Journal of International Business Studies (2010) 41, 906–924
& 2010 Academy of International Business All rights reserved 0047-2506
www.jibs.net
The effects of absorptive and joint learning on
the instability of international joint ventures in
emerging economies
Eric Fang1 and
Shaoming Zou2
1
Department of Business Administration,
University of Illinois at Urbana-Champaign, USA;
2
Department of Marketing, University of
Missouri – Columbia, USA
Correspondence:
E Fang, Department of Business
Administration, College of Business
Administration, University of Illinois at
Urbana-Champaign, Champaign,
IL 19716, USA.
Tel: þ 1 302 887 6831;
Fax: þ 1 217 244 7969
Abstract
The objective of this study is to advance a theoretical framework pertaining to how
interpartner learning in international joint ventures (IJV) may affect IJV instability in
emerging economies. The proposed framework expands the interpartner learning
theory of IJV instability in the current literature, which is focused on absorptive
learning of IJV partners, by incorporating IJV partners’ joint learning. Using
longitudinal dyadic data from IJVs in China, we found that local and foreign IJV
parties’ absorptive learning capacity decreases one party’s dependence on the
other, while joint learning capacity in IJV increases both parties’ dependence on
each other. In addition, an IJV partner’s absorptive learning capacity positively
moderates the effect of joint learning capacity on its dependence on another
partner. These findings lend support to the expanded interpartner learning
perspective of IJV instability, and have important theoretical and managerial
implications for IJVs in emerging economies. The results underscore the
importance of the IJV actively developing organizational rules, procedures, and
structures to create and embed new knowledge in order to maintain the stability
of the IJV. Finally, we found that IJV partners’ dependence asymmetry increases IJV
instability, whereas their total dependence decreases IJV instability.
Journal of International Business Studies (2010) 41, 906–924.
doi:10.1057/jibs.2009.100
Keywords: primary data sources; knowledge-based view; alliances and joint ventures
Received: 25 September 2006
Revised: 21 July 2009
Accepted: 6 August 2009
Online publication date: 25 February 2010
INTRODUCTION
In an era of rapid globalization, international joint ventures (IJVs)
in emerging markets have expanded rapidly, and have become
increasingly powerful forces that shape multinational enterprises’
global strategy. But despite their potential benefits, IJVs in
emerging markets are inherently unstable, and often suffer from
unplanned or premature termination or dissolution (Das & Teng,
2000), due largely to the lack of trust between local and foreign
partners, the changing dynamics of the IJV partners’ relationship,
cross-cultural differences in business practices, fast-changing
market conditions, and weak institutional and legal environments
in emerging markets (Yan & Zeng, 1999). In particular, interpartner
learning has been proposed in the literature as a major cause of IJV
instability (e.g., Hamel, 1991; Inkpen & Beamish, 1997; Park &
Ungson, 1997). Researchers contend that an IJV represents a
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
907
‘‘learning race’’ between partners, each engaged in
absorptive learning from the other (Lane &
Lubatkin, 1998). In emerging economies, IJV is a
particularly important vehicle for a local partner to
absorb its foreign partner’s expertise in R&D and
technology management, and for a foreign partner
to learn from its local partner about local business
practices, distribution and customer characteristics,
and government relationships. According to the
current interpartner learning theory in the literature, the party with greater absorptive learning
capacity tends to dominate the relationship,
because as it absorbs other party’s knowledge it
becomes less dependent on its partner. This imbalance of power inevitably leads to relationship
instability as the more powerful party demands
changes in the control structure and decision rules
in the IJV (Inkpen & Beamish, 1997).
However, other researchers argue that an IJV
represents a ‘‘vehicle’’ of joint learning (Kogut &
Zander, 1992), such that IJV partners engage in
cooperative and synergistic learning to develop
IJV-specific knowledge, routines, rules, and processes that benefit both partners. If IJV partners’
joint learning does take place, the resultant IJVspecific knowledge and organizational processes
should reduce IJV instability (Das & Teng, 2000).
Thus the current interpartner learning theory of IJV
instability offers only a partial picture of the
relationship between IJV partners’ learning and
IJV instability. To better understand IJV instability
in emerging economies, it is necessary to expand
the existing interpartner learning theory by incorporating IJV joint learning in a broader framework.
In particular, it is important to decompose interpartner learning into absorptive learning and joint
learning and examine their interactive effects
because, theoretically, absorptive and joint learning
activities are not independent, but rather interact
in the IJV (Smith, Collins, & Clark, 2005).
The purpose of the current study is to fill in the
major conceptual gaps in the literature, and
advance the knowledge of IJV interpartner learning
and IJV instability in emerging economies. In line
with Inkpen and Beamish (1997) and Yan and
Zeng (1999), we define IJV instability as the extent
to which the IJV renegotiates its contracts/
agreements, reconfigures its ownership and/or
management structure, or changes the relationship
between partners in unplanned or premature ways.
Unlike some previous studies that narrowly define
and measure IJV instability only as termination or
dissolution (see Yan & Zeng, 1999), our definition
captures both the dynamic process and the multiple facets of IJV instability, heeding the call for ‘‘a
shift from a static, ultimate outcome oriented
approach to a dynamic, process oriented approach’’
in IJV instability research (Yan & Zeng, 1999: 406).
In the remainder of this article, we first discuss
interpartner learning, conceptualize IJV partner
absorptive learning capacity and IJV joint learning
capacity, and propose an expanded interpartner
learning framework of IJV instability. Next, we
develop research hypotheses to explicate how
partner absorptive learning capacity and IJV joint
learning capacity influence the dependence relationship in and the instability of IJVs. Then we
describe our study, and show our analysis and
findings. Finally, we discuss the implications of
the findings of the study for future research, and for
firms contemplating IJVs in emerging economies.
INTERPARTNER LEARNING CAPACITIES AND
IJV INSTABILITY
As an important topic in international business
research, IJV instability has produced a significant
body of literature. These researchers have identified
important factors that cause IJV instability, including changes in partners’ strategic missions and
subsequent changes in the IJV’s importance to the
parent firms (Harrigan & Newman, 1990), greater
competitive rivalry between partners (Kogut, 1988),
changes in the host country’s foreign investment
climate (Blodgett, 1992), prior relationships
between partners (Blodgett, 1992), internal tension
(Das & Teng, 2000), and interpartner learning
(Hamel, 1991; Inkpen & Beamish, 1997). Of particular importance, though, is a stream of theoretical
work that focuses on interpartner learning as the
main driver of IJV instability. According to the
existing interpartner learning theory, interpartner
learning is endogenous to the IJV relationship, with
the local partner and foreign partner attempting to
outlearn each other, and its evolution tends to alter
the balance of the power structure within the IJV, and
leads to IJV instability (Inkpen & Beamish, 1997).
We contend that existing interpartner learning
theory captures only the absorptive learning of
individual partners, and that interpartner learning
in IJVs is inherently a dual process. On the one
hand, at the partner level, local and foreign
partners engage in absorptive learning activities
and attempt to absorb each other’s knowledge and
skills, remain flexible, and demand quick shortterm results, which entails ‘‘learning from an
alliance partner’’ (Inkpen & Tsang, 2007). On the
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other hand, at the IJV level, IJV partners engage in
joint and synergistic learning, trying to develop
new IJV-specific knowledge, specific routines, rules,
and processes that benefit both partners and
maximize the value of their complementary knowledge and skills over the long term (Grant, 1996;
Larsson, Bengtsson, Henriksson, & Sparks, 1998).
This type of learning corresponds with what Inkpen
and Tsang (2007) call ‘‘learning with an alliance
partner, learning about alliance management, and
learning about alliance partners’’.
International joint ventures have been compared
to inter-culture marriages (Harrigan, 1986). In
addition to bringing in their own expertise and
resources, partners in a marriage must cooperate to
learn to adapt to each other’s culture, find familyspecific rules, routines, and processes to deal with
family decisions such as children’s education, and
develop new knowledge to benefit the family’s life.
Such family-specific adjustment, knowledge, rules,
routines, and processes are essential for stabilizing
and sustaining the marriage, and could not be
taken by a partner into another marriage should
the first marriage end in a divorce, because they are
embedded in the family. In IJVs, similar joint
learning activities take place between local and
foreign partners to develop a shared understanding
of the IJV rules, routines, and processes, and take
coordinated actions through mutual adjustments
(Crossan, Lane, & White, 1999). Joint learning in
an IJV facilitates the creation of new knowledge
embedded in the organization as systems, structures, procedures, and strategies that stabilizes and
sustains it. It is important to note that IJV joint
learning takes place at the IJV level, involving both
IJV partners’ cooperation and active involvement.
This is in contrast to absorptive learning of an IJV
partner, which takes place at the individual partner
level, and is aimed at absorbing the other partner’s
knowledge and skills. IJV joint learning takes place
when two partners are cooperatively involved in
creating, leveraging, and upgrading potential synergies by blending their resources such as technology,
management, and organizational rules, routines,
and processes. It also involves institutionalizing a
learning culture in the IJV, encouraging and
rewarding those who are learning actively from
each other, and from each side. The end results of
successful joint learning are new organizational
systems and processes, new knowledge, and new
competence embedded in an IJV.
A good example of IJV joint learning is provided
by the IJV between General Motors (GM) and the
Journal of International Business Studies
Shanghai Automotive Industry Corporation (SAIC).
GM and SAIC formed a 50–50 joint venture in
China in 1997. In the IJV, GM and SAIC not only
actively absorb each other’s expertise and knowledge in product/technology, market, and management, but also engage in joint learning. After
encountering initial conflicts in issues such as
profit repatriation vs reinvestment, new product
projects, control and management of the joint
venture, and labor relations, GM and SAIC cooperated to communicate with each other about their
values and priorities by setting up task forces with
members from both parties, and by initiating
certain specific business procedures in vehicle
development involving members from both parties.
Also, GM and SAIC have invested heavily in IT
information systems to store organizational
knowledge and facilitate retrieval and sharing of
organizational knowledge so that their respective
resources and skills can be blended into new IJV
competence. As a result of joint learning, GM and
SAIC are much happier with the way their joint
venture is managed, and with each other. The
successful development of IJV-specific knowledge,
rules, routines, and processes has enhanced the
performance of the GM-SAIC IJV. For example,
in 2005 it developed energy-efficient and environmentally clean vehicles to leverage market opportunities at the 2010 Shanghai Expo, based on
jointly learned new knowledge it did not have
before.1
Drawing on the work of Crossan et al. (1999) and
Kogut and Zander (1992), and building on the
above discussion, we define an IJV’s joint learning
capacity as the ability of the IJV partners to develop
IJV-specific organizational infrastructure and communication channels to integrate the partners’
knowledge, create a new knowledge base for the
IJV, and institutionalize new knowledge in the
context of the IJV. IJV joint learning capacity is
an IJV-level construct that captures the degree of
partners’ cooperation and involvement in developing IJV-specific organizational infrastructure (i.e.,
systems, rules, routines, and processes) and communication channels aimed at creating, integrating, and institutionalizing knowledge for the IJV. It
is different from an individual partner’s ability to
absorb the other partner’s ability, because it cannot
exist without both partners’ cooperation and
involvement. As the GM-SAIC IJV example shows,
successful IJV joint learning can yield substantial
IV-specific knowledge and organizational systems
and processes that make the IJV more competent
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
909
and competitive. It would be very difficult to
imagine a ‘‘divorce’’ between GM and SAIC, because
much of the IJV-specific knowledge and organizational system and processes would be lost should
the IJV end in divorce.
In emerging economies, the market environment
is complex and fast changing. Government regulations are extensive and fast changing; new global
and homegrown competitors emerge constantly;
and consumer demand is evolving. In such a
dynamic environment, the local partner’s knowledge and the foreign partner’s knowledge are
insufficient to sustain an IJV’s success. Thus joint
learning in an IJV is imperative, because it can
continually provide new knowledge bases for the
IJV to respond to the dynamic environment in
emerging economies. For example, by engaging in
new product development, an IJV can create new
development procedures, project management
skills, and process and quality control routines to
embed its new knowledge. The resulting knowledge
and organizational routines or processes are specific
to that IJV, and enable it to respond continually to
market dynamics in emerging economies. Thus an
IJV’s joint learning capacity is vital for the IJV to
sustain its success in emerging economies.
The notion of joint learning capacity can be
gleaned from the dynamic capability literature
(e.g., Eisenhardt & Martin, 2000; Teece, Pisano, &
Shuen, 1997), which emphasizes the criticality
of a firm’s ability to respond to external market
changes efficiently and promptly, particularly in
emerging economies, where market situations
change rapidly and predictably. For example, Teece
et al. (1997: 516) argue that dynamic capabilities
are the ‘‘ability to integrate, build, and reconfigure
internal and external competencies to address
rapidly changing environments’’. Furthermore,
according to Eisenhardt and Martin (2000),
dynamic capabilities are a set of specific and
identifiable norms, values, communication, and
organizational processes. In this sense, joint
learning capacity can be viewed as a type of
dynamic capability by which, through organizational infrastructure, communication channels,
and processes, the various IJV parties’ resources
and capabilities are blended, integrated, combined,
and institutionalized to respond to environmental
changes, and thus drive performance.
An IJV makes organizational boundaries more
permeable, and provides the parties with ‘‘windows
on their partner’s broad capabilities’’ (Hamel,
Doz, & Prahalad, 1989: 134). Thus IJV partners’
absorptive learning has long been recognized in
the literature. Theoretically, the absorptive learning
capacity of an IJV partner – foreign or local –
pertains to its ability to understand, assimilate,
and apply knowledge owned by another IJV partner
(Cohen & Levinthal, 1990; Lane & Lubatkin, 1998).
The importance of absorptive capacity in emerging
economies has been well documented (e.g., Tsang,
2002), and largely reflects the relatively high degree
of knowledge complementarity between local and
foreign partners in IJVs in emerging economies. For
example, local IJV partners may attempt to absorb
foreign IJV partners’ knowledge in R&D and
technology management, while the foreign IJV
partners may absorb the local partners’ knowledge
about local business practices, relationships with
suppliers and distributors, and government regulations, creating an ideal context for absorptive
learning by IJV partners.
In the interpartner learning theory in the current
literature, absorptive learning has been considered
as a competitive ‘‘learning race’’ in which each IJV
partner tries to outlearn the other partner (Hamel,
1991). As absorptive learning takes place in an IJV,
the partner that has greater absorptive learning
capacity will become more powerful, as it is less
dependent on the other partner, and will demand
changes in IJV structure and rules in its favor,
leading to IJV instability (Das & Teng, 2000; Inkpen
& Beamish, 1997). However, we contend that
absorptive learning capacity has both competitive
and cooperative components. In addition to the
competitive ‘‘learning race’’, local and foreign IJV
parties’ absorptive learning capacity can also
increase the effectiveness of IJV joint learning
capacity. This is so because, with greater absorptive
learning capacity, IJV partners are more likely to
appreciate the importance of knowledge, and more
willing to cooperate with other partners in creating
new knowledge and organizational systems and
processes in the IJV. Thus IJV partners’ absorptive
capacity enhances the effectiveness of IJV joint
learning (Smith et al., 2005). For example, in
December 2004 Goldman Sachs formed a joint
venture with GaoHua Securities, a local Chinese
investment bank in China. Since both banks enjoy
a high degree of absorptive learning capacity to
learn the other’s expertise (i.e., Goldman Sachs’s
expertise in investment and wealth management,
and GaoHua Securities’ expertise in Chinese local
business practices and government regulation),
they can better comprehend each other’s knowledge expertise, and appreciate the value of new
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Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
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knowledge and effective organizational system and
processes in the IJV. As a result, they are more
willing to cooperate and get involved in developing
more effective communications and creating new
knowledge of investment banking services in the
Chinese market. Thus the banks’ absorptive learning capacities facilitate their IJV joint learning,
leading the IJV to became one of the largest
investment service providers in China in 2006.
Interpartner learning influences IJV instability
because it changes the dependence structure of the
IJV (Inkpen & Beamish, 1997; Yan & Gray, 1994).
In IJVs in emerging economies the dependence
structure is more likely to change, owing to the
dynamic environment and the partners’ shifting
power. Thus IJVs in emerging economies are more
unstable, creating a greater challenge for the IJV
partners. An IJV’s dependence structure can be
examined from two dimensions: dependence asymmetry and total dependence. Dependence asymmetry
refers to the imbalance between a local party’s
dependence on its IJV foreign partner and the
foreign party’s dependence on its IJV local partner;
total dependence is the sum of their dependences
(Emerson, 1962). The simultaneous exploration of
both dimensions of the IJV dependence structure is
imperative, because they can have different, and
even opposing, influences on IJV outcomes such as
IJV instability (Casciaro & Piskorski, 2005). In other
words, omitting either dependence asymmetry or
total dependence can lead to a biased picture of how
interpartner learning drives IJV instability, because
interpartner learning can lead to simultaneous
Local party’s absorptive
learning capacity
changes in dependence asymmetry and total
dependence.
Expanding the current interpartner learning
theory of IJV instability by incorporating both
absorptive learning and joint learning, and applying it to IJVs in emerging economies, we present
an expanded interpartner learning theory of IJV
instability in Figure 1. This theoretical framework
delineates how partners’ absorptive learning capacities and IJV joint learning capacity may affect
the dependence structure in an IJV, which in turn
influences IJV instability. In the following section
we develop specific research hypotheses linking the
constructs in our theoretical framework.
HYPOTHESES
Absorptive Learning Capacity and Dependence
In the context of emerging economies, the absorption of knowledge is one of the key objectives of
firms that form IJVs, and that knowledge absorption tends to be asymmetric, because the IJV party
that can acquire knowledge from its partners more
effectively reduces its relative dependence on its IJV
partners (Tsang, 2002).
Explicit knowledge such as written customer files
might be absorbed without too much difficulty,
because they entail factual information that can
be easily expressed and communicated to other
people. Their application requires little or no
understanding of the complex interdependent
knowledge bases, and how they connect systematically (Winter, 1987). To absorb tacit knowledge,
Local party’s dependence
on foreign partner
(Total dependence)
Joint learning capacity in
IJV
Foreign party’s absorptive
learning capacity
IJV instability
(Dependence asymmetry)
Foreign party’s
dependence on local
partner
Figure 1 An expanded interpartner learning framework of IJV instability.
Note: Solid lines represent the positive effects, dotted lines the negative effects. The paths presented in the conceptual model are not
the mediating, but the associative ones.
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Instability of international joint ventures in emerging economies
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911
such as a partner’s skill in managing customer
relationships and innovation processes, an IJV
partner might either codify knowledge into routines such as formal rules and polices (Levitt &
March, 1988), or engage in a high level of human
interaction with its IJV partners (Nonaka, 1994).
Through these processes, knowledge can flow from
one partner to the other and be applied outside
the context of the IJV without losing much of its
value. As Inkpen and Beamish (1997) suggest, a
party’s dependence on its partner occurs when
the partner possesses irreplaceable knowledge and
skills valued by the party. Through absorptive
learning, the absorbing IJV party obtains knowledge previously controlled by its partner, and can
effectively understand and apply it outside the
context of the IJV. When this happens, it no longer
views its partner as an irreplaceable contributor
of knowledge. Consequently, its dependence on
the IJV partner drops.
Hypothesis 1a: In emerging economies, the
foreign party’s absorptive learning capacity is
negatively related to its dependence on the IJV
local partner.
Hypothesis 1b: In emerging economies, the local
party’s absorptive learning capacity is negatively
related to its dependence on the IJV foreign
partner.
Joint Learning Capacity and Dependence
Joint learning capacity in an IJV influences the
local and foreign parties’ dependence on each
other in two ways. First, joint learning activities
for creating a new knowledge base for the IJV
depend largely on the interaction among different
functions and between IJV partners. Created knowledge typically is embedded in the IJV’s unique
and complex organizational and social context,
including its language and culture, which makes
it difficult to apply the knowledge outside that
context without significant losses (DiMaggio &
Powell, 1991; Spender, 1996). Thus IJV joint
learning creates a bond between two partners.
Luo (2002) finds that cooperation between local
and foreign partners in China’s IJVs can facilitate
the development of common knowledge, which
may lead to improved IJV performance.
Second, certain forms of created knowledge
resulting from the joint learning activities, especially practical and business routines and organizational processes, are difficult to encode into a set of
identified rules and relationships. Although some
created knowledge can be codified in documents
and practices that can be applied outside the
specific IJV context, much of the knowledge stored
in these routines will be lost in a different context
(March & Simon, 1958). Such knowledge can be
applied only with both partners’ cooperation,
increasing their dependence on each other.
Steensma and Lyles (2000) find empirically that
in a transitional economy (i.e., Hungary), joint
learning activities in the IJV can positively
influence its survival.
The IJV as a ‘‘vehicle’’ of created new knowledge
thus becomes irreplaceable to both the local and
the foreign IJV partners in emerging economies. In
other words, with effective joint learning activities,
this vehicle creates a situation in which neither
party can exit and still understand, interpret, or
deploy the new knowledge without significant
losses. In emerging economies, joint learning
capacity in the IJV should increase both local and
foreign parties’ dependence on each other.
Hypothesis 2a: In emerging economies, joint
learning capacity in an IJV is positively related
to the foreign party’s dependence on its local
partner.
Hypothesis 2b: In emerging economies, joint
learning capacity in an IJV is positively related
to the local party’s dependence on its foreign
partner.
Moderating Effect of Absorptive Learning
Capacity
Although new knowledge that results from joint
learning can increase both partners’ dependence
on each other, the effectiveness of joint learning
depends on individual partners’ evaluations of the
strategic importance of the new knowledge created
through joint learning. Specifically, joint learning
capacity in an IJV can increase a party’s dependence
on its IJV partner when the created knowledge
has significant value to the party. However, the
evaluation of new knowledge is influenced by
the party’s existing knowledge stocks and its
absorptive learning capacity (Boland & Tenkasi,
1995; Smith et al., 2005). Research into cognitive
structures and problem solving (e.g., Bower &
Hilgard, 1981; Estes, 1970) suggests that people
can better understand and tend to assign a higher
value to knowledge that is consistent with their
existing knowledge stocks. As an IJV party absorbs
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912
knowledge from its IJV partner, and then couples
this information with its existing knowledge, it
can more easily appreciate the new knowledge
generated through joint learning (Smith et al.,
2005). An IJV partner’s absorptive learning capacity
puts it in a better position to know how the jointly
learned new knowledge will add to IJV competence,
enhancing its willingness to cooperate with the
other partner and get involved in joint learning.
For IJVs in emerging economies, the complex and
fast-changing environment could make it difficult
for IJV partners to comprehend new knowledge
developed through joint learning. For example, the
constantly and quickly changing environment in
emerging economies often renders one IJV party’s
knowledge insufficient, and requires the development of new knowledge through joint learning.
However, joint learning is more effective when
the local and foreign parties’ absorptive learning
capacities are strong, because the partners could
better appreciate the value of jointly learned
knowledge. Thus we expect:
Hypothesis 3a: In emerging economies, the
greater the foreign party’s absorptive learning
capacity, the stronger the positive effect of IJV
joint learning capacity on the foreign party’s
dependence on its local partner.
Hypothesis 3b: In emerging economies, the
greater the local party’s absorptive learning
capacity, the stronger the positive effect of IJV
joint learning capacity on the local party’s
dependence on its foreign partner.
IJV Dependence Structure and Instability
High dependence asymmetry in an IJV can lead to
considerable dysfunctional conflict between two
partners. When dependence asymmetry is high, the
less dependent party has greater power in the IJV
than the more dependent partner. With greater
power, it can impose its preferred behaviors, alter
the bargaining context in its favor, and influence
negotiation outcomes to its benefit. The more
dependent (weaker) partner in an IJV could be
marginalized, regardless of its behavior, and thus
is less likely to cooperate with the less dependent
party (Bacharach & Lawler, 1981). Moreover, as
dependence asymmetry increases, the stronger
partner has less structural motivation to cultivate
greater commitment, because it can use its relative
power to obtain compliance (Kumar, Scheer, &
Steenkamp, 1995). The weaker partner is unlikely to
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commit because of its vulnerability to the stronger
partner’s opportunistic behavior. Therefore, as Das
and Teng (2000) argue, the internal tension
between IJV partners, due primarily to dependence
asymmetry, should increase IJV instability.
In contrast, high total dependence may make IJVs
more stable. Theoretically, a partner’s desire to
engage in opportunistic behaviors and instigate
conflict is a function of that partner’s fear and
expectation of retaliation by its partner. Consequently, as total dependence increases, the partners
become less likely to instigate conflict, as each
partner possesses sufficient power to damage the
other (Bacharach & Lawler, 1981), and both will
suffer severe losses if a dysfunctional conflict
spiral ensues. In addition, high total dependence
tends to provide a strong motivation to build,
maintain, and even strengthen partners’ commitment to the IJV.
Hypothesis 4: In emerging economies, dependence asymmetry is positively related to IJV
instability, all else being equal.
Hypothesis 5: In emerging economies, total
dependence is negatively related to IJV instability,
all else being equal.
METHOD
Research Context
To test our hypotheses, we employed a longitudinal
dyadic survey of senior managers from both foreign
and local partners in international high-tech joint
ventures in China. We selected high-tech IJVs in
China as the research context for several reasons.
First, China is the largest and fastest-growing
emerging economy in the world, and has attracted
the largest number of IJVs in the last three decades.
Second, most high-tech IJVs between foreign
companies and local Chinese firms specifically
attempt to gain knowledge from the partner that
is otherwise not available (Child & Tse, 2001). In
particular, local Chinese firms seek R&D knowledge
and management know-how from their foreign
partners, whereas foreign firms are interested in
their local partners’ marketing knowledge and
skills in managing local customer relationships.
The nature of organizational learning in high-tech
IJVs in China thus provides an ideal context for
studying how interpartner learning capacities affect
IJV instability in emerging economies. Third, the
unstable institutional environment in China, and
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
913
the high risks associated with that market, cause
some IJVs to take a short-term view of their
relationships, which tends to make them more
unstable (Luo, 2000). At the same time, optimism
about the Chinese market and confidence in the
stability of its economic policy have led other IJVs
to take a more long-term view of their strategy and
operations, which tends to keep the relationship
between local and foreign partners stable over time
(Yan & Zeng, 1999). This variation in IJV instability
levels in China again proves particularly suitable for
studying IJV instability.
The sample frame consisted of 200 randomly
selected high-tech manufacturing IJVs in two
high-tech zones (HTZs), located in the Yangtze
River Delta area of Jiangsu Province. Although
using a single province might limit the reach of
this study, Jiangsu is appropriate for analyzing
IJVs, because it ranks second in China in attracting
foreign direct investment and third in generating
gross domestic product, and because it is representative of the nation’s cultural norms and standards
(Luo, 2005).
We obtained records from the directories of
these two HTZs. Because of concerns about low
response rates to mail surveys in China, and IJV
managers’ widespread fear of industrial espionage,
we needed to undertake a relatively high level
of personal involvement, including telephone calls
and personal delivery and pickup of questionnaires,
to collect the survey data from the IJV managers.
Therefore we first placed telephone calls to the
general managers or CEOs of the 200 IJVs to explain
the purpose of the study, request their participation, and promise a summary copy of the aggregate
results, as well as customized analyses, in return for
their participation. We also obtained endorsements
from government administrative agencies in the
two HTZs. One hundred and forty-six IJVs agreed
to participate, to which we hand-distributed
questionnaires to the general manager/CEO of
one partner in the IJV and a senior manager from
the other partner. Two weeks later we collected
the questionnaires separately from each of the
respondents. When an IJV consisted of more than
two parties, we distributed the questionnaires
only to the dominant Chinese and foreign partners.
These procedures produced 131 pairs of matched
responses, two of which we discarded owing to the
large number of missing values, leaving 129 paired
responses. The survey instrument included checks
on the informants’ knowledge of their IJV’s operations and strategic decisions. On a seven-point
scale, the average knowledge rating was 6.3 for
foreign and 6.1 for local respondents. Three questionnaires with inadequate levels of informant
knowledge were discarded, so our sample consists
of 126 paired responses.
Approximately 3 years later we conducted a
second survey of these same IJVs. According to
the records of government administrative agencies
in the two HTZs – and in a compelling example of
the end result of IJV instability – 27 of the 126 IJVs
were no longer in existence, because one of the IJV
partners sold its interest, the IJV was acquired by a
third party, or the IJV was dissolved. We contacted
the remaining 99 IJVs via telephone to obtain
the CEOs’ or general managers’ assessments of IJV
instability and successfully obtained 90 responses.
Thus, after these lengthy procedures, 117 cases
remain in our data analysis: 27 that terminated
their relationships over three years, and 90 that
reported various levels of IJV instability.
The foreign IJV partners originated from Hong
Kong (26%), Taiwan (25%), Singapore (15%), Japan
(12%), the United States (10%), Germany (8%), and
others (4%). Industries were consumer electronics
(29%), computer hardware (23%), electronic components (20%), medical equipment and supplies
(13%), automation and industrial control (9%), and
telecommunication equipment (6%). Through
our pretest interviews with senior managers we
discovered that these industries are particularly
open to foreign investment, and there is limited
government regulation in the formation and
operation of IJVs in these industries. The average
age of these IJVs was 6.7 years, and the average
investment size by all parties was US$29.34 million.
Furthermore, 65% of the local parent companies
were state-owned enterprises, and the remaining
35% were privately owned.
Measurement
In accordance with theoretical considerations and
our field interviews, we developed the survey
questionnaire in English, translated it into Chinese,
and back-translated it into English to ensure that
both versions contained equivalent measures. We
then pretested it for instrument validity with 30
managers who represented 15 IJVs (paired respondents). The interviewers asked these managers to
respond to the items that measured the theoretical
constructs, and to describe the nature of the
partners’ interaction in their IJVs. The results
revealed a high degree of internal consistency
Journal of International Business Studies
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
914
between the two respondents in each pair (Guttman
split-half R40.86). The managers also identified
some ambiguities in terms, concepts, or items in
the draft questionnaire, which we corrected
through wording changes. We list all the measures
in the Appendix.
Dependent variable. We developed a new measure
of IJV instability for our study, based on the prior
literature (e.g., Yan & Zeng, 1999), and we collected
the IJVs’ responses 3 years after the initial survey.
Using the conceptualization by Yan and Zeng
(1999), we developed five seven-point semantic
scale items on which respondents indicated the
extent to which the ownership structure,
management structure, and strategic roles for
both partners had changed during the prior 3
years in ways that were not originally planned,
as well as whether the partners had renegotiated
IJV agreements or discussed the possibility of
ending the relationship. The coefficient alpha for
this instability measure is 0.843. To validate it, we
correlated IJV instability with IJV performance, as
reported by the CEOs/general managers, on the
basis of five items – return on investment, return on
equity, profits, sales growth, and market share
growth – compared with relevant competitors.
Prior research suggests that IJV performance
should be better with stability, whereas poor
performance should be associated with high levels
of IJV instability (Yan & Gray, 1994; Yan & Zeng,
1999). In support of our measure of IJV instability,
we found that the correlation between IJV
instability and performance was significantly
negative and high (r¼0.592).
Independent variables. We obtained a measure of
the local party’s dependence on the foreign partner
from local respondents using four seven-point
Likert-type scale items adapted from Kumar et al.
(1995) and Provan and Skinner (1989), which
measured the local party’s ability to replace its IJV
foreign partner, difficulty in finding an alternative
partner, and potential loss if the relationship with
the IJV partner were terminated. The coefficient
alpha was 0.798. In addition, we used the same four
items to obtain a measure of the foreign party’s
dependence on its local partner from the foreign
senior managers: the coefficient alpha for this
measure was 0.775. Using these two measures, we
then determined total dependence as the sum of the
two types of dependence, and dependence asymmetry
Journal of International Business Studies
as the absolute difference between them (Casciaro
& Piskorski, 2005).
Consistent with previous studies, we developed a
measure of the local party’s absorptive learning
capacity using three items that asked respondents
from the local partner to evaluate its ability to
understand, assimilate, and apply the knowledge
possessed by its IJV foreign partner. The coefficient
alpha was 0.743. Again, we used these same three
items to determine the foreign party’s absorptive
learning capacity on the basis of the foreign party
respondents’ answers, which provided a coefficient
alpha of 0.783.
In line with the conceptual domain of joint
learning capacity in IJVs presented previously, we
developed our measure of joint learning capacity
in IJV with six items created specifically for this
study. We obtained responses from both local and
foreign IJV parties, which provided coefficient
alphas of 0.860 and 0.836, respectively. Because
the measures of joint learning capacity were newly
developed for this study, we conducted further
validation through 10 in-depth interviews with
managers from both local and foreign partners:
each interview lasted approximately 15–20 min.
To minimize interviewer bias and broaden our
understanding, we asked for open-ended responses
to questions about their interpretations of joint
learning in the IJV. Next, we presented the developed joint learning capacity items to the managers
and asked for their responses. The managers
indicated that they could understand the items
unequivocally, and that the items captured the
underlying domain of joint learning capacity in
IJV. Considering the high consistency between
the two responses (rwg¼0.745), and consistent with
Luo (2005), we aggregated the responses as an
average, multiplied by the interplay agreement
index:
response from local partner
þresponse from foreign partner
rwg
2
where rwg is James, Demaree, and Wolf’s (1984)
measure of within-group, inter-rater reliability.2
Control variables. We controlled for several
variables that might affect the local and foreign
parties’ dependence on each other and IJV
instability, at both the IJV and industry levels,
using data collected in the first wave of the data
collection effort. At the IJV level we controlled
for IJV age, ownership structure, goal congruency,
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
915
prior cooperation, and cultural distance. At the
industry level we controlled for industry
dynamism. Specifically, IJV age refers to the years
of the IJV’s operation, and ownership structure is a
dummy variable (1 if the local party has a majority
stake; 0 otherwise): both these measures come from
registrations with government administrative
agencies. Goal congruency is the extent to which
IJV partners have consistent strategic objectives
for the operations and evaluations of the IJV (Luo,
2002). We adapted four items from Sarkar,
Echambadi, and Harrison (2001) to measure goal
congruency between IJV partners, and averaged the
responses from local and foreign respondents
because of their high correlation (r¼0.608).
Consistent with Luo (2002), our measure of prior
cooperation considered the number of years for
which the two parties had been cooperating
through trade or investment, prior to forming
a focal IJV. Finally, consistent with Luo (2005), we
measured cultural distance with Kogut and Singh’s
(1988) composite index and Hofstede’s (2001) latest
data pertaining to five cultural dimensions: power
distance, uncertainty avoidance, individualism,
masculinity, and long-term orientation.
Adapted from Jaworski and Kohli (1993), we used
four items to measure industry dynamism from the
perspective of both local and foreign respondents,
aggregated according to the same procedure we
used for the IJV joint learning capacity owing to
their high correlation (r¼0.631). The coefficient
alpha was 0.812 for local responses and 0.823 for
foreign responses.
Assessment of the Measurement Model
Because we adopted a dyadic and longitudinal
design, some measures must be obtained from
local partners, whereas others come from foreign
partners. The measures of IJV instability derive
from the second survey we conducted approximately 3 years after the first survey. Therefore
we performed three separate confirmatory factor
analyses (CFA) to assess the measurement models.
The first CFA model included measures obtained
in the first survey from foreign partners, and the
second included the measures obtained in the
first survey from local partners. The third CFA
model featured the measures of IJV instability
obtained during the second survey. Following
Anderson and Gerbing (1988), we restricted each
item to load on its a priori specified factor, and
permitted the factors to correlate. We obtained
maximum likelihood estimates of the measurement
models using EQS software. All models exhibited
acceptable fit indices, and all factor loadings
were significant at the 0.01 level, in support of
convergent validity (CFA model 1: chi-square¼
131.14, po0.01, comparative fit index [CFI]¼0.907,
normed fit index [NFI]¼0.895, incremental fit index
[IFI]¼0.904, root mean square error of approximation [RMSEA]¼0.072; CFA model 2: chi-square¼
141.12, po0.01, CFI¼0.906, NFI¼0.895, IFI¼0.883,
RMSEA¼0.080; CFA model 3: chi-square¼12.23,
po0.05, CFI¼0.985, NFI¼0.952, IFI¼0.943, RMSEA¼
0.039). We present the descriptive statistics of the
constructs in Table 1.
For each sample, we compared a series of nested
CFA models for every pair of constructs to determine whether chi-square differences existed when
we allowed free correlations between the constructs, compared with when we constrained the
correlation to 1.0. The chi-square difference tests
were all significant, and provided evidence of
discriminant validity (Bagozzi, Yi, & Phillips,
1991). In addition, the average variance extracted
was greater than the squared correlation between
each pair of the constructs, lending further
support to the constructs’ discriminant validity
(Fornell & Larcker, 1981).
In addition, we assessed whether common method bias was a serious threat. Following suggestions
by Podsakoff and Organ (1986), we first adopted
Harman’s one-factor test by entering all the principal constructs into a principal components factor
analysis. Evidence for common method bias exists
when a general construct accounts for the majority
of the covariance among all constructs. Through
the analysis, the largest variance explained by
the construct was 23%, indicating no substantial
common method bias. Second, a partial correlation
method was used (Podsakoff & Organ, 1986) (for
specific description, please see Podsakoff &
Organ, 1986). The results indicate that after we
controlled for the highest factor from the principle
component factor analysis, which is assumed to
contain the best approximation of the common
method variance, the significance level of the
partial correlation between any independent
and dependent variables remained unchanged
as that without controlling for the highest factor.
This again suggests no substantial common
method bias.
ANALYSIS AND RESULTS
To test the effects of IJV partners’ absorptive
learning capacities and joint learning capacity in
Journal of International Business Studies
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
1.00
0.20 1.00
0.11 0.23 1.00
0.09 0.11 0.20 1.00
0.11 0.14 0.02 0.11 1.00
0.11 0.05 0.20 0.32 0.03 1.00
0.09 0.23 0.14 0.20 0.05 0.22 1.00
0.05 0.02 0.02 0.01 0.05 0.11 0.08 1.00
0.09 0.14 0.10 0.05 0.14 0.05 0.05 0.11 1.00
0.13 0.18 0.15 0.13 0.05 0.08 0.30 0.13 0.07 1.00
Dep L ¼b0 þ b1 Absor L þ b2 Joint I
þ b3 Absor L Joint I
þ b4 Duration þ b5 Indu Dyn
Journal of International Business Studies
ð1Þ
þ b6 Cul Dis þ e1
and
Dep F ¼b0 þ b1 Absor F þ b2 Joint I
þ b3 Absor F Joint I
þ b4 Duration þ b5 Indu Dyn
ð2Þ
þ b6 Cul Dis þ e2
po0.05: r40.17 or ro0.17.
n¼117 except for IJV instability, where n¼90.
b
a
3.99
4.33
0.44
8.32
4.03
4.56
5.02
4.34
0.56
3.24
6.70
4.37
5.32
5.21
Foreign party’s dependence on local partner
Local party’s dependence on foreign partner
IJV dependence asymmetry
IJV total dependence
Foreign party’s absorptive learning capacity
Local party’s absorptive learning capacity
Joint learning capacity in IJV
Goal congruency
Ownership structure
Prior cooperation
IJV age
Industry dynamism
Cultural difference
IJV instabilityb
1
2
3
4
3
4
5
6
7
8
9
10
11
12
Descriptive statistics and Pearson correlationsa
Table 1
IJV on IJV parties’ dependence on each other, we
tested the following equations using seemingly
unrelated regression analysis (SURE), which maximizes the efficiency of the estimation (Johnston &
DiNardo, 1997). To test the moderating effects,
we mean-centered both the independent and the
moderating variables to reduce the potential problem of multicollinearity (Aiken & West, 1991).
Therefore
1.26 1.00
1.24 0.27 1.00
0.24 0.12 0.11 1.00
3.12 0.35 0.25 0.10 1.00
1.07 0.14 0.11 0.04 0.08
1.14 0.06 0.39 0.14 0.18
1.13 0.17 0.20 0.17 0.27
1.24 0.21 0.19 0.11 0.17
0.15 0.03 0.04 0.02 0.01
1.56 0.13 0.18 0.13 0.15
2.57 0.11 0.13 0.14 0.05
1.06 0.06 0.11 0.05 0.02
1.43 0.12 0.11 0.05 0.05
1.24 0.11 0.08 0.25 0.05
6
5
4
Mean s.d.
Variables
1
2
3
4
3
Correlation matrix
7
8
9
10
11
12
916
where Dep_L(F) is the dependence of the local
(foreign) party on its IJV foreign (local) partner,
Absor_L(F) is the local (foreign) party’s absorptive
learning capacity, and Joint_I designates the joint
learning capacity in the IJV. In addition, Duration
represents the IJV’s lifespan, Indu_Dyn denotes
industry dynamism, and Cul_Dis designates
cultural distance.
The SURE approach, developed by Zellner (1962),
estimates theoretically related sets of equations. As
in Eqs. (1) and (2), the error terms might be
correlated (e.g., e1 and e2), as might the different
sets of independent variables (e.g., Absor_L,
Absor_F, and Joint_I). In such conditions, ordinary
least square (OLS) estimates can be misleading,
and SURE provides significantly more efficient
coefficient estimates than OLS (Zellner, 1962). If
the equations have the same set of independent
variables, the SURE estimation is the same as that
provided by OLS. Another important advantage
of using SURE, rather than structural equation
modeling, is that SURE requires fewer observations
to attain robust estimations. When the regressions
involve multiplicative terms, all variables that
constitute the terms can be mean-centered to
reduce multicollinearity (Aiken & West, 1991). In
Table 2, we report the SURE procedure results.
To test the effects of total dependence and
dependence asymmetry on IJV instability, we
adopted a censored regression or Tobit analysis,
Instability of international joint ventures in emerging economies
Table 2
Absorptive learning capacity, joint learning capacity, and IJV dependence. Results of seemingly unrelated regression analysis (standardized coefficient estimates)
Variables
Foreign party’s dependence on local partner
Local party’s dependence on foreign partner
Model 1
Model 4
Independent variables
Foreign party’s absorptive learning capacity
Local party’s absorptive learning capacity
Joint learning capacity in IJV
Model 2
0.07 (0.093)
0.26 (0.087)**
Moderating effects
Foreign party’s absorptive learning capacity Joint learning
capacity in IJV
Local party’s absorptive learning capacity Joint learning
capacity in IJV
Model 6
0.11 (0.64)
0.31 (0.058)** 0.29 (0.065)**
0.22 (0.075)*
0.19 (0.081)*
0.22 (0.101)*
0.21 (0.089)*
0.11 (0.054)
0.19
0.07
0.15
0.07
0.09
0.03
(0.099)* 0.19 (0.098)*
0.17 (0.082)* 0.15 (0.082)w 0.11 (0.102)
(0.135)
0.05 (0.137)
0.02 (0.167) 0.07 (0.162) 0.02 (0.177)
(0.060)w 0.16 (0.058)w
0.09 (0.054)
0.12 (0.056)w 0.04 (0.065)
(0.028)
0.06 (0.029)
0.03 (0.027)
0.08 (0.031)
0.07 (0.030)
(0.089) 0.03 (0.084) 0.05 (0.079)
0.02 (0.069)
0.03(0.070)
(0.110)
0.02 (0.105)
0.01 (0.101)
0.02 (0.123)
0.03 (0.115)
2.70*
0.12
0.07
3.12*
1.77w
0.16
0.10
4.09**
2.63*
0.17
0.12
1.72
0.08
0.04
3.88**
2.67*
0.17
0.13
0.09
0.06
0.09
0.09
0.05
0.03
(0.101)
(0.175)
(0.065)
(0.030)
(0.072)
(0.110)
4.20**
2.74*
0.18
0.14
**po0.01; *po0.05; wpo0.10 (standard errors are in parentheses).
Significance levels shown are two-tailed for hypothesis testing and control variables.
917
Journal of International Business Studies
F-value:
Hierarchical F-value
R2
Adj. R2
Model 5
Eric Fang and Shaoming Zou
Control variables
Goal congruency
Ownership structure
Prior cooperation
IJV age
Industry dynamism
Cultural distance
Model 3
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
918
Table 3 IJV dependence structure and instability Results of
censored regression analysis (standardized coefficient estimates)
IJV instability
Independent variables
Total dependence
Dependence asymmetry
Control variables
Goal congruency
Ownership structure
Prior cooperation
IJV age
Industry dynamism
Cultural distance
Log likelihood
Model 2
0.41 (0.165)**
0.30 (0.047)**
0.08
0.11
0.20
0.34
0.07
0.05
121.90
(0.087)
(0.165)
(0.071)w
(0.054)**
(0.095)
(0.142)
0.05
0.10
0.21
0.28
0.07
0.05
90.11
(0.082)
(0.157)
(0.075)*
(0.056)*
(0.097)
(0.136)
12
10
8
6
7
4
6
2
5
0
Jo
ca int l
pa ea
cit rn
y i ing
nI
JV
Model 1
IJV foreign party’s dependence
on local partner
Variables
4
1
2
3
ign p
4
a
learn rty’s ab
5
so
ing c
apac rptive
ity
3
Fore
2
6
1
7
**po0.01; *po0.05; wpo0.10 (standard errors are in parentheses).
Significance levels shown are two-tailed for hypothesis testing and
control variables.
þ b3 Duration þ b4 Indu Dyn
þ b5 Cul Dis þ e3
ð3Þ
where Total_Dep is the total dependence between
IJV local and foreign partners, and Dep_Asy is the
dependence asymmetry between the IJV local and
foreign partners. We provide the results in Table 3.
As we show in Table 2, Hypothesis 1b receives
support, because the local party’s absorptive learning capacity negatively affects its dependence on
its foreign partner (b¼0.29, po0.01). However,
we cannot confirm Hypothesis 1a, because the
relationship between the foreign party’s absorptive
learning capacity and its dependence on its local
partner is not significant (b¼0.11, n.s.). A possible
explanation is that the foreign party relies primarily
on its local IJV partner to reach the emerging
economies, and uses a joint learning strategy to
stabilize and sustain the IJV in emerging economies. As Tsang (2002: 836) observes, the foreign
party in an IJV tends to focus more on learning
from strategic alliance experience rather than on
learning the other partner’s skills.
Journal of International Business Studies
1.0
0.5
0
–0.5
7
–1.0
6
–1.5
5
–2.0
Jo
ca int l
pa ea
cit rni
y i ng
nI
JV
IJV Instability ¼b0 þ b1 Total Dep þ b2 Dep Asy
1.5
IJV local party’s dependence
on foreign partner
a maximum likelihood technique that accommodates ‘‘censored’’ data (Johnston & DiNardo, 1997).
Because IJV instability is right-censored (i.e., 27 of
the 117 IJVs were terminated), adopting this
approach enabled us to use data from the 27
terminated IJVs and provided unbiased estimates.
Therefore:
4
1
2
3
4
l par
5
learn ty’s abs
or
ing c
apac ptive
ity
3
Loca
2
6
1
7
Figure 2 (a) Foreign party’s absorptive learning capacity, joint
learning capacity in IJV, and foreign party’s dependence on local
partner; (b) local party’s absorptive learning capacity, joint
learning capacity in IJV, and local party’s dependence on foreign
partner.
The results support Hypotheses 2a and 2b, in that
joint learning capacity in IJVs positively influences
the foreign party’s dependence on its local partner
(b¼0.21, po0.05) and the local party’s dependence
on its foreign partner (b¼0.19, po0.05). Furthermore, the results in Table 2 indicate that Hypothesis 3a is supported. Specifically, the interaction
term between the foreign party’s absorptive learning capacity and joint learning capacity in IJV has a
positive and significant effect on the foreign party’s
dependence on its local partner (b¼0.21, po0.05).
Given this significant interaction effect, in
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
919
Figure 2a we plot the relationship between the
foreign party’s absorptive learning capacity, joint
learning capacity in the IJV, and the foreign party’s
dependence on the local partner. However, the
local party’s absorptive learning capacity does not
moderate the effect of joint learning capacity in an
IJV on the local party’s dependence on its foreign
partner (b¼0.11, n.s.). In Figure 2b we plot the
relationship between the local party’s absorptive
learning capacity, joint learning capacity in the IJV,
and the local party’s dependence on the foreign
partner. This difference between the local and
foreign parties may be explained by the fact that,
in IJVs in an emerging economy, local parties are
eager to absorb foreign partners’ technological
skills (Inkpen & Dinur, 1998). However, foreign
parties’ primary learning objective may be the IJV’s
knowledge about marketing and distribution,
which is likely to be context specific, and depends
on a specific joint process and institutionalization
before it can be effectively functional or valuable.
With regard to the effect of dependence asymmetry and total dependence on IJV instability,
as indicated in Model 2 of Table 3, Hypothesis 4
receives support (b¼0.30, po0.01). We also find
support for Hypothesis 5, in that total dependence
is negatively associated with IJV instability
(b¼0.41, po0.01). In Table 4 we summarize all
these results.
DISCUSSION
Theoretical Implications
In this study we have attempted to develop and
test an expanded interpartner learning framework
Table 4
of IJV instability that incorporates both IJV partners’ absorptive learning capacity and their joint
learning capacity in the IJV. The framework is
intended to present a more complete perspective
of interpartner learning’s effect on IJV instability
in the context of emerging economies. With longitudinal and dyadic data collected from high-tech
IJVs in China, this study offers empirical evidence
to support the expanded interpartner learning
framework of IJV instability. The findings of this
study in turn offer several important theoretical
implications.
First, drawing on the organizational learning
literature, we have distinguished two types of
interpartner learning capacities in IJVs in emerging
economies: the local and foreign parties’ absorptive
learning capacity and joint learning capacity in the
IJV. Our results thus demonstrate that, for IJVs in
emerging economies, the local party’s absorptive
learning capacity negatively affects its dependence
on the foreign partner, whereas the joint learning
capacity in the IJV increases the parties’ dependence on each other. These findings lend support to
the existing theoretical argument that, as a result of
an IJV partner’s absorptive learning, the importance
of its IJV partner as a knowledge contributor
declines, reducing its dependence on its partner.
However, our findings also highlight the importance of an IJV as a vehicle of knowledge creation
through joint learning. Strong joint learning capacity in an IJV tends to make both local and foreign
parties less replaceable and more dependent on
each other. Thus the IJV partners’ absorptive
learning and joint learning in the IJV tend to
have opposite direct effects on the dependence
Summary of empirical results
Hypothesis
1a
1b
2a
2b
3a
3b
4
5
Empirical results
The foreign party’s absorptive learning capacity is negatively related to its dependence on the IJV
local partner.
The local party’s absorptive learning capacity is negatively related to its dependence on the IJV
foreign partner.
Joint learning capacity in an IJV is positively related to the foreign party’s dependence on its local
partner.
Joint learning capacity in an IJV is positively related to the local party’s dependence on its foreign
partner.
The greater the foreign party’s absorptive learning capacity, the stronger the positive effect of IJV
joint learning capacity on the foreign party’s dependence on its local partner.
The greater the local party’s absorptive learning capacity, the stronger the positive effect of IJV
joint learning capacity on the local party’s dependence on its foreign partner.
Dependence asymmetry is positively related to the IJV instability, all else being equal.
Total dependence is negatively related to the IJV instability, all else being equal.
Not supported
Supported
Supported
Supported
Supported
Not supported
Supported
Supported
Journal of International Business Studies
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
920
structure of the IJV, and the expanded interpartner
learning framework that includes both partners’
absorptive learning and joint learning is essential
to present a more complete explanation of IJV
instability in emerging economies.
Second, the effects of absorptive and joint
learning capacity on IJV parties’ dependence are
found to be interactive, rather than independent,
in IJVs in emerging economies. Presumably, strong
absorptive learning capacity makes IJV partners
appreciate the value of new knowledge created
through IJV joint learning, resulting in its greater
effect on parties’ dependence. This finding is in
contrast to existing theoretical views in the literature that a foreign party’s absorptive learning
capacity always reduces its dependence on its local
partner (e.g., Hamel, 1991; Inkpen & Beamish,
1997). Furthermore, our findings suggest that the
foreign party’s absorptive learning capacity could
increase its dependence on the local partner
through its magnification of the effect of joint
learning capacity, whereas the local party’s absorptive learning capacity reduces its dependence on
the foreign partner.
In addition, previous studies note these differences between local and foreign parties’ absorptive
learning activities in Chinese IJVs. For example,
Tsang (1999) argues that, in a typical IJV, an
asymmetrical learning pattern is most likely, such
that the local partner tries to gather technology
and management expertise from the foreign partner, but the foreign partner often does not learn
from its local counterpart effectively. This claim
seems to be consistent with our findings that the
local partner’s absorptive capacity reduces its
dependence on the foreign partner, but the foreign
partner’s absorptive capacity has no significant
effect. This difference in organizational learning
objectives creates an important avenue for future
research, because previous studies have focused
mainly on how the local partner’s absorptive
learning influences IJV performance (e.g., Lane,
Salk, & Lyles, 2001; Tsang, 2002), but have ignored
how local and foreign partners may differ in their
absorptive learning activities.
Third, our research suggests that dependence
asymmetry and total dependence have significant
but opposing effects in driving IJV instability. As
dependence asymmetry increases, dysfunctional
conflict tends to increase, and mutual commitment
tends to decrease, making IJVs less stable. To the
best of our knowledge our research is the first to
provide empirical evidence that dependence
Journal of International Business Studies
asymmetry drives IJV instability, as theorized by
Inkpen and Beamish (1997). We also find that, as
total dependence between IJV partners increases,
both parties become less likely to engage in
dysfunctional competition and more likely to
nurture mutual commitment, making the IJV more
stable. In other words, our findings suggest that
a complete picture of how interpartner learning
affects IJV instability requires attention to the
dyadic dependence structure of both dependence
asymmetry and total dependence. Focusing solely
on dependence asymmetry may lead to a biased
and incomplete view.
Managerial Implications
Our findings also offer several important implications for managers. Maintaining a stable IJV in
emerging economies requires building high and
balanced dependence between local and foreign
parties. Although the power derived from dependence asymmetry can be helpful in the negotiation
process, and can offer benefits to the powerful party
in the short run, it also can be detrimental to an
IJV’s stability in the long run. To achieve high
and balanced dependence between local and foreign parties in emerging economies, IJV managers
must manage their learning capacities carefully in
several different ways. The first pertains to nurturing joint learning capacity in the IJV. Managers
from the two parties should establish effective
knowledge communication channels, and develop
a shared understanding of each other’s knowledge.
In addition, the IJV should actively develop
organizational rules, procedures, and structures to
create and embed new knowledge. With the new
knowledge created from this effort, the foreign
and local parties should view each other as less
replaceable, increasing dependence overall, and
stabilizing the IJV. Moreover, managers must
manage the ‘‘learning race’’ between local and
foreign parties with delicacy. In particular, beyond
the direct knowledge transfer between local
and foreign parties, managers should attend to
the potential enhancing effect of absorptive learning for understanding new knowledge derived
through the integration and institutionalization
process, as well as the potential differences between
local and foreign parties’ learning strategies.
Limitations and Further Research
As does any research, our study suffers from some
limitations, which should be kept in mind when
drawing conclusions from our findings. First, our
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
921
empirical research is based only on IJVs in China.
Though China is an important emerging economy
that attracts substantial foreign investment in the
form of IJVs, its IJVs may not be representative of
IJVs in other emerging economies. Further studies
should examine whether and how our expanded
interpartner learning framework might work differently in other developing countries. Second, we did
not examine factors that determine IJV partners’
absorptive learning capacity and IJV joint learning
capacity in this study. Future research is needed to
investigate how factors such as cultural distance
and goal congruency between local and foreign
partners may affect interpartner learning capacities.
Furthermore, our conceptualization and measurement of the IJV joint learning capacity construct
captures mainly communication channels and
organizational infrastructure such as norms, values,
and, routines. However, organizational processes
such as specific business procedures in new product
development, supply chain management, and
customer relationship management are also an
important component of IJV joint learning capacity. Future studies are urged to expand our
conceptualization and measurement of IJV joint
learning capacity in order to provide an enriched
view of the IJV joint learning capacity–instability
relationship.
In addition to addressing these limitations,
further research could extend our expanded inter-
partner learning framework by investigating factors
that might have a contingent effect on interpartner
learning and IJV partners’ dependence relationships. Of particular importance is an exploration of
the local and foreign parties’ different knowledge
types, and their diverse learning objectives. For
example, the development of absorptive and joint
learning capacities might be contingent on the
specific characteristics of knowledge input by both
parties into the IJV, together with varying objectives for knowledge learning by both parties. The
importance of the parties’ absorptive and joint
learning capacities for IJV instability implies that
understanding how such factors contribute to their
development would be well worth the effort.
NOTES
The information comes from several sources: SAIC
and GM company websites; Bradsher and Keith
(2005).
2
We also compared a first-order factor model with
six items with a second-order factor model with three
different dimensions (each with two items) and a firstorder model with three separate first-order factors.
Since they are not nested models, we cannot compare
their chi-square differences directly. Other fit indices,
such as CFI, NFI, and RMSEA, suggest that the firstorder factor model fits with the data significantly
better than either the second-order model or the
first-order model with three separate factors.
1
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Instability of international joint ventures in emerging economies
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APPENDIX
See Table A1.
Table A1
Items and constructs
Factor loadings
Survey 1
Local (foreign) party’s dependence on foreign (local) partner (adapted from Kumar et al., 1995)
1. If our cooperation with our local partner were discontinued, our party would have difficulty in finding an
alternative partner.
2. It would be difficult to replace our local partner.
3. Our party is quite dependent on our local partner.
4. If this joint venture ended, our party would face a significant loss.
Local (foreign) party’s absorptive learning capacity (newly developed)
1. Our party has developed a superior capability in understanding our partner’s knowledge and skills.
2. Our party has developed a superior capability in assimilating our partner’s knowledge and skills.
3. Our party has developed a superior capability in applying our partner’s knowledge and skills
independently.
Joint learning capacity in IJV (newly developed)
1. Our joint venture has established a strong capability in developing a shared understanding of each
other’s knowledge and skills.
2. Our joint venture is very good at establishing effective knowledge communication channels between
the two parties.
3. Our joint venture has established strong capacity and organizational procedures to develop new
knowledge sets.
4. Our joint venture is very good at developing rules, directives, formulas, and expert systems to create
new knowledge base for the joint venture.
5. Our joint venture has built a strong ability to incorporate new organizational information systems to
create, store, access, and retrieve the newly developed knowledge sets.
6. Our joint venture has developed superior capability to make appropriate changes of organizational
structure to incorporate and distribute the developed knowledge and skills.
Goal congruency (adapted from Sarkar et al., 2001)
1. The goals and objectives of both parties in this joint venture are compatible.
2. There is total agreement regarding organizational goals across all levels, functions, and divisions in the
joint venture.
3. All employees are committed to our joint venture’s organizational goals.
4. There are major conflicts between the partners in this joint venture regarding its objectives (reversecoded).
Industry dynamism (adapted from Jaworski and Kohli, 1993)
1. In the market of our joint venture, customers’ preferences change quickly over time.
2. For our joint venture, market demand and consumer tastes have been unpredictable.
3. Actions of local and foreign competitors of the joint venture have been highly unpredictable.
4. The competition of our joint venture is changing very rapidly.
5. It is very difficult to forecast where the technology will be in the next 5 years.
By local
party
By foreign
party
0.78
0.77
0.80
0.86
0.70
0.73
0.81
0.69
0.69
0.81
0.81
0.82
0.73
0.72
0.90
0.80
0.77
0.73
0.74
0.81
0.68
0.66
0.80
0.79
0.82
0.74
0.72
0.82
0.82
0.88
0.81
0.83
0.82
0.85
0.77
0.75
0.83
0.75
0.81
0.72
0.67
0.77
0.73
0.88
Journal of International Business Studies
Instability of international joint ventures in emerging economies
Eric Fang and Shaoming Zou
924
Table A1 Continued
Items and constructs
Factor
loadings
Survey 2
IJV instability (Adapted from Yan and Zeng, 1999)
During the last 3 years: (very little very significant)
1. To what extent have your partners renegotiated the agreements which were not originally planned?
2. To what extent has your joint venture prematurely reconfigured its ownership structure?
3. To what extent has your joint venture restructured its management structure not originally planned?
4. To what extent has the relationship between your partners changed, which may have hurt your joint venture
performance?
5. To what extent has your joint venture discussed ending relationship between your joint venture partners?
ABOUT THE AUTHORS
Eric (Er) Fang ([email protected]) is Assistant
Professor of Marketing and International Business
in the College of Business at the University of
Illinois at Urbana-Champaign. He received his PhD
from the University of Missouri-Columbia. His
research interests are marketing strategy, new
product development, and international joint ventures. His work appears in Journal of Marketing,
Journal of International Business Studies, and other
journals. He was born in mainland China.
0.67
Shaoming Zou ([email protected]) is Robert J.
Trulaske Sr Professor of Marketing at the
University of Missouri, Columbia and External
Professor of Marketing at Peking University,
China, He received his PhD from Michigan State
University. His research interests are global marketing strategy, export marketing, and international
joint ventures. His work appears in the Journal
of Marketing, the Journal of International Business
Studies, and other journals. He was born in
Mainland China.
Accepted by Yadong Luo, Consulting Editor, 6 August 2009. This paper has been with the authors for five revisions.
Journal of International Business Studies
0.73
0.81
0.72
0.63