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 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.     

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.     

A transaction costs theory of equity joint ventures

This paper presents a transaction costs theory of equity joint ventures. It distinguishes between ‘scale’ and ‘link’ JVs. Scale JVs arise when parents seek to internalize a failing market, but indivisibilities due to scale or scope economies make full ownership of the relevant assets inefficient. Link JVs result from the simultaneous failing of the markets for the services of two or more assets whenever these assets are firm-specific public goods, and acquisition of the firm holding them would entail significant management costs.     

Intended and unintended termination of international joint ventures

This study proposes that international joint ventures (IJVs) are terminated either when the initial purposes of the formation of the IJV have been achieved (intended termination), or when unanticipated contingencies that emerge in the external, internal, or inter‐partner conditions after the establishment of the IJV impede the continuation of its operation (unintended termination). Our study examines the factors that affect intended and unintended termination and the longevity of IJVs. The findings show that approximately 90 percent of all IJV terminations are unintended and 10 percent intended, and that the frequency of intended termination and unintended termination varies noticeably depending on the initial purposes of formation. This suggests that the termination of IJVs is significantly contingent on their formation. The findings also show that the longevity of IJVs varies according to the initial purposes of formation, the initial conditions under which the IJV is formed, and the types of unanticipated contingencies that it encounters. The key theoretical issues and practical implications of the distinction between the intended and unintended termination of IJVs are also discussed. Copyright © 2007 John Wiley & Sons, Ltd.     

The competitive effects of partial equity interests and joint ventures

Antitrust authorities should consider the trade-off between enhanced efficiency and reduced competition in cases of partial ownership. This paper examines the competitive effects side of that trade-off in the context of a modified Cournot model. We show that, in markets where entry is difficult, partial ownership arrangements could result in less output and higher prices than otherwise, even if the ownership shares are relatively small. These effects arise solely because these arrangements link the fortunes of actual or potential competitors, producing a positive correlation among their profits. In this sense, the effects are purely structural: they arise not because of increased opportunities for collusion or changes in the concentration of control, but because the linking of profits reduces each firm's incentive to compete. Since these links internalize free rider problems associated with policing collusion and investing in entry deterrence, however, they could also enhance cartel stability and profitability.     

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.     

Contract,cooperation, and performance in international joint ventures

This study examines how contract, cooperation, and performance are associated with one another within international joint ventures (IJVs). We argue that contract and cooperation are not substitutes but complements in relation to IJV performance. An IJV contract provides an institutional framework guiding the course of cooperation, while cooperation overcomes the adaptive limits of contracts. Our analysis of 293 IJVs in a dynamic market demonstrates that previous cooperation bolsters contractual adaptability, which in turn nurtures current cooperation between the same partners. We find that contract completeness and cooperation drive IJV performance both independently and interactively. When contracts are more complete, cooperation contributes more to performance. Contract and cooperation differ in their quadratic effects such that the contribution of contract completeness to performance declines as completeness increases but the contribution of cooperation remains linear. Copyright © 2002 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.     

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.     

Good match matters: Knowledge co-creation in international joint ventures

Partners not only transfer knowledge to each other but also can jointly create new ideas and practices. This research examines knowledge co-creation (KCC) in international joint ventures (IJVs). Drawing on matching theory, we propose that partners' compatibility is positively related to KCC, whereas complementarity has a curvilinear relationship with KCC. Furthermore, according to institutional theory, the effect of KCC on performance is contingent upon the institutional environment. Specifically, information verifiability—an under-researched but important institutional factor—strengthens the positive influence of KCC on performance. We collected survey data from 372 senior and middle managers in China-based IJVs, and the results largely support our hypotheses. This research sheds new light on B2B collaboration and we conclude with its theoretical and managerial implications.     

Imitative innovation and international joint ventures: a dynamic analysis

In this paper we deal with some dynamic issues of international joint venture in the context of a developing country. We provide a rationale for international joint venture formation, as well as its subsequent instability, where instability is interpreted as payoff readjustments between the partners in the venture. Although the joint venture is formed in response to government restrictions on foreign equity holdings in the first period, its subsequent instability is caused by both the change in government policy, as well as the outcome of imitative technological innovation undertaken by the host partner. It is also shown that uncertainty about the government policy in the second period plays an important role in the formation of joint venture in the first period.     

Government corruption and foreign stakes in international joint ventures in emerging economies

This paper analyzes the relationship between government corruption and the changes in the equity stake of foreign partners in international joint ventures (IJVs) formed with local firms in emerging Asian economies. This relationship is defined according to transaction cost theory. This relationship is complemented by the introduction of a moderating variable derived from organizational learning theory: the country experience of foreign partners. This article is based on a sample of 171 European firms, which formed IJVs in emerging Asian economies during the year 1996. Using an event history analysis, the evolution of each European equity stake was followed-up from year 1996 to the end of the period at risk on January 2007. From the empirical results presented in this article, some findings have been drawn on the attitudes of foreign firms toward government corruption in emerging Asian economies. First, we showed that the government corruption is significantly related to the likelihood of foreign partners to terminate the IJV. However, the nature of this relationship is differentiated according to the score used to measure government corruption. The relationship is positive when using the Transparency International score and negative with the Political Risk Services score. Second, we put into evidence that the country experience of foreign partners moderates the relationship between government corruption and the changes in the equity stake of foreign partners in IJVs in emerging Asian economies.

A conceptualization of an organizational learning culture in international joint ventures

This paper focuses on organizational learning and innovation in international joint ventures (IJVs). Organizational learning addresses how organizations adapt to their environments, develop new knowledge, and then achieve competitive advantage. The authors present a conceptual framework that depicts the relationship between the parent organization(s)' climate, IJVs' organizational learning culture, innovativeness culture, innovation capacity, and IJV performance. Broadly, the IJV achieves superior performance by higher levels of innovativeness (openness to new ideas) and innovation capacity (capacity to implement innovations), which are associated with its organizational learning culture.     

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.     

Organizational culture and partner interaction in the management of international joint ventures in India

Different from previous research that focused on the formation phase of partnering processes in joint ventures, this study focuses on the post-formation phase and argues that partner interaction processes of communication, cooperation, and conflict resolution play a key role in the implementation and management of joint ventures. We examine how organizational culture differences (OCD) and integration acculturation strategy (IAS) affect international joint venture (IJV) performance through the mediation of partner interaction processes. We develop hypotheses and test them by survey data from 202 executives of IJVs in India. The results suggest that the interaction processes fully mediate the negative effect of OCD but partially mediate the positive effect of IAS on partners?? satisfaction with the joint venture performance. We discuss the implication of these findings for research and practice on post-formation management of IJVs.     

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.     

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.     

Product diversification in international joint ventures: performance implications in an emerging market

This study extends product diversification research to a new organizational form (IJV) and a new environmental context (emerging market). It explores the extent to which product relatedness with both foreign and local parents affects IJV performance as perceived by venture managers. After controlling for relevant variables, analysis of the data containing 134 IJVs in China validates our major premise: the relatedness of an IJV's products with that of its foreign and local parents is positively associated with its performance. An IJV maintaining bilateral related diversification (i.e., with both parents) performs better than a venture maintaining a unilateral related linkage (i.e., with one parent), which in turn outperforms an IJV which is unrelated to either parent. When resource complementarity or goal congruity between parents is higher, there is a stronger positive relationship between product relatedness and IJV performance. When structural opportunities are fewer or institutional deterrence is higher, there is a weaker positive relationship between product relatedness and IJV performance. Copyright © 2002 John Wiley & Sons, Ltd.     

Choice of ownership mode in joint ventures: An event history analysis from the automotive industry

Inter-firm partnerships continue to be a major trend in the B2B context. Firms seek collaborative ventures to enter foreign markets, combine resources, share costs and risks, and build synergies in an increasingly competitive environment. Accordingly, the impacts of firm and host country characteristics on the selection of entry mode have been extensively studied in the literature. Nevertheless, most of these studies regard all entry modes as feasible alternatives for firms, which is rarely the case in practice. Instead, the number of entry modes available to a firm is more likely to be limited by the firm's assets and the context of the host country. As such, these contingencies, coupled with the idiosyncrasies of each entry mode, necessitate more focalized inquiry in the entry mode literature. Drawing from the OLI framework, this study zeroes in on international joint ventures (IJVs) and analyses the impact of ownership and location advantages on firm's decision about the level of control (i.e., internalization level) in an IJV in a given country. Results indicate a positive relationship between the ownership advantages and the level of control. It is also found that firms tend to favor higher control mode where the host country provides better locational advantages.