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.     

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.     

Integrating distributed work: comparing task design,communication, and tacit coordination mechanisms

We investigate coordination strategies in integrating distributed work. In the context of Business Process Offshoring (BPO), we analyze survey data from 126 offshored processes to understand both the sources of difficulty in integrating distributed work as well as how organizations overcome these difficulties. We find that interdependence between offshored and onshore processes can lower offshored process performance, and investing in coordination mechanisms can ameliorate the performance impact of interdependence. In particular, we outline a distinctive set of coordination mechanisms that rely on tacit coordination—and theoretically articulate and empirically show that tacit coordination mechanisms are distinct from the well‐known duo of coordination strategies: building communication channels or modularizing processes to minimize the need for communication. We discuss implications for the study of coordination in organizations. Copyright © 2010 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.     

The value from acquiring and divesting a joint venture: a real options approach

This study examines the value created from acquiring and divesting a joint venture. Unlike previous research which focuses on parent firm factors, the study examines value in light of the reason behind the termination of the venture and the characteristics of the target market. Consistent with the real options view, the paper finds that ventures divested to refocus a parent firm's product market portfolio were associated with significant value creation. In contrast, ventures acquired with the objective of growth and expansion in a target market, while not associated with significant value creation, did not destroy value either. Apart from these results, the paper also finds that acquirers and divesters gained lesser value when they terminated ventures in uncertain and concentrated industries. These latter findings highlight an important caveat with regard to termination: joint ventures confer valuable flexibility which is also forgone once they are terminated. Implications are discussed. Copyright © 2005 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.     

Explaining IJV survival in a transitional economy through social exchange and knowledge‐based perspectives

In this study, we combine social exchange and knowledge‐based perspectives to develop a general path model of IJV survival. We further refine our expectations by considering the transitional economic context of our study and the somewhat unique managerial values resulting from the legacy of Marxist ideology. Results from structural equation modeling suggest that an imbalance in the management control structure between the parents leads to parental conflict and an increased likelihood of IJV failure. An imbalance in the ownership control structure, however, had no influence on conflict or survival. In general, support from the foreign parent is positively related to IJV learning and IJV survival. However, higher levels of technical support provided by the foreign parent to the IJV reduced the level of parental conflict, whereas management support had no effect on conflict. Our results suggest some dilemmas for firms pursuing IJVs in transitional economies. Although the foreign parent often contributes critical resources to the IJV, providing it with bargaining power and a high level of influence, an imbalance in management control between the partners may ultimately be detrimental to IJV survival. Copyright © 2000 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.     

Value creation and value capture under moral hazard: Exploring the micro‐foundations of buyer– supplier relationships

We combine the formalism of a principal–agent framework with a value‐based analysis in order to investigate the micro‐foundations of business partner selection and the division of value in contracting relationships. In particular, we study how the key contracting parameters such as efficiency, transactional integrity, incentive alignment, and gaming affect outcomes when buyers face competing suppliers. We show that integrity and efficiency increase value creation and capture for all parties and are complements. While incentive gaming is unambiguously bad for value creation, and reduces buyers' value capture, it can benefit some suppliers. For alignment, we find that neither party has an incentive to use fully aligned performance measures that maximize total value creation. We conclude by analyzing buyers' and suppliers' incentives to invest in integrity. Copyright © 2014 John Wiley & Sons, Ltd.     

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.     

Collectivist values for learning in organizational relationships in China: the role of trust and vertical coordination

Partners must engage in integrative interaction in order to combine diverse expertise and experiences into effective learning. Results from 103 pairs of customer and supplier organizations in China indicate that trust and vertical coordination are useful ways to characterize this integrative interaction and together they promote learning. Structural equation analysis suggests that collectivist but not individualist values are important foundations for integrative interaction between partners that result in learning. These findings were interpreted as reaffirming the value of effective relationships for coordination between partners and suggesting that collectivist values can be a source of effective organizational relationships.     

Acquisition of organizational capabilities and competitive advantage of IJVs in transition economies: The case of Vietnam

Using Vietnam as the context, the study empirically examines how the competitive advantage of international joint ventures (IJVs) in transition economies is affected by the acquisition of resources from foreign partners and of local market-based resources. Our study contributes to the nascent literature on IJVs in transition economies by producing several novel and interesting findings. First, it demonstrates the need to modify certain arguments of the resource-based view (RBV) when applied to IJVs in transition economies. This paper shows that the peculiar market characteristics of transition economies serve as an imitation barrier turning even property-based resources into sources of sustainable competitive advantage. Second, the positive impact of knowledge-based resources on the IJV’s competitiveness seems to be significantly enhanced as the ownership by the foreign parent increases. Lastly, competitive advantage of IJVs appears to be strengthened when the transfer of property-based resources is complemented by that of knowledge-based resources, and when the transfer of internal, firm-specific resources is complemented by that of external, market-based ones. We believe that these findings make significant, incremental theoretical and empirical contributions to both the RBV and IJV literatures.

Resource-performance relationships in industrial export ventures: The role of resource inimitability and substitutability

Drawing on resource-based theory and insights from qualitative fieldwork we examine resource drivers of export venture performance in industrial firms using primary data from German and UK industrial-goods manufacturers. Our results indicate that while the levels of individual export venture resources are not directly related to export venture performance in the firms in our sample, many of the resources are related to two important characteristics of resources — namely the inimitability and non-substitutability of the mix of resources available to the export venture. Furthermore, we find that that resource inimitability and non-substitutability are directly related to export venture performance. Taken together these results demonstrate the important role that inimitability and non-substitutability play in mediating the resource-to-performance relationship in the industrial goods export ventures in our sample. Our study provides some of the first direct evidence supporting a key premise of the resource-based view of the firm — that the competitive imitability of a firm's resources and the inability of rivals to use substitute resources to execute a similar strategy are important drivers of firm performance.     

The formation and evolution of non-equity strategic alliances in China

Contractual joint ventures (CJVs) are a major form of non-equity strategic alliance in China, employed mainly by Hong Kong firms in the south China province of Guangdong. Due to their ambiguous legal status and the lack of conceptualisation and of their contractual nature, there has been little empirical research on CJVs. By theorising CJVs as a relational subcontracting arrangement and drawing on data from structured interviews with managers from both sides, this paper reveals the managerial decisions pertaining to the formation and evolution of the CJV non-equity alliances in Guangdong.

Planning for market coordination in LDCs: The role of channel participants in improving food distribution systems

Many development planners have proposed food systems reforms that underscore the importance of coordination and/or integration of traditionally fragmented distributive institutions. However, attempts at nurturing market coordination schemes have been thwarted in part, because they have not gained the endorsement of channel participants. A planning model is suggested to consider the receptivity of channel participants to various market coordination arrangements and their ability to overcome barriers to coordination. This framework can be used to introduce selective market reforms.     

Top management team diversity and innovativeness: The moderating role of interfunctional coordination

Top management team (TMT) diversity has received considerable attention in the academic literature as well as in the corporate arena. Our paper develops a contingent model on how top management team diversity acts as a form of human capital and can have a positive effect on innovativeness when it is effectively leveraged with favorable social capital. Our theoretical underpinning rests on the argument that greater interfunctional coordination is a source of internal social capital, which mitigates the costs while at the same time highlights the benefits associated with TMT diversity. By testing our model with TMT executives, the results generally supported our hypothesis in that the effect of TMT diversity on innovativeness was positive as interfunctional coordination increased. Implications for marketing theory and practice are discussed.     

The psychological costs of pay‐for‐performance: Implications for the strategic compensation of employees

Most research linking compensation to strategy relies on agency theory economics and focuses on executive pay. We instead focus on the strategic compensation of nonexecutive employees, arguing that while agency theory provides a useful framework for analyzing compensation, it fails to consider several psychological factors that increase costs from performance‐based pay. We examine how psychological costs from social comparison and overconfidence reduce the efficacy of individual performance‐based compensation, building a theoretical framework predicting more prominent use of team‐based, seniority‐based, and flatter compensation. We argue that compensation is strategic not only in motivating and attracting the worker being compensated but also in its impact on peer workers and the firm's complementary activities. The paper discusses empirical implications and possible theoretical extensions of the proposed integrated theory. Copyright © 2012 John Wiley & Sons, Ltd.     

The consequences of voluntary traceability system for supply chain relationships. An application of transaction cost economics

This paper analyses the effects of voluntary traceability on vertical relationships within food supply chains using a transaction cost perspective. The analysis makes reference to the Italian situation where the national standard organization has introduced a private standard for traceability that provides a higher degree of information associated with the individual product than the European mandatory traceability system. A survey was conducted by questionnaire to assess changes in transaction characteristics, costs and governance after the introduction of voluntary traceability. The sample represents all Italian firms applying this standard. Factorial and cluster analyses were applied to find the different reorganizations of transactions. The results highlight an increase in asset specificity and a decrease in the uncertainty level throughout the supply chains. The introduction of voluntary traceability shows increased vertical coordination for firms that previously used oral agreements and variation in transactions conditions for firms using contracts. Instead vertically integrated firms do not reveal any variation in the governance of transactions as they are already internally safeguarded.