Control and Performance in International Joint Ventures

Abstract

The authors examine the meaning of control in international joint ventures (IJVs) and the relationships of potential means of control in such organizations to the performance satisfaction of the foreign partner. They propose a conceptual model that provides both a traditional ownership-focused internalization perspective on those issues and an integrated approach combining a broader transaction cost interpretation of control with a resource input-based bargaining power model. A set of simultaneous structural equations with endogenous explanatory variables provides multiple possible paths from various resource and power inputs through different means of control to perceived performance satisfaction. In such a model, intermediate variables act both as dependent and independent variables; thus the complex theoretical interactions of the variables are modeled more comprehensively and realistically than in single-equation models. To test the model and compare the theoretical relationships, the authors used data from a survey of managers in Norwegian multinational firms having at least one IJV. For structural equation modeling with latent variables, they used the LISREL VII program that simultaneously fits the measured variables to the latent variables and provides a maximum likelihood solution for the structural equation system. The results clearly reject the traditional internalization approach to IJV governance that relies strictly on ownership share to delineate degree of control. However, relative resource input has a strong relationship to relative bargaining of the parent companies, which then drives equity share, control over specific activities, and perceptions of overall control of the IJV. That result supports a bargaining-power-based model of IJV control. The relatedness of the strategic resources of the parent and the joint venture also drives specific control, implying that although transaction risk is important to governance, governance is provided by specific control rather than ownership level. Perceptions of performance are strongly and positively related to overall control. Those results suggest that specialized control provides both protection and exploitation of key resource inputs and is gained through increased bargaining power. Higher levels of specific control result in a perception of overall control and thereby satisfaction with perceived levels of IJV performance among foreign parent company managers. Interestingly, traditional exogenous determinants of IJV control and performance such as government mandates, cultural similarity, and international experience levels fail to provide significant effects. Rather, the focus is on endogenous aspects of the parent-IJV relationship, suggesting that the key to parent firm satisfaction with an IJV is control over operations that use key strategic inputs from the parent.

Ownership mode, cultural distance, and the extent of parent firms’ strategic control over subsidiaries in the PRC

“…Asset specificity is assumed to increase internal uncertainty since it induces partners to behave opportunistically and exploit unilateral dependencies. In order to curb opportunism and protect firm-specific assets scholars have suggested that parent firms enhance the extent of control over their foreign subsidiaries (Geringer & Hebert, 1989;Mjoen & Tallman, 1997;Yan & Gray, 2001a). Third, we used a dichotomous measure whether the product/ service provided is the same vs. different from the parent firm, to assess diversification (see also Chang & Rosenzweig, 2001;Kogut & Singh, 1988).…”

The characteristics and dynamics of management controls in IJVs: Evidence from a Sino-Japanese case

“…Based on resource theory, parental control of an IJV implies that the parent firm can ensure the most effective use of the strategic resources it shares with the IJV (Mjoen and Tallman, 1997). In studies of the control and performance relationship, this has traditionally been modelled by relative degree of ownership.…”

“…More recent studies suggest that ownership may not be the only means of control (e.g. Yan and Gray, 1994;Mjoen and Tallman, 1997), and a shareholder's equity stake in the IJV may not be able to endorse a comparable influence on IJV-related affairs (Nam, 2011). Building on the work of Ouchi (1977), Geringer and Hebert (1989) define control of IJVs as the process by which one entity influences and controls the behaviour and output of another through a wide range of bureaucratic, cultural and informal mechanisms including power and authority.…”

“…Earlier studies advanced the proposition that dominant control of IJVs by one parent will contribute to superior performance, in that it will bring IJVs closer to a unitary firm and be easier to manage (Killing, 1983), and offers an ability to determine the most effective use of strategic resources (Mjoen and Tallman, 1997). However, a policy of dominant control might also negatively affect the relationships between partners.…”

Effects of Critical Knowledge Characteristics on Degree of Inter-Firm Technology Transfer

“…IJVs provide both MNCs and local partners an appropriate vehicle to facilitate the transfer of organizational knowledge, particularly for knowledge which is hard to be transferred without the setting up of a JV, such as institutional and cultural knowledge [5] . Previous studies on inter-firm knowledge transfer have suggested that: (1) although studies on TT and KT in strategic alliance have contributed many interesting and valuable theories, they remain empirically under-researched [29] , (2) studies on interfirm KT and knowledge acquisition by organizations require more hypothesis development and testing [7] , (3) the cross-border TT and KT from MNCs to local firms have not been extensively researched [34] (4) studies on inter-firm knowledge acquisition in alliance have focused heavily on the supplier's, JV or KT perspective [3,40,41,57] and (5) fewer studies adopt the local firms or recipient's perspective [46] . Based on the underlying knowledge-based view perspective, this paper aims to empirically examine the effect of three critical knowledge characteristics, specifically, tacitness, complexity and specificity on the degree of technology transfer.…”