Effect of equity ownership on the survival of international joint ventures

This note extends transaction cost analysis of international joint ventures (IJVs) to include explicitly the effect of equity. It challenges the common practice of treating all foreign investments with between 5 percent and 95 percent equity as IJVs. A fine‐grained analysis of the role of foreign equity ownership on the survival of 12,984 overseas subsidiaries confirms a declining, nonlinear, and asymmetrical relationship between equity and mortality in overseas subsidiaries. While investments involving small ownership levels (<20%) have very high mortality rates, those with high ownership levels (>80%) have mortality rates comparable to that of wholly owned subsidiaries. Implications for research, practice, and policy are discussed. Copyright © 2003 John Wiley & Sons, Ltd.     

Board involvement in international joint ventures

The last two decades have witnessed substantial scholarly interest in corporate boards, yet little research has been devoted to boards of international joint ventures (IJVs). We combine the corporate governance and alliance governance literatures in order to study this important ex post governance mechanism for IJVs. We identify a fundamental tension inherent in IJVs, which arises from the unique features of this organizational form and influences the level of involvement by their boards. International joint ventures are hybrid organizational forms that can require administrative control to facilitate monitoring and coordinated adaptation in the presence of exchange hazards. At the same time, the fact that IJVs operate in different host countries can make it efficient to delegate authority to local management for certain collaborations. In investigating the determinants of IJV board involvement, we therefore examine characteristics of IJVs that reflect this underlying tension. We conclude that board involvement reflects efficiency considerations in individual ventures, and the administrative control provided by boards is an important dimension of IJV governance. Copyright © 2013 John Wiley & Sons, Ltd.     

Board representation in international joint ventures

Research summary : Relatively little attention has been paid to boards in international joint ventures (IJVs), and the composition of these boards in particular. We examine the determinants of foreign partners' representation on IJV boards in order to advance our knowledge of this facet of IJV governance. We argue that a foreign partner's representation on the IJV board is related to its equity contribution. However, we hypothesize that this relationship is moderated by IJV and host country characteristics that affect the importance of the internal and external roles IJV boards serve. These results provide insights into the conditions under which a partner might wish to secure greater board representation for its level of equity, or utilize less board representation than might be suggested by its equity level alone. Managerial summary : The functioning and composition of corporate boards have long been seen as critical to managers and shareholders alike. In contrast, the boards of IJVs have been relatively neglected. We advance our knowledge of this important facet of IJV governance. Specifically, we highlight the importance of two roles (i.e., an internal and external role) that IJV boards and directors fulfill. We find that the importance of these internal and external roles of boards determines whether a foreign partner might wish to secure greater board representation for its level of equity, or utilize less board representation than might be suggested by its equity level alone. Our results provide novel insights that can help managers structure their IJV boards. Copyright © 2016 John Wiley & Sons, Ltd.     

Absorptive capacity,learning, and performance in international joint ventures

This paper proposes and tests a model of IJV learning and performance that segments absorptive capacity into the three components originally proposed by Cohen and Levinthal (1990). First, trust between an IJV's parents and the IJV's relative absorptive capacity with its foreign parent are suggested to influence its ability to understand new knowledge held by foreign parents. Second, an IJV's learning structures and processes are proposed to influence its ability to assimilate new knowledge from those parents. Third, the IJV's strategy and training competence are suggested to shape its ability to apply the assimilated knowledge. Revisiting the Hungarian IJVs studied by Lyles and Salk (1996) 3 years later, we find support for the knowledge understanding and application predictions, and partial support for the knowledge assimilation prediction. Unexpectedly, our results suggest that trust and management support from foreign parents are associated with IJV performance but not learning. Our model and results offer a new perspective on IJV learning and performance as well as initial insights into how those relationships change over time. Copyright © 2001 John Wiley & Sons, Ltd.     

From hybrids to hierarchies: shareholder wealth effects of joint venture partner buyouts

This study examines the parent firm performance implications of joint venture (JV) partner buyouts, which involve the conversion of a hybrid governance structure to an internal unit within the firm's hierarchy. Transaction cost theory, as developed and applied in the international literature and market entry research, is extended to the post‐entry investment setting to isolate sources of value creation or dissipation from the governance changes effected by JV partner buyouts. The evidence complements recent research on JV longevity and its determinants. Copyright © 2001 John Wiley & Sons, Ltd.     

The assignment of call option rights between partners in international joint ventures

We examine call option rights as a contractual clause in international joint ventures (IJVs) and propose that the assignment of the call option right in an IJV is determined by certain ex ante asymmetries between the partners. Results show that between the two partners in an IJV, the firm with greater complementarity with the venture and greater prior IJV experience is more likely to hold the call option right; in addition, the firm's contractual choice on the call option right and its ownership choice on a greater initial equity stake are substitutive. Our focus on explicit call options advances the real options theory of collaborative agreements, and our results also highlight that option rights be considered an important part of alliance design. Copyright © 2013 John Wiley & Sons, Ltd.     

Asymmetric information and joint venture performance: theory and evidence for domestic and international joint ventures

The increased number of perspectives on joint ventures (JVs) raises important issues for theory development on interfirm collaboration. In this paper, we bring together two key theoretical perspectives on joint ventures—the asymmetric information perspective and the indigestibility view. On a theoretical level, we focus on the relationship between these two different explanations of joint ventures. We also present new evidence on the firm valuation effects of JVs in domestic and international investment contexts. The findings lend support to the asymmetric information perspective on resource combination through joint ventures. Copyright © 2000 John Wiley & Sons, Ltd.     

Antecedents and performance consequences of learning success in international joint ventures

This study examined a sample of organizations involved in international joint ventures, (IJVs) in Malaysia. Drawing upon the resource based view of the firm this paper investigates the antecedents and performance consequences of learning success of foreign partners in IJVs. Data was analysed using two-stage least squares regression (2SLS). Results suggest that a learning orientation, IJV partner mutual dependency and management control, have a positive effect upon the learning success. Results also suggest that organizations with higher levels of learning orientation and learning success have higher levels of business performance. The findings imply that foreign partners in IJVs that are successful in achieving their learning goals, and improving their knowledge, will be winners in terms of improving their business performance.     

Host country executives' assessments of international joint ventures and divestitures: An experimental approach

A large body of research examines the modes by which multinational firms enter foreign markets, yet little work has considered how host country executives evaluate alternative modes of accepting inward foreign direct investment (FDI). This study adopts the host country firm's perspective to investigate the factors that affect Chinese executives' assessments of international joint ventures (IJVs) and divestitures as different modes for engaging inward FDI opportunities. We use an experimental approach to test our argument that executives' preferences for IJVs versus divestitures are driven by multinational firms' resources as well as potential transaction hazards and available remedial mechanisms. This study complements extant research on firms' entry mode choice by offering a direct test of comparative economic organization by explicitly comparing the attractiveness of alternative modes. Copyright © 2013 John Wiley & Sons, Ltd.     

Parent contribution and organizational control in international joint ventures

Organizational control scholars have recently noted how control use is not singular in organizations, but rather, different types of control are used to achieve different purposes. In international joint ventures (IJVs), we suggest that output, process, and social control are exercised by both foreign and local parent firms. We then hypothesize that a parent firm's usage of these three control types is influenced by its resource contributions. Using a sample of IJVs in China, we find that property‐based contribution is linked with output and process control, and knowledge‐based contribution is related to process and social control. The results also show differences in control practices between foreign and local parent firms. The findings provide important implications for the design and implementation of control systems in IJVs.     

Compositional gaps and downward spirals in international joint venture management groups

We argue that compositional gaps in international joint venture (IJV) management groups, along parent company lines, will accentuate distinct managerial coalitions. Such gaps can occur on dimensions of observable demography, less apparent demography, or psychological characteristics. While compositional gaps in IJV management groups can provide the basis for healthy substantive conflict, such gaps—particularly if they are large—also tend to induce relationship conflict and heighten substantive conflict beyond its beneficial range. This can set off a downward spiral of relationship conflict, substantive conflict, and behavioral disintegration in the group. These harmful group processes further interact reciprocally with any tensions that might exist between the IJV parents, engendering a second downward spiral. Our model has implications for the performance of international joint ventures, and it serves as a foundation for designing interventions to avoid the downward spirals we portray. Copyright © 2001 John Wiley & Sons, Ltd.     

Control,collaboration, and productivity in international joint ventures: theory and evidence

This study analyzes the following unresolved questions: In international joint ventures (IJVs) in a developing country, how could different IJV structures address control and collaboration considerations, and what is the likely effect of such different structures on IJV productivity? Theoretically, we suggest that the ambiguity surrounding these questions reflects the tendency of researchers to view control and collaboration as opposing objectives, studying one or the other; in contrast, we provide a more integrative perspective that blends the two objectives, focusing on common underlying issues relating to enhancing partner commitment, ensuring partner knowledge contributions, and reducing partner risks. We address the most salient design consideration for IJV partners, that is, IJV ownership structure, to posit that joint consideration of the control benefit of a higher foreign ownership level in IJVs and the collaboration benefit of a more balanced IJV ownership structure results in an expected inverted U‐curve relationship between foreign ownership and IJV productivity. Additionally, we posit and test how three environmental contingencies, by affecting the need for control and collaboration in IJVs, would further influence the specific shape of the inverted U‐curve relationship. We find strong support for our theory using an extensive longitudinal dataset of over 5,000 IJVs in China from 1999–2003. We discuss the value of our approach and findings both for researchers and for IJV partners seeking the dual benefits of control and collaboration. Copyright © 2009 John Wiley & Sons, Ltd.     

On lemons and indigestibility: resource assembly through joint ventures

We revisit the relationship between two theoretical perspectives on joint ventures—the asymmetric information view and the indigestibility view. The former emphasizes the ex ante valuation challenges firms confront in combining resources, while the latter attends to ex post transaction costs arising from the extraction and integration of indivisible resources. We argue that these two views are complementary, rather than competing, in explaining the usefulness of joint ventures. We also suggest that the perspectives are overlapping inasmuch as resource indivisibility contributes to asymmetric information. Copyright © 2000 John Wiley & Sons, Ltd.     

Probing the unobtrusive link: dominant logic and the design of joint ventures at General Electric

Prahalad and Bettis (1986) have proposed that the successful management of highly diversified firms can be attributed to the concept of a corporate “dominant logic” that guides all of its business units. We argue that dominant logic addresses the problem of balancing the needs of business units against those of the corporation as a whole. We also suggest that the presence of a clear and consistent dominant logic must lead to a high degree of consistency in the strategic moves that are undertaken by each of the business units within the diversified firm. Based on a study of the joint ventures initiated by General Electric between 1984 and 1993, we show that the design of these ventures follows a pattern that is consistent with the presence and influence of dominant logic. Finally, we demonstrate that the early failure of joint ventures can generally be linked to a shift away from this dominant logic. Copyright © 2000 John Wiley & Sons, Ltd.     

Research notes and communications factors in the instability of international joint ventures: An event history analysis

This study uses Event History methodology to examine factors that may contribute to the instability of joint ventures between U.S. multinationals and foreign companies. Using joint venture contract renegotiation as a proxy for instability, it finds statistically significant support for hypotheses that joint ventures are more unstable when partners start out with uneven shares of equity and when the contracts have been renegotiated before. Contract renegotiation is also more likely in relatively open economies than in countries that impose restrictions on direct investment.     

Autonomy and dependence of international cooperative ventures: an exploration of the strategic performance of U.S. ventures in Mexico

Researchers have begun to view international cooperative ventures as complex, multiparty organizations in which foreign and local firms and the venture itself all have distinctive roles. This approach has important implications for the venture strategies of foreign firms in emerging economies. This study explores relationships between the resource contributions of parent firms and U.S. managers' assessment of venture performance in a sample of established U.S.–Mexican ventures. The research suggests that mature cooperative ventures are expected to achieve autonomy from parent firms in key areas at the same time that certain forms of strategic dependency also are important to success. Copyright © 2002 John Wiley & Sons, Ltd.     

Strategic change and termination of interfirm partnerships

An evolutionary perspective of the resource‐based view is adopted to understand how changes in a partner firm's overall strategy may influence the firm's interfirm partnerships over time. We contend that changes in a partner firm's overall resource deployment strategy and partnering strategy influence the value and uniqueness of partnership resources. These changes alter the competitive advantage associated with partnership resources, affecting the propensity of partnership termination. An event history analysis is employed with 150 joint ventures over the period 1990 to 2001 to examine partnership termination within a longitudinal dataset. With initial partnership conditions controlled for, the results indicate significant influences of various changes in partner firm overall resource deployment strategy and partnering strategy on the propensity of termination. Further, competitor imitative activities are found to increase the propensity of termination as they reduce the uniqueness of partnership resources. This study provides support for an evolutionary perspective of resource value and competitive advantage that incorporates strategic change over time. Copyright © 2010 John Wiley & Sons, Ltd.     

Knowledge transfer and international joint ventures: the case of NUMMI and General Motors

Using a case study of NUMMI, a joint venture between General Motors (GM) and Toyota, this research note examines alliances and knowledge transfer with a focus on the organizational processes used to transfer knowledge. The results suggest two possible explanations for the knowledge transfer outcome. The primary explanation is that the systematic implementation of knowledge transfer mechanisms can overcome the stickiness and causal ambiguity of new knowledge. A second explanation is that creating successful knowledge transfer should be viewed from a change management perspective in which trial and error learning experiences and experimentation support the transfer outcome. Copyright © 2007 John Wiley & Sons, Ltd.     

Acquiring knowledge by foreign partners from international joint ventures in a transition economy: learning‐by‐doing and learning myopia

This paper proposes and tests a model of how firms acquire knowledge from their international joint venturing experience. Based on survey responses from 73 Singapore and 89 Hong Kong firms with respect to their joint ventures set up in China, the results indicate that both overseeing effort and management involvement are significant channels of knowledge acquisition. The former channel is more important for firms with a great deal of operational experience in China and for parents of older joint ventures. This finding indicates that firms improve their skills of knowledge acquisition through learning‐by‐doing. Moreover, the strategic importance of the venture concerned, instead of the learning intent of the parent, is the driving force behind the allocation of resources to the two channels. This implies that firms mainly learn through managing their key joint ventures. Since a venture that provides novel and fruitful learning experience may not, and need not, be an operation of great strategic importance, this finding suggests the existence of learning myopia. Copyright © 2002 John Wiley & Sons, Ltd.     

Anxiety of dependency in international joint ventures? An empirical study of drivers and consequences of relationship insecurity

This research introduces and delineates the concept of insecurity in IJV relationships. We define relationship insecurity as a parent firm's concerns about the continuance of the alliance arrangement and its partner's future provision of need satisfaction. According to interdependence theory, exchange partners that experience high dependence inevitably experience this ‘anxiety of dependency’, and the emergence of insecurity can destabilize the working relationship from within. We develop a conceptual model of the drivers and consequences of relationship insecurity in IJVs. Our survey results from 125 IJVs indicate that focal firm dependence and partner firm dependence both negatively affect insecurity, though the former is the dominant predictor. This surprising finding implies IJV partners experience ‘anxiety of low dependency’. The results suggest insecurity not only reduces directly IJV performance, but also lowers the quality of interpartner communication, which in turn dampens performance. Implications of these results are discussed.