
international markets to commit it resources through own
commercial and manufacturing subsidiaries, as shown in
figure10.
manufacturing subsidiary is shortened, involving in this
sequence less risk and more control than if firm decide to begin
the process with exports. This option depends on the financial
resources that national firm has to acquire the other as well as
resources complementary and synergies that both firms has,
among others.
ACKNOWLEDGMENT
The author would like to thank all the respondents of the
survey that made possible to perform this study and especially I
would like to express my gratitude to Jonathan Stordy,
International Managing Director of Mahou-San Miguel and
Manuel González de Luna, Director of Investor and Financial
Entities Relations, Ebro Foods for accepting participating in an
interview about the international strategy of the respective
companies where they develop their professional activity.
VII. CONCLUSIONS
The results show international experience and cultural
distance have not impact to joint ventures formation as mode of
entry in Spanish multinational firms. It means that for Spanish
multinational firms there are other important factors that have a
higher effect on foreign direct investment decisions via joint
ventures. Probably information and communication
technologies and government restrictions in Latin America
have a significant effect to decide if invest through subsidiaries
instead of joint ventures. Although international experience and
cultural distance are not important when Spanish multinational
firms have to decide to implement an international joint
venture, the logit models reveal that the probability to carry out
an international joint venture investment depends positively on
the company participation in an exporter association, the size
of the company, the investment in RDI and also on the level of
income.
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