Management of Sino-Sino Joint Ventures

Abstract

Since China's implementation of its open-door policy in 1979, the most effective way to obtain a foothold has proved to be to create joint ventures (JV) with a Chinese business partner. The foreign partner provides the transfer of technology, management skills, financing and access to international markets, whilst the Chinese partner contributes a production base with cheap land and labor, contacts with central and local government officials and access to the domestic Chinese market. The Chinese economy has benefited to a large extent from the creation of joint ventures in the past two decades. Hong Kong firms have used China as a production base for many years, usually with great success and to the mutual benefit of both. However, although Hong Kong firms had considerable experiences in running business and manufacturing operations in China, several have suffered substantially from their investment in joint ventures with Chinese partners. This paper evaluates various issues relating to the performance of equity joint ventures in China. The evaluation is based on a case study of four Sino-Hong Kong joint venture manufacturing firms in the electronics industry, and the findings of this paper indicate that there are number of important factors affecting the stability of joint ventures in China. Foreign investors' experiences in other areas may not be applicable to their investment in China because the operation of a joint venture in China is inevitably faced with a variety of problems that the foreign firms may not have encountered before.     

Antecedents and Effects of Parent Control in International Joint Ventures

Using a sample of 90 US–China manufacturing joint ventures, this study empirically tested a grounded-theory model of the antecedents and the effects of the structure of parent management control in international joint ventures. The results suggest that competitive and cooperative dynamics occur simultaneously between joint venture partners. On one hand, the relative bargaining power between the partners, derived from the negotiation context and from contributing critical resources to the venture, respectively, is a determining factor in management control; and the level of operational control exercised by a partner over the venture has a positive effect on the extent to which this partner's strategic objectives are achieved. On the other hand, the quality of the interpartner working relationship was found to have a strong, positive relationship with the achievement of strategic objectives for both partners.     

CEO Experiences: Effects on the Choice of FDI Entry Mode*

abstract Drawing on the strategic management and international business literatures, this study examines the relationships between the experiences of newly selected CEOs and their choice of foreign direct investment (FDI) entry modes. Based on a sample
of 380 foreign market entry events involving acquisitions, greenfield investments, and joint ventures, our findings indicate that CEOs with less firm experience preferred acquisitions and greenfield investments to joint ventures and, older CEOs were more likely to opt for joint ventures over greenfield investments. In addition, CEOs with throughput functional experience favoured acquisitions over joint ventures and greenfield investments. Finally, CEO international experience was associated with a greater propensity to choose greenfield investments and acquisitions over joint ventures and also greenfield investments over acquisitions. The implications of the findings from the perspective of theory and managerial practice are discussed, along with possible directions for future research.     

Impact of culture on ‘partner selection criteria’ in East Asian international joint ventures

Selecting the right partner is important for the success of alliances and joint ventures. For international joint ventures (IJVs) from diverse cultures the partner selection process can become complicated. Prior studies have investigated the alliances and joint ventures to develop a set of objective criteria for evaluating potential partners. This paper reports the study of IJVs formed by Singapore firms in Peoples Republic of China and India. The intent was to develop a methodology for identifying partner selection criteria in a cross-cultural setting. The findings reveal that the partner selection process follows a different logic in Confucian societies. Trust has been established to be essential for developing enduring co-operative relationships. The paper explores the concept of trust in relation to commitment and control in the context of the Confucian culture. We discover that trust is critical to partner selection. Cultural differences do not significantly alter the partner selection criteria for Singapore firms. Results support the view that while Chinese may depend on networks for social solidarity, social trust does extends beyond the family and is necessary for harmonious and successful joint ventures.     

Wealth Effects of International Investments and Agency Problems for Korean Multinational Firms

This paper recognizes the recent surge in cross‐border investments by MNCs from newly industrialized countries and investigates the wealth effects of FDI announcements by Korean firms, which are the leading FDI providers in Asia. The empirical results indicate that for Korean MNCs: 1) cross‐border investments increase shareholder wealth; and 2) they do not obtain the firm‐specific technological advantages over international competitors. The paper also presents evidence that cross‐border investments do not increase shareholder wealth for the 30 largest chaebol‐affiliates, and that shareholder wealth losses are greater when corporate ownership is concentrated, as suggested by Shleifer and Vishny (1997) and La Porta et al. (1998, 2000) .     

Corporate Social Performance,Legitimacy, and the Choice of Foreign Partners by State-Controlled Entities in the Global Extractive Industries

We study the outcome of the decision of a state-controlled entity (SCE) to form an international joint venture (IJV) with a foreign partner in the SCE's country. Focusing on the perspective of the host SCE, we propose that in its search for a partner, the SCE will evaluate the sociopolitical legitimacy effect of a candidate partner's corporate social performance (CSP). Thereby, the SCE will consider CSP an important selection criterion because of its legitimacy effect on the selection decision, the SCE, the IJV, and the host state in the eyes of salient local and international stakeholders. Moreover, the legitimacy effect of a candidate partner's CSP will further influence the decision outcome through its interaction with the level of corruption in the candidate partner's home country, the extant sociopolitical legitimacy of the host state, and the number of neighbouring countries of the host country participating in international multi-stakeholder initiatives. We find support for our hypotheses using a novel sample of extractive industries IJVs between SCEs from 48 countries and 203 foreign partners from 22 countries for the period 2000–15.     

Modeling the performance of US direct investment in Japan: Some empirical estimates

Foreign firms' direct investments in Japan increased from about $930 million in 1984 to $2.2 billion in 1987, and are still increasing at a rapid rate. Most of these investments come from the United States and Europe. In this paper a short-run model for the performance of a foreign parent firm's subsidiary in Japan is presented. The model is based on theories presented by Hymer, Caves, Buckley and Casson, among others, and consists of two equations: one for profitability and the other for growth. Duality is used to relate a parent firm's activities to its subsidiary firm's profitability. The model is estimated using data for US firms' subsidiaries in the Japanese chemical industry. We find that for jointly owned subsidiaries (joint ventures), imports from US parent firms and the R&D spending by both US and Japanese parent firms are major determinants of profitability and growth. US firms' fully owned subsidiaries, however, exhibit considerably different profit and growth behavior than their jointly owned counterparts. Because of the small sample sizes used, it is not possible to ascertain the sources of the observed differences.     

THE POLITICAL EMBEDDEDNESS OF PRIVATE ECONOMIC TRANSACTIONS*

Governments are able to manipulate economic transactions in order to achieve foreign policy goals. This article addresses the question: can managers of multinational enterprises (MNEs) structure economic transactions in ways that will limit the costs resulting from government intervention? Using a transaction cost framework, the efficiency of alternative structures (exporting, joint ventures, licensing, or wholly owned subsidiaries) for protecting a firm's interests are assessed. We argue that the traditional focus on the dyadic relationship between supplier and buyer misses sources of transaction costs; by conceptualizing economic transactions as embedded in a political context, additional sources of transaction costs are revealed. We examine three cases of home government intervention in US MNE transactions with the Soviet Union. We find that the full range of structural alternatives is affected by government sanctions, although sanctions are imposed on exporting relationships first and removed last. We find that MNEs are, therefore, beginning to insulate international transactions by making their overseas subsidiaries more independent of US technology and supplies with the hope that the US government will be less likely to impose its will extraterritorially by intervening in foreign subsidiaries’private economic transactions.     

AFTER THE INK DRIES: THE INTERACTION OF TRUST AND CONTROL IN US-BASED INTERNATIONAL JOINT VENTURES

This study empirically examines the moderating effects of age and partner trust on the relationship between control mechanisms and perceptions of performance in 129 US‐based international joint ventures (IJVs). A reliance on formal control mechanisms and general managers’ perceptions of IJV performance were found to be positively related in younger IJVs, but this relationship became negative in more mature IJVs. In addition, social control mechanisms and perceptions of IJV performance were positively related, but only in the presence of affect‐based trust between the parents.     

Accounting for derivatives: An evaluation of reporting practice by UK banks

In 1995, the Canadian Institute of Chartered Accountants (CICA) changed its Generally Accepted Accounting Principles on accounting for joint ventures from permitting a choice between the equity method (EM) and proportionate consolidation (PC) to requiring only PC. More recently, the International Accounting Standards Board (IASB) has decided to issue a new standard that will eliminate choice between EM and PC and require only EM; but as of October 2010 a new standard was still to be issued. The past Canadian and proposed IASB changes are similar in that choice between the same two reporting methods is removed but differ in the required alternative, PC for Canada and EM for the IASB. In this paper we use a sample of Canadian companies over the period 1985–2003 to study financial reporting for joint ventures. To our knowledge, our Canadian sample is the only one reflecting a reduction of choice in financial reporting methods for joint ventures. Therefore, our results have particular relevance for evaluating the IASB's proposed change. Specifically, we investigate whether firms that use EM between 1985 and 1994 experience a decline in value relevance of key balance sheet amounts such as total assets and liabilities when forced to use PC from 1995 onwards. Since 1995 firms are also required to provide footnote disclosures on their share of joint venture assets and liabilities in addition to revenues, expenses and cash flows. Using these disclosures, we investigate whether disaggregate joint venture assets and liabilities are incrementally and overall value relevant. We find that firms that are forced to switch from EM to PC experience a decline in value relevance of reported assets and liabilities. The firms that use PC for the entire sample period experience no such decline. We also find that joint venture assets and liabilities are incrementally and overall value relevant when disclosures are mandatory from 1995 onwards. Our results show that the removal of choice of financial reporting method does have value-relevance implications, something that is of importance to users. We also find that the requirement of additional disclosure of joint venture assets and liabilities is value relevant, which may offset, to some extent, the costs of the reduction in choice. Our inferences may have implications for a number of jurisdictions across Europe and beyond that are affected by a similar reduction of accounting choice proposed by the IASB.     

Bridging the cultural divide: Trust formation in university–industry research collaborations in the US,Japan, and South Korea

Academia and industry increasingly work together, but this is not always an easy endeavor. In this article we investigate how relational mechanisms facilitate trust formation in university–industry research collaborations (UICs) in three countries and contribute to the understanding of international similarities and differences in UICs by considering institutional factors, specifically, the strength and maturity of UICs in each country. Analyzing survey data of 618 recent UICs in the US, Japan, and South Korea, we identify the activities of innovation champions as a critical trust building mechanism between firms and universities that complements initial trust formation through tie strength, partner reputation, and contractual safeguards. We find that partner reputation and champion behavior are more important for trust formation in South Korea than in the US and Japan, indicating that in ‘emerging UIC countries’ where most firms and universities have little collaboration experience, reputation and the leadership by innovation champions are more important for trust formation in UICs than in ‘advanced UIC countries’ with strong and mature UIC networks. From a public policy perspective, our findings suggest that networks between firms and universities should be generally strengthened and collaboration partners should be provided with effective contractual safeguards to enhance trust formation in UICs.     

Performance Implications of IJV Boards: A Contingency Perspective

This study draws from the corporate governance literature to investigate the implications of board involvement for international joint ventures (IJVs). We extend recent corporate governance research on the value of board involvement by investigating unique sources of complexity related to the nature of the IJV. We argue and find that board involvement can enhance the performance of IJVs, particularly for collaborations that are complex in nature due to their broad functional scope as well the level of market overlap between IJV parents. We complement recent research on joint venture control that has focused on the antecedents and types of control, as well as studies on formal (e.g. contractual safeguards and monitoring) and informal governance mechanisms (e.g. trust) by providing empirical evidence that IJV board involvement is valuable when directors undertake their control and coordination responsibilities. We advance corporate governance research by providing evidence that joint ventures possess several unique characteristics that shape the value of board involvement, thereby showing that applications of corporate governance theory to joint ventures are useful, but should be made with care.     

Lost and Found in Translation: How Firms Use Anisomorphism to Manage the Institutional Complexity of CSR

Prior research on the internationalization of firms from emerging countries has fruitfully invoked institutional theory to emphasize the legitimacy benefits that firms that obtain from showing isomorphism with international norms such as Corporate Social Responsibility (CSR). Without denying the intuitive appeal for these firms to communicate acceptance of CSR, we suggest that firms face a legitimacy trade-off, where the hoped-for legitimacy benefits of isomorphism must be weighed against other home-country institutional considerations. We advance and test this notion that firms will navigate this institutional complexity by engaging in anisomorphism, i.e., espousing general acceptance with international values but with selective ‘translation’ based on home country differences. We test our predictions by analysing firms' communication of CSR, using a unique dataset comprised of 245 firms observed over the period from 2000 to 2018. Consistent with our predictions, we find that firms from countries more reliant on natural resource extraction (e.g., mining and fossil fuel industries) de-emphasize the environmental component of CSR, and firms from more autocratic countries de-emphasize the human rights component of CSR. Additionally, and consistent with our presumption of firms' weighing the international versus home-country legitimacy trade-off, we find that these main effects are sensitive to changes in firms' levels of internationalization.     

IJV Partner Trustworthy Behaviour: The Role of Host Country Governance and Partner Selection Criteria

This study provides new insight into the interplay between partner‐ and institution‐level bases of trustworthy behaviour in international joint ventures (IJVs). The results of the study, based on survey and archival data collected on 144 IJVs across six Asian countries, revealed that host country governance quality directly and positively influences IJV partner trustworthy behaviour. It was also found that weak host country governance undermined the effectiveness of certain partner selection criteria in serving as a tool for establishing an IJV with a trustworthy partner. Furthermore, through distinguishing between two dimensions of trustworthiness (benevolence and competence), it was demonstrated that partner benevolence is facilitated by relationship‐oriented criteria, whereas partner competence is facilitated by task‐oriented criteria. The implications of these results for the establishment and management of IJVs are discussed.     

The effect of housing and stock market wealth on consumption in emerging and developed countries

This study examines the long- and short-run relationship between private consumption, housing wealth, stock market wealth and income. In order to asses this relationship empirically, we use pooled mean group estimators of dynamic heterogeneous panel data on a sample of 30 developed and emerging economies. The sample countries are segmented into three separate panels: a developed bank-based panel, a developed market-based panel, and an emerging bank-based panel. Empirical estimates support the existence of long- and short-run stock market wealth effects in both groups of developed countries, with the effect being particularly strong in the developed market-based countries. A moderate long-run housing wealth effect is confirmed only for the developed bank-based countries, while a very strong short-run housing wealth effect is present in the developed market-based countries. As far as the emerging countries are concerned, the evidence is somewhat inconclusive, but it does seem to suggest that both wealth effects are effective in the long run, with housing wealth being more dominant.     

Predicting the Performance of International Joint Ventures: An Investigation in China*

ABSTRACT Organizational learning, resourcing and control have been identified in the literature as potential firm‐level influences on the performance of international joint ventures (IJVs). The study reported here examines the impact of these factors on the performance of Sino‐foreign IJVs. Their performance is assessed in terms of both ‘goal’ and ‘system’ criteria. The hypothesized performance determinants are found to be more strongly associated with variance in system performance than in goal performance. The main performance predictors are the parent companies’ experience with international business and joint ventures, and the quality of resources they provide to the joint ventures in respect of capital investment, new facilities and operational inputs. When good quality resourcing is provided, the sharing of control with local partners also predicts higher IJV performance. The performance effects of these factors appears to be cumulative, implying that further research should examine them together rather than singularly.     

‘Derivative’ firms,agency and economic integration

This paper proposes a ‘derivative’ firm model that emphasizes the decisions to invest in productive assets and to contract with firm managers. Contemporary examples of derivative firms include joint ventures and LBOs. The traditional joint venture is recast as a derivative firm with the model pointing out why managerial contracts and asset investment decisions should be made simultaneously for optimal shareholder wealth.     

Unpacking the relationship between young ventures’ international learning effort and performance in the context of an emerging economy

This study investigates the relationship between international young ventures’ learning effort and performance in foreign markets, as well as its underlying contingencies, in the context of an emerging economy. We predict that international learning effort enhances international performance, that this effect is stronger at higher levels of market turbulence and intrafirm trust, and that the enabling role of trust for leveraging international learning effort into enhanced performance is particularly strong in turbulent markets. Results from a sample of 162 Chinese international young ventures support the hypotheses. The study has important implications for research on international entrepreneurship.     

The effect of the Kyoto Protocol on carbon dioxide emissions

In this paper, we investigate the impact of the Kyoto Protocol on world emissions of a greenhouse gas, carbon dioxide. We use a large unbalanced panel data consisting of 177 countries from 1980 to 2006. The key finding of this paper is that there are structural breaks in the data that demonstrate the effects of the international agreement. While carbon dioxide emissions declined for industrialized (Annex B) countries since the signing of the international agreement, the effect of income per capita is much larger during these years. However in the same period, the effect of industrial production has declined not just for industrialized countries but for developing countries as well. The results are robust to the exclusion of the US and Australia as Annex B countries since they had not ratified the protocol by 2006.     

Secrecy Culture and Audit Opinion: Some International Evidence

We examine whether and how auditors respond to audit risks arising from secrecy culture when making audit opinion decisions. Using a sample of international Big N auditors from 33 countries, we find strong and robust evidence that auditors are more likely to issue modified audit opinions to clients domiciled in countries with a strong secrecy culture. In addition, we find that the association between secrecy culture and auditors' propensity to issue modified audit opinions is less pronounced in countries with strong investor protection than that in countries with weak investor protection.