Joint Venture Review - Working Paper Åsa Käfling
Construction and Reconstruction of Joint Ventures in the Literature
Åsa Käfling Ph D Student, M Sc Linköping University
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Joint Venture Review - Working Paper Åsa Käfling
Joint Venture Review – Working Paper
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Theoretical Perspectives and Joint Ventures ............................................................ 5 Literature Review of Joint Venture Research ........................................................... 7 Planning to Invest ...................................................................................................... 8 3.1. Choice of Entry Mode ....................................................................................... 8 3.1.1. Joint Ventures vs. Mergers and Acquisitions ............................................... 9 3.1.2. Joint Ventures vs. Wholly Foreign Owned Enterprises ......................... 11 4. Establishing a Joint Venture.................................................................................... 12 4.1. The Negotiation Process ................................................................................. 12 4.1.1. Partner Selection ...................................................................................... 12 4.1.2. The Joint Venture Contract .................................................................... 14 4.2. The Struggle for Control.................................................................................. 14 4.2.1. Management of Control ......................................................................... 15 4.2.2. Split Management Control and Dual Parent Perspectives...................... 18 4.2.3. Motives behind Joint Ventures ............................................................... 20 4.2.4. Motives behind Joint Ventures in Developed Countries ....................... 20 4.2.5. Motives behind Joint Ventures in China ................................................ 21 5. Operations in Joint Ventures .................................................................................. 21 5.1. Learning ............................................................................................................ 22 5.1.1. Prerequisites for Learning ........................................................................ 22 5.1.2. Learning Processes - Successful and Unsuccessful.................................. 23 5.2. Human Resources Management and Leadership ........................................... 24 5.2.1. Human Resource Management in International Joint Ventures.......... 24 5.2.2. Human Resources Management in China .............................................. 24 6. Evaluating Joint Venture Performance .................................................................. 26 6.1. Performance Perspectives ................................................................................ 27 6.2. Factors Influencing Joint Venture Satisfaction .............................................. 29 6.2.1. External Environment.............................................................................. 29 6.2.2. Partner Cooperation ................................................................................ 29 6.2.3. Culture and History ................................................................................. 30
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6.3. Factors influencing Survival, Duration and Stability ...................................... 30 6.3.1. Equity Share.............................................................................................. 31 6.3.2. External Environment.............................................................................. 31 6.4. Factors Influencing Financial Returns ............................................................ 32 6.4.1. Type of Joint Venture.............................................................................. 32 6.4.2. Partner Selection ...................................................................................... 32 6.5. Problems in Joint Ventures............................................................................. 33 6.5.1. Conflicts between the partners................................................................ 33 6.5.2. Conflicts within the joint venture company .......................................... 34 6.5.3. External Influence .................................................................................... 35 7. Joint Ventures – A Story of Success or Failure?..................................................... 36 References......................................................................................................................... 37
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Joint Venture Review - Working Paper Åsa Käfling
Summary This working paper deals with issues related to international equity joint ventures (called joint ventures in the paper), both in developed countries and in less developed countries. Joint ventures in China are especially in focus, since China has become the second largest recipient in the world for foreign direct investments; and joint ventures being vital for foreign investments in China. The paper consists of two parts; the first part is an account of the theoretical perspectives that have been used in studies of joint ventures. Here the most emphasis is on describing transaction cost theories and resource based theories, as the dominant perspectives within the joint venture research field. The other two perspectives; bargain power and institutional theory are only roughly outlined in the paper. The second part, and main focus of the working paper, is a review of the literature of the joint venture research field. This review is based on analysis of 259 articles about joint ventures published in the 15 most influential 1 management research journals between the years of 1990 and 2004 2 . The findings from these articles are compared to results from previous works and presented chronologically in the literature review. Firstly the joint venture decision, or entry mode discussion, is described. Then the planning phase with partner selection, negotiation process and completing the joint venture contract is studied. The influence of control in joint ventures is discussed; as well as the importance of motives behind the decision to establish a joint venture. Then the operations phase of the joint ventures, including intra-organizational dimensions like human resource management, learning and trust, is accounted for. Finally, the evaluation phase, where the joint venture performance is measured, is analysed in depth. Performance is seen through the perspectives of joint venture satisfaction and goal accomplishment, financial returns, and joint venture stability and survival. To summarize the working paper, the issue of the assumed high rate of joint venture failure is addressed.
According to the database ISI Journal Citations Report For a more comprehensive description of the research methods used please contact the author
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Joint Venture Review - Working Paper Åsa Käfling
1.
Theoretical Perspectives and Joint Ventures
Joint venture theory can be viewed from at least four perspectives; transaction cost theory, resource based theory, bargain power theory and institutional theory.
Transaction cost theories typically are applied when discussing choice of entry mode in markets; or why companies co-operate. According to Williamson (1975) transaction costs are attached to all economic activities. How companies design their activities; through markets or hierarchies, reflects the most economical mode of organizing (Williamson, 1975). The objective of the firm is to economize the transaction cost through the choice of an appropriate governance structure (Tsang, 2000). The strategy to enter a market through a strategic alliance can consequently be seen as an alternative mode to a market transaction. From the transaction cost perspective companies engage in joint ventures when this form of cooperation is more efficient in order to govern than other forms of investments (Mjoen & Tallman, 1997) as a result of costs related to mistrust or market failure (Hennart, 1988). As a result of transaction cost theories being the dominant perspective in the joint venture field it has set the agenda for joint venture research. Many articles consequently deal with issues related to opportunism and distrust; there are for example numerous articles about control and conflict. Other articles building on the transaction cost framework cover issues like; ambiguity and autonomy (Butler & Sohod, 1995) opportunities and trust (Madhok, 1995) and how asymmetric information and indigestibility (Reuer & Koza, 2000) in joint ventures are inter-related. How joint ventures evolve and terminate over time (Jeffrey, 2001) through divestment or acquisition (Chi, 2000) has also been studied.
However, the use of transaction cost theories to explain the establishment and performance of joint ventures has been criticized. Firstly, the efficiency of the joint venture form is questioned by claims that joint ventures are less efficient than traditional hierarchies. The background to these inefficiencies are the conflicts between the partners, factionalism within the management team of the joint venture, and the political 5
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dimension of the joint venture environment (Pearce, 1997). The argument that many joint ventures are terminated through partner buy-out is also used to supports this view.
The use of transaction cost theories to explain joint ventures has also been criticized by researchers that are skeptical to the validity of the perspective per se. The reason why the joint venture form seems to be inefficient, according to Tsang (2000), is because only the cost side and not the benefit side of the transaction is taken into account. As a result many recent researchers advocate a resource based perspective when studying joint ventures. Joint venture literature with a Resource Based approach is often concerned with motives behind the alliance. Instead of the costs related to the choice of entry mode theses articles investigate how alliances are used as a means to achieve resources. Penrose (1959) describes a company as a collection of resources, and profits as a result of the company’s capacity to cultivate them (Penrose, 1959). The biggest differences between the transaction cost perspective and the resource based perspective are, according to Tsang (2000), that transaction cost theory has a more narrow focus and only concern the costs directly related to the transaction. The resource based perspective takes into account not only the costs directly related to the transaction, but also the result on the other recourses in the firm. In addition, the recourse based perspective put emphasis on the resources that are embedded in the external context of the firm. (Tsang, 2000)
Bargain Power Theory is mostly used when studying joint venture negotiations and learning processes within the joint venture. The reason for bargain power theories being applied when studying learning processes is because learning and knowledge acquisition change the distribution of bargain power between the partners in the joint venture. (Hamel, 1991)
From an Institutional Theory Perspective strategic alliances are viewed as a societal phenomenon. Examples of studies are articles about trends influencing the number of alliances (Glaister & Husan, 1998; Osborn, Hagedoorn, Denekamp, Duysters, & Baughn, 1998).
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Literature Review of Joint Venture Research
Joint venture articles can be divided into three categories according to their focus on the joint venture process.
Figure 1 Three Phases of Joint Venture Studies and Foci
Firstly many issues related to the planning of a joint venture are studied, like choice of entry mode and how to negotiate. These studies are mostly inter-partner focused, and discuss the best prerequisites for a successful alliance. Most of the theory in this field derives from quantitative hypotheses testing of secondary data. Qualitative longitudinal case studies are rare.
Articles about the operations in the joint venture are more process focused. Here the relationship between the different members (of the partners) in the joint venture is studied. Examples of issues covered are cross-culture management and human resource management. Even though there are several examples of articles within these disciplines using qualitative methods (mostly case studies) the majority of articles are quantitative. The number of articles concerning the joint venture operations is considerably lower than articles about the planning and/or evaluation of a joint venture.
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Correspondingly, the number of articles about evaluation of joint ventures is high. Most of these articles are concerned with how well the objectives and goals of a partner have been met in the joint venture. Other popular themes are joint venture stability, survival and financial performance. The bases for and measures of evaluation often differ between the articles, and this has lead to confusion. The vast majority of theories from this field derive from quantitative studies that are based on statistically processed survey data.
3.
Planning to Invest
Before a company decides to access a new market there are several important issues to consider. The most important decision to make is the choice of entry mode or more specifically the level of desired control over and flexibility of the investment. It is important to understand that different countries, and industries, can impose restrictions on investments. In many developing countries foreign companies have no other choice than co-operating in joint venture form with local partners.
3.1.
Choice of Entry Mode
Studies about entry modes are not focused on joint ventures per se. Instead joint ventures are compared to other strategic moves e. g. mergers and acquisitions and comparisons are made between the different forms and/or passivity (Hagedoorn & Sadowski, 1999; Hennart & Reddy, 1997; Hennart & Reddy, 2000).
Other studies discuss why some companies chose to engage in joint ventures while others establish wholly foreign owned enterprises (Chang & Singh, 1999; Chi, 2000; Kent, 1991).
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A few studies try to problemize alliance formation by discussing how the factors of industry embeddedness and imitation interact when companies decide to form strategic alliances (Osborn et al., 1998; Reddy, Osborn, & Hennart, 2002). Another problemizing attempt are studies of conflict as a result of sharing property rights in an alliance, and whether companies choose different contractual forms of cooperation depending on whether the alliance is domestic or international (Garcia-Canal, 1996).
The choice of whether to cooperate in a joint venture or establish a wholly owned enterprise has been discussed, especially for companies investing in the developing countries in the world. Political unrest, legal implications and the infrastructural situation of a country are but a few of the relevant factors when considering entering these markets.
3.1.1.
Joint Ventures vs. Mergers and Acquisitions
The vivid discussion about “when to ally and when to acquire” that has been pursued in the Strategic Journal of Management started with a general article about joint ventures, seen from the transaction cost theory perspective, written by Hennart in 1988. In this article he uses transaction cost economics to explain establishment of equity joint ventures 3 which he divides into two groups; scale joint ventures and link joint ventures (Hennart, 1988).
Hennart (1988) defines scale joint ventures as joint ventures between parent companies that are carrying out the same strategy through the establishment; for example as a means of vertical integration. Link joint ventures are joint ventures that constitute a different strategy for the different partners. An example of this is that a joint venture can be viewed as vertical integration for one partner and horizontal expansion for the other(s). The findings also show that the strategies behind scale joint ventures and link joint ventures are different: Scale joint ventures are established as an instrument to internalize 3
He does not include joint ventures that are a result of legislation in the study
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a failing market when full ownership is inefficient. Link joint ventures are instead established when an acquisition of one partner, by another, is afflicted by too high management costs (Hennart, 1988).
In the next article in this field, by Balakrishnan et al (1993), the discussion about joint ventures vs. acquisition is more articulated. The authors write that companies choose to engage in joint ventures “when the costs of valuing complementary assets are non-trivial” (Balakrishnan 1993; p99). Consequently, joint ventures are preferred to acquisitions, when the companies belong to different industries. Acquisitions are instead expected when the companies are active in the same industry.
Hennart et al (1997) continue the discussion by introducing the term “digestibility”. They summarize four reasons for why joint ventures are preferred to acquisitions; indivisibility (when a desired asset is hard to disentangle from non-desired assets), management costs (from integrating employees from the acquired company), assessment difficulties (the result of valuation difficulties) and institutional (and governmental) barriers (Hennart, 1997). In their empirical investigation they failed to support that joint ventures are chosen as a result of valuation difficulties, the hypotheses that originated from Balakrishnan et al (1993), but supported that joint ventures are chosen when desired assets are embedded into organizations thus making the acquisition indigestible.
As a response, Reuer et al (2000) argues that the asymmetric information view (assessment difficulties) and the indigestibility view are complementary and interrelated. They conclude that indigestibility can even be a result of asymmetric information (Reuer, 2000). The differences in their findings compared with Hennart et al (1997) are explained mainly by the empirical settings of the different articles; since the study conducted by Hennart et al (1997) only covers Japanese companies entering USA. Hennart et al (2000) reject this explanation and present further support for their view (Hennart, 2000).
Even though the heated debate about joint ventures vs. acquisitions has lead to a broader understanding of the driving forces behind different entry modes, there is still one major 10
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disagreement between the two groups of authors; whether companies from different industries choose to ally or if they prefer to acquire (Hennart, 2000).
3.1.2.
Joint Ventures vs. Wholly Foreign Owned Enterprises
In many countries, especially in the developing world, companies are forced to cooperate in joint ventures if they want to establish themselves into the market. The discussion about whether to engage in a joint venture or establish a wholly owned enterprise as an entry mode has consequently differed from the discussion about joint ventures vs. mergers and acquisitions.
Most studies that discuss whether a company should cooperate in a joint venture or establish itself in a wholly owned subsidiary consequently focus on less developed markets which slowly are deregulated. That holds especially true for choice of entry mode to China where joint ventures traditionally have been an extremely popular form of entry.
In recent years Sino-foreign joint ventures have however lost some of their attractiveness. There are, according to Deng (2002), three main reasons for this change. First, many western enterprises are not satisfied with the results of their joint ventures in China (Deng, 2002; Pan, Vanhonacker, & Pitts, 1995; Si & Bruton, 1999). Sino-foreign joint ventures are generally known to be hard to manage (Beamish, 1985) resulting in conflicts about control. Besides this, the objectives of the partners often differ from each other, something that deepens the conflicts. Wholly foreign owned companies are thus seen as a better alternative to equity joint ventures due to control issues, and are subsequently favoured by many investors. Last, but not least, the legislation regulating wholly foreign owned companies in China has changed in a more positive direction as a concession to the World Trade Organization (Deng, 2002).
There are despite this development indications that the preference for wholly owned companies, at the expense of the joint ventures, is beginning to change; recent studies 11
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show that joint ventures in China are more profitable (Pan & Chi, 1999) than wholly owned companies.
4.
Establishing a Joint Venture
When a company has decided to engage in a joint venture there are many strategically important issues that must be considered. First a suitable partner for the joint venture must be found. Partner selection is especially important since the characteristics of the partner are known to have a major impact on the level of future satisfaction. The choice for companies engaging in joint ventures in developing countries can in reality be extremely limited; as most western companies engaged in joint ventures in China can tell.
4.1.
The Negotiation Process
Many joint venture studies concerned with the planning of joint ventures describe how the negotiation process between the parent companies of joint ventures can be designed. Most studies have a broad negotiating focus even though a few are narrowing it down to the transaction (Pearce, 1997) or the contract (Garcia-Canal, 1996; Luo, 2002).
4.1.1.
Partner Selection
The first attempts to summarize the factors influencing partner selection in international joint ventures were undertaken in the late 80s. Harringan (1985) emphases the importance of strategic fit between the partners; constituted by complementary goals, resources and management capabilities (Harrigan, 1985).
Geringer (1988; 1991) acknowledges the importance of strategic fit; but concludes that prior research have had “limited success” when identifying criteria for joint venture partner selection. He is the first to distinguish between task related and partner related
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selection criteria; as a tool to understand the selection process. Task related selection criteria are defined as the general resources and skills organizations need for their operations. Partner related selection criteria are defined as those unique to multi partner organizations (Geringer, 1988; Geringer, 1991).
Geringer (1991) further argues that the parent managers must analyze both the current situation, as well as the future, when taking partner selection decisions. In order to succeed with the selection process, a company must be aware of its own capabilities and determine if the parents together possess the necessary capabilities for the joint venture to succeed. He concludes that partner selection is an important issue that has received scarce attention from the joint venture researchers (Geringer, 1991).
As a response to Geringer (1991), a study of joint ventures in Britain was conducted by Glaister and Buckley in 1997. They aimed to use his framework and replicated his study in a different context. Their result is however more specific than Geringer’s since they attempted to identify the most important task- and partner related selection criteria. Among the task related selection criteria Glaister et al (1997) classify knowledge about the local market, distribution channels, links with major buyers, and knowledge about the local culture as the most important criteria. Trust between the partners and relatedness, good reputation and financial situation are found to be the most significant partner related factors (Glaister & Buckley, 1997).
Glaister and Buckley’s study became heavily criticized, mostly by Geringer himself. In a reply Geringer writes that the results “are subject to low reliability, questionable validity, non-equivalent measures, and related concerns” (Geringer 1998; p125). The low response rate, 24 %, and the fact that other non related material later became added to their study rendered the most unfavorable review. (Geringer, 1998)
Glaister et al (1998) later reworked their data according to some of the suggestions they received. The results they got were, however, not very different from those of their initial article and they did not share the concerns voiced by their reviewer. What the two studies 13
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eventually did agree about is the importance of further research in the field, and that importance of using both qualitative and quantitative methods when conducting research.
4.1.2.
The Joint Venture Contract
The main purpose of the joint venture contract is to provide a structural framework for the joint venture company in order to avoid opportunism and moral hazards. The contract reduce the role ambiguity and role conflict for joint venture managers (Shenkar & Zeira, 1992), since it provides guidelines for co-operation between the partners and information about each partner’s responsibilities and rights. The main contract typically include; general provisions of the joint venture company (like the name of the joint venture parties and the joint venture company), the scope, scale and objectives of the joint venture operations, the level of investments (capital contribution of the parties), evaluation through accounting and auditing, future profit sharing, the composition of the board and joint venture management group, the joint venture’s labor policy, settlements of disputes (including alteration of contract), applicable laws, which language that should prevail in case of discrepancies, and the measures taken when terminating or renewing the joint venture.
The design of the contract is important since it regulates the level of cooperation and control and how performance should be evaluated. A complete contract is to a certain extent also shown to result in a higher level of performance, and better co-operation. It is, however, important that a certain level of flexibility is left so managers can take decisions in the day to day work; the partners should consequently refrain from writing too many specifics into the contract. (Luo, 2002)
4.2.
The Struggle for Control
The issue of control has received much attention from scholars studying strategic alliances. The first articles on joint ventures and control were published already in the 14
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late 1950s. Tomlinson (1970) contributed to the field with empirical studies, even though he did not study control per se but the parents’ attitude toward control in joint ventures (Tomlinson, 1970).
Most of the first studies were concerned with how control is related to financial performance (e. g. return on investment) (Tomlinson, 1970) and stability (e. g. changes in ownership of a joint venture) (Franko, 1971). These pioneer works broke new ground within the joint venture field, but the authors neither defined control nor did they explain how control can be measured. The first articles about control and joint ventures, of real influence, were written in the mid 1980s.
4.2.1.
Management of Control
In Killing (1983) dominant parent ventures, shared management ventures and independent joint ventures are defined as three distinct types of joint ventures. Here control is exercised through the governance structure. In a dominant parent venture one partner takes active part in the management of the joint venture, while the other is passive (a so called sleeping partner). The joint venture board of directors, chosen by both partners according to the equity share of the joint venture, has little authority. Instead the dominant partner empowers its own managers (that could, but must not, be localized to the joint venture) to take decisions in strategic and operational issues. The general manger of the joint venture reports to the dominant partner instead of acting as the chief executive officer.
In a shared management venture both (or all) partners take active part in the management of the joint venture. The general manager of the joint venture mainly reports to the board of directors; a board that consequently has more authority.
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An independent venture is a joint venture with little interference of its parent organizations. The general manager views the joint venture as an independent company and the relationship to the owners are mainly financial. (Killing, 1983)
Killing’s empirical studies show (in consistence with the dominant transaction cost perspective) that a dominant partner joint venture is more likely to succeed 4 , since it is easier to manage than the other forms of co-operation.
In Geringer et al (1989) control instead is studied within the joint venture. Three dimensions of control are defined; control as a mechanism, extent of control and control focus (or scope of control). These three dimensions reflect different aspects of control. Studies of control as a mechanism, instead of control as a result of a governance structure, focus on how control is exercised. The extent of control derives from the extent to which the partners implement control, instead of equity share. The scope of control defines in which area in the joint venture operations that control is exercised. Because no consensus has been reached about how different aspects of control (or performance) should be investigated; the results of the previous studies diverge. (Geringer & Herbert, 1989)
Parkhe (1993) concludes regretfully that not only the performance and control issues lack a comprehensive theoretical framework; but is surprised of “the extent to which current empirical IJV research which boasts a large number of methodologically impeccable studies fails to address concepts that are theoretically deemed central to the IJV relationship”. (Parkhe 1993; p227 emphasis in original)
As a reply to Parkhe’s critique, and Geringer et al’s request of consensus, several control related studies with an integrative approach were published. The first qualitative study
Killing (1983) defines joint venture performance as the management’s opinion about joint venture performance. That is because there are no objective measures of performance in joint ventures (a partner’s profitability is based on transfer prices and management fees among other things)
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within the field is Yan and Gray (1994) where power, management control and performance are liked together. The outcome of their case studies, of four joint ventures in China, gave several additional findings. Firstly, their findings support the view that equity share not is the same as management control. In all four joint ventures in their empirical study the equity division had been voluntarily decided between the partners. Their findings further support that a shared management structure is beneficial in developing countries. They could not see, however, that performance was negatively influenced by foreign dominance. In the conclusions part of their article a question about the importance of the Chinese characteristics (of the joint ventures they studied) is voiced. As authors before already had noted in previous studies (Beamish, 1985) the motives behind Sino-foreign joint ventures were different between the foreign and the Chinese partners. (Yan & Gray, 1994) This remark was a mere observation, as they did not make any deeper attempt to investigate the relationship between goal incongruence and control.
Another integrative attempt is Mjöen and Tallman (1997). Here control vs. performance is studied through three theoretical lenses; transaction cost theory, bargain power theory and institutional theory. In order to gain a deeper understanding of the control phenomenon they relate actual equity share, control over specific activities, over all control, bargain power and relative contribution of resources to each other. Their findings show that relative contribution of resources correlates with bargain power. Bargain power on the other hand correlates with perceived performance. The contribution of strategic resources promote over all control, which in turn is related to perceived performance. Equity share does not, however, influence neither control over specific activities nor overall control. (Mjöen & Tallman, 1997)
The issue of control is especially common in the in the Sino-foreign joint venture research field. For example Child et al (1999) give two recommendations to foreign companies wanting to attain over all control of their joint ventures. First a foreign partner should contribute to the joint venture with key resources since control of vital resources (e.g. technical know how, managerial knowledge) is a way to guarantee authority in the 17
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company. The second recommendation is (contradictory to Mjöen and Tallman’s finding) to increase the equity share in the joint venture as a way to achieve formal power. (Child & Yan, 1999)
4.2.2.
Split Management Control and Dual Parent Perspectives
Previous studies acknowledge that joint ventures in developed and developing countries are established out of different motives (Beamish, 1993, 1998; Child et al., 1999; Yan, 1998) and reveal a complicated relationship between bargain power, equity share and control (Mjöen et al., 1997). These studies thus prepared the ground for the theories about split management control (Choi & Beamish, 2004) and dual parent perspectives (Luo, Shenkar, & Nyaw, 2001) on control that were to come.
Luo et al (2001) continue the discussion about the differences between over all control and specific control; and like Child et al (1999) they use the Chinese market as their empirical setting. They also find the control issue to be of great importance. Their results are different from previous studies in the way that they find that the foreign partner and the local partner aim to reach different objectives with their request for control. Foreign companies were more likely seeking to attain over all control than the Chinese partners. Over all control is the means to direct the whole range of activities in joint ventures; and is seen as a necessity for companies wanting to gain efficiency, reputation and profitability from the joint venture. Over all control is however more costly than specific control 5 . Specific control is viewed as a way to assure special needs (e. g. skills- and knowledge acquisition) and was consequently of more interest for the Chinese companies compared to their foreign counterparts. (Luo et al., 2001)
Using the framework stated by Killing, Choi and Beamish (2004) suggest a new dimension in order to solve the long standing conflict on whether foreign dominant This is according Luo et al (2001) a result of higher costs related to budget preparation, executive time, more expatriate managers etcetera
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partner ventures are more successful than shared management ventures. They suggest that split control ventures should be added as an alternative to dominant partner ventures, shared management ventures and independent joint ventures.
Split control ventures are joint ventures where the partners agree to control specific activities. In this way split control ventures are different from shared management ventures where all control over activities are shared between the partners.
High Split control JVs
An MNE partner’s control exercised over its own firm-specific advantages
MNE partnerdominant JVs
Shared control JVs
Local partnerdominant JVs Low
High An MNE partner’s control exercised over a local partner’s firm-specific advantages
Figure 2 Four ways of partitioning control between JV partners Source: Modified model, adapted from Choi and Beamish (2004: figure 1)
Their results, based on empirical studies of international joint ventures in Korea, show that managers are more satisfied with the performance of split control joint ventures; than shared management ventures or dominant parent joint ventures. Their findings could however not indicate whether shared management ventures performed better, or worse, than dominant parent joint ventures.(Choi et al., 2004)
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4.2.3.
Motives behind Joint Ventures
As a result of the discussion about over all versus specific control, motives in joint ventures have received a growing interest from researchers. Fulfillment of goals has recently become an important way of measuring joint venture performance, something that will be discussed later in this paper.
The strategic objectives of joint ventures can be summarized into seven broad categories. Joint ventures are used as a means to: reduce risk, achieve economics of scale and scope, support technologies and/or patents, block competitors, overcome trade barriers, expand internationally and integrate vertically with a partner. (Contractor & Lorange, 1988; Contractor, 1986)
The motives behind joint ventures differ, however, between companies from the developed and the developing world. Joint ventures between companies from developed countries are formed because of the will to share investment risks and archive economics of scale. Developed country companies establishing joint ventures together with partner(s) from less developed countries are instead interested in overcoming trade and/or governmental barriers in order to access local markets and to integrate vertically (Contractor et al., 1988; Contractor, 1986). Utilization of joint ventures in less developed countries, like China, is also a means to reduce risk (Calantone & Zhao, 2001).
4.2.4.
Motives behind Joint Ventures in Developed Countries
The joint venture form is by many companies, especially those operating in joint ventures in USA, Europe and Japan, seen as a tool for knowledge acquisition (Makhija & Ganesh, 1997) and empirical studies show that knowledge acquisition (Lyles & Salk, 1996) and/or knowledge creation (Inkpen & Dinur, 1998) take place in joint ventures. Empirical studies further show that knowledge acquisition is positively related to joint venture performance (Lyles et al., 1996)
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For many companies the opportunities for learning and knowledge acquisition is the primary motive when engaging in joint ventures. To share costs and risks related to research and development are also important motives behind joint ventures; especially in the aircraft, telecommunication and pharmaceutical industries (Mowery, Oxley, & Silverman, 1996). Joint ventures that are formed in order to acquire industry related capabilities, or adjust to rapid environmental changes, tend to be divested when the organizations have achieved their required objectives (Makhija et al., 1997).
4.2.5.
Motives behind Joint Ventures in China
The main objectives for western companies (engaging in Sino-Foreign joint ventures in China) are to get access to the Chinese market and to obtain cheap labor (Child, 1994). Chinese companies desire to gain scientific knowledge, as well as western managerial skills, through the partnership (Child, 1994; Shenkar & Li, 1999; Yan et al., 1994).
Si et al (1999) have developed guidelines for knowledge acquisition in Sino-western joint ventures. They divide knowledge and learning into three separate parts: knowledge about governmental issues, cultural understanding and market related knowledge (Si et al., 1999). Their findings suggest that even though both the Chinese partner and the western partner want to acquire knowledge, the desired knowledge differs between them. The Chinese partner wants to learn more about new technologies, new managerial styles and how to manage capital in an efficient way. Western partners are interested in obtaining knowledge about the Chinese market and culture as well as gaining insight into Chinese governmental and legal issues (Si et al., 1999).
5.
Operations in Joint Ventures
Process studies in joint ventures are primarily concerned with organizational issues like learning processes; or management of human resources in the joint venture. Other
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examples of issues studied are trust and commitment. The number of articles about learning in joint ventures is vast; but few articles focus on other process dimensions for example management of personnel in joint ventures or development of trust between partners of the joint venture.
The large number of articles with a learning focus is probably a result of viewing learning as a strategic goal and hence intimately connected to joint venture performance. The fact that human resources studies are few is more difficult to understand; since management of personnel is closely related to control and performance.
No gender studies are to be found, which is surprising considering the great interest gender issues have received in other organizational contexts.
5.1.
Learning
The process of learning has achieved much attention from joint venture researchers. The vast interest is not especially surprising though, since many joint ventures (as described before) are established as a means for knowledge acquisition; especially in the developed world. Studies about learning in joint ventures mostly deal with prerequisites for learning and how companies can design a successful learning environment.
5.1.1.
Prerequisites for Learning
According to Hamel (1991) there are six core propositions that must be taken into account when outlining the inter-partner learning. Firstly the competitive situation for the partners must be analysed. If the partners are in the same industry they might be competitors; as well as collaborators. Secondly, the learning and bargain power of the partners is important. The author even writes that “A partner that understands the link between inter-partner learning, bargain power, and competitiveness will tend to view the alliance as a race to learn.” (Hamel 1991: p87) The intent partners have for learning, in form of resource concentration, internationalization or substitution; are also important 22
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determents for knowledge acquisition. Transparency is a prerequisite of learning that could be influenced through organizational design. Finally, the receptivity of the partners is important in order to achieve learning.
5.1.2.
Learning Processes - Successful and Unsuccessful
How learning takes place in joint ventures is a complex phenomenon that could be described as a combination of teleological and emergent processes (Doz, 1996). Successful learning requires high partner commitment; a consequence of adjustment of learning requirements, heightened expectations and decreased or stable suspicion towards the partner. Unsuccessful learning is instead characterised by low commitment; in its turn a result of the inability to adjust to task and process learning requirements; and instead turning to search for hidden agendas, leading to higher suspicions and lower expectations. (Doz, 1996) In practice, learning takes place through at least four critical processes: technology transfer or sharing, interaction between the parents, transfer of personnel between the parent company and joint venture and integration of joint venture strategy and parent company strategy (Inkpen et al., 1998). The types of knowledge created through the processes are different; when technology sharing gives explicit and objectified knowledge, the knowledge achieved through the transfer of personnel, (between the joint venture organisation and the mother company) is even though conscious, mostly tacit. Parent interaction and integration of strategy can be both explicit and tacit; a parent can for example incorporate the other parent’s management practises into its organization, or gain access to the other partner’s network, giving both explicit and objectified knowledge. Example of tacit knowledge that can be received through an alliance is new visions for future operations. (Inkpen et al., 1998)
Another type of tacit and explicit knowledge that companies can achieve by working in strategic alliances is the experience from the actual business deal. The advantages with this experience are more obvious where the company returns to a specific country, or a specific cultural context, to do similar business again (Barkema, 1996).
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5.2.
Human Resources Management and Leadership
If most learning related articles focus on joint ventures in the developed world the opposite holds true for articles related to human resource management.
However, the total interest for human resource issues from scholars within the joint venture research field is not very high (Björkman & Lu, 2001; Zeira & Shenkar, 1990). That is somewhat surprising since joint ventures have a reputation of being difficult to manage and since HRM, especially recruitment to senior positions, is closely connected to control (Geringer & Frayne, 1990; Kabst, 2004).
5.2.1.
Human Resource Management in International Joint Ventures
The challenging issues of human resource management in international joint ventures, compared to wholly foreign owned, have to do with management of the different employee groups of the joint ventures and the differences in personnel practises (due to parent characteristics) between the partners (Zeira et al., 1990). Another challenge, visible in most international joint ventures, is to balance globally applied human resource practises with local responsiveness.
5.2.2.
Human Resources Management in China
The importance of the political and cultural dimensions of human resource practises are emphasised in articles about less developed countries. That holds especially true for Sinoforeign joint ventures; since the political influence is strong in China. One source of political influence in the joint ventures is the role of the trade unions; another is the governmental control of residents’ permits (the so called hukou system) which regulates labour movements in China. The cultural influence, especially the Confucian ideals of loyalty (Xin, 1994), could be seen in the strong emphasis on relationship; sometimes mere nepotism. Since western managers generally emphasises knowledge and skills over relationship (Björkman & Lu, 1999), conflicts are inevitable.
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During the last few years there has been a change in direction from the pre-reform practises to more standardized human resource principles. Differences that stem from: type of operations, if the joint venture is a start up or is based on a pervious Chinese manufacturing unit and groups of employees can nevertheless still be identified. (Björkman et al., 2001)
The objectives of Chinese trade unions are very different compared to western labour unions. Representatives for the trade union are supposed to support the management of the company and report to the party. The hukou 6 system identifies the 1, 3 billion Chinese residents by their geographical place of abode (household registration); and categorizes them into two administrative groups (rural or urban). The hukou system has two purposes; to control internal migration flows in general and targeted groups of people in particular (Wang, 2004).
As the trade unions and the hukou system indicate; the Chinese working life has traditionally emphasised stability and harmony over efficiency and flexibility. Another example of this is the idea of the iron rice-bowl (a Chinese idiom that refers to the prereform system of life-time employment in the state sector) that is still, almost three decades after the introduction of market economy reforms in China, deeply rooted. Differences between western human resources management principles and iron rice-bowl thinking can be seen in the attitudes towards labour contracts, rewards and incentives, performance management and trade unions (Goodall & Warner, 1997); to name but a few issues.
When it comes to recruitment there are big differences between the pre-reform system and western human resource principles. Before the market economy reforms urban workers had life-time employment and welfare was provided to them and their families (Goodall et al., 1997). Work was provided, after graduation, by the work unit (the so
6
For a comprehensive survey of the hukou system see Wang (2004)
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called danwei). Chinese managers still have a preference of selecting employees directly from the universities (Björkman et al., 1999) which indicates influence of the pre-reform practises. Today the local governments do not, like they did before, exercise influence on human resource practises; even if they urge joint ventures to comply with regulations concerning social security and labour contracts (Björkman et al., 2001).
Rewards and incentives in the pre-reform system were based on age, party loyalty and length of service. The differences between categories of workers were small and performance bonuses did not exist (Goodall et al., 1997). Studies in Sino-Western joint ventures show that the resistance towards performance based salaries is still strong and that Chinese managers want to minimize differences in salaries between employees (Björkman et al., 1999). Western HRM-managers on the other hand, emphasise knowledge and skills over relationship and uses salary differences as an incentive for the personnel, in order to improve results (Björkman et al., 1999).
Another result of the egalitarian ideal is the difficulties foreign companies traditionally have faced when trying to convince Chinese employees to accept a promotion, especially if it means supervision of colleagues (Child, 1991).
6.
Evaluating Joint Venture Performance
Measuring and evaluating joint venture performance have been characterised by a situation where no consensus about how performance should be defined (Dussauge & Garrette, 1995 472), or who (Child, 2003) should define it, has been reached. Many recent studies do however address these issues; and the need for an integrative theoretical framework is widely acknowledged.
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6.1.
Performance Perspectives
Joint venture performance studies mostly investigate either the; involved managers’ opinion about the alliance, with so called subjective measures; or the stability (and/or duration of the alliance) and/or the financial situation of the joint venture (Dussauge et al., 1995) with so called objective measures . Earlier studies often used financial measures e. g. growth and profitability; but they have become unusual (Child, 2003) because of the assessment difficulties (a result of transfer prices and non-transparent accounting). Another reason is that financial measures, like the stability (duration and survival) measures, only cover a limited range of the stakeholders’ goals. Subjective measures of satisfaction (level of goal achievement) have been correlated with the objective measures of survival, duration and stability. The result shows that satisfaction is strongly correlated to survival and duration; but that stability has little direct relationship with joint venture satisfaction (Geringer & Hebert, 1991). Most resent studies thus assess joint venture performance from the level of stakeholder satisfaction. There are anyhow big differences in which constructs that are used in the assessment of satisfaction, as well as which stakeholders that are included in the sample, leading to ambiguity and comparison difficulties. Another difficulty is that the differences of evaluation between joint venture management and the partner organizations, something that is seldom considered. Joint venture satisfaction is sometimes viewed from the partners’ executives’ perspectives and sometimes from the joint venture general mangers perspectives which makes comparisons difficult.
For example, in Lee and Beamish (1985) performance is measured by the level of over all satisfaction of the managing directors in the joint ventures. Mjoen and Tallman (1997) use the perceived performance of a joint venture stakeholder from the (Norwegian) parent organizations, in their sample. Luo (2002) instead measure the level of satisfaction with the joint ventures as perceived by IJV top managers (not defining more exact than this) in the areas of over all satisfaction, sales level, competitive position and profitability. In a
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later study performance is measured as level of satisfaction by general managers or deputy general managers in joint ventures (Luo & Park, 2004).
The broadest approach when assessing joint venture performance is Child (2002). In this study respondents in the parent companies’ head offices, joint ventures and intermediate organisations are interviewed and asked to assess overall performance in not less than 14 different areas 7 . Economic performance is measured through the stakeholders’ opinions about profitability, sales growth and market share (Child, 2002). In a later article Child et al (2003) revise these measures and use profitability, growth, market share, technological development and development of local staff and management, as measures of performance. Child et al (2003) use the fulfilment of goals as criteria of parent satisfaction with the joint venture. In this study the performance construct should therefore be divided into two parts; the criterion of how well goals are met, and the measures used for the assessment (Child, 2003). Earlier performance studies with focus on fulfilment of goals are Yan (1994) and Pearce (1997).
It is consequently important to keep in mind the wide range of subjective performance perspectives, and performance measures, when studying other issues and factors that may have an impact on performance.
Objective measures of performance were, as noted before, common in earlier joint venture studies (Child, 2003). The use of objective measures as indicators of joint venture performance has however been criticized. Stability and duration measures are problematic in the sense that longevity might not be the aim of the joint venture. If e. g. learning is the motive behind the joint venture; the termination of a joint venture agreement should not be seen as joint venture failure, if knowledge acquisition has been established. (Hamel, 1991) The 14 constructs are profitability, sales growth, market share, exports, localization, quality of supplies, production efficiency, production quality, technological development, development of local managers, development of local employees, development of expatriate understanding, relations with governmental authorities, quality of collaboration between the partners 7
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6.2.
Factors Influencing Joint Venture Satisfaction
Recent studies of joint venture performance have been focused on perceived satisfaction, related to goal achievement. In the same way as joint venture satisfaction is contrasted to earlier performance studier, the importance of control and equity for joint venture success is no longer self-explanatory.
6.2.1.
External Environment
As a reaction to earlier studies (e. g. Killing 1983) that link foreign control and joint venture performance Beamish (1985, 1993) argue that the real factor behind joint venture satisfaction is not control, or degree of control; but the external environment. Since the joint venture context in developed countries is different from developing countries; so are satisfaction and control. The possibility to form a foreign-dominant joint venture in a developing county is lower; and the political risk is higher. Beamish (1985) finds, in his sample, that joint venture performance is positively correlated to local dominance but negatively related to foreign dominance in a developed country. (Beamish, 1985) Other findings in line with Beamish (1985) are found in Lin et al (1998).This study also refuses Killing’s (1983) statement of joint venture success as a result of dominant foreign partners and find (from a Chinese sample) that the relative power of the foreign partner does not affect joint venture performance – but the way conflicts are solved (Lin & Germain, 1998).
6.2.2.
Partner Cooperation
Joint ventures are dependent on the relationship between the partners, as well as between the partners and the joint venture management (Luo et al., 2004). Cooperation significantly contributes to performance; and the contribution is not decreasing as cooperation increases (Luo, 2002). The assessment of performance can, however, substantially differ between the partners. Asymmetric performance assessment can in 29
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these cases result in a distance between the partners; and too close cooperation between a partner and the joint venture management team can be viewed negatively by the other partner (Luo et al., 2004).
6.2.3.
Culture and History
Lin et al (1998) argue, through empirical studies in China, that two important issues influencing joint venture performance and conflict resolution are cultural similarity between the partners and the age of the joint venture. If the partners have similar cultural backgrounds and cultural values there is a strong possibility of solving conflicts and reaching joint venture success. The same holds true for the period of time the joint venture has been in place. The longer the joint venture has lasted, the better the results, due to organizational learning (Lin et al., 1998). Pan et al (1999) also find that older joint ventures perform better than newly established, but explain this with first-mover advantage and tax advantages offered to early investors in China (Pan et al., 1999).
6.3.
Factors influencing Survival, Duration and Stability
The influence of equity and ownership for joint venture stability has been emphasized in many joint venture studies. There are three types of instability, related to changes in equity, which can be distinguished 8 . Firstly a joint venture can be liquidated; meaning that the operations are stopped and the company’s assets are sold. Secondly, the joint venture can be sold (in total or in part) to one of the partners. Thirdly, the joint venture can be taken over by an outside company. Dissolution rates are not directly related to instability. There is according to Gomes-Casseres (1987) a widely spread misinterpretation that joint ventures are more likely to be dissolved than wholly owned companies. That is because the dissolution rate of joint ventures is seldom compared to the rate of dissolution of other organizational forms (Gomes-Casseres, 1987). Or in his words: This is my own definition. There exist several slightly different definitions of joint venture instability.
8
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“The importance of joint venture instability can be easily misstated if one ignores the instability of alternative structures. […] Wholly owned ventures were in fact more likely to end in liquidation than jointly-owned ones. But liquidation was not an important source of instability in either case.” (Gomes-Casseres 1987: p98)
Instead joint ventures were somewhat more unstable than the wholly owned companies in that sense that the equity division changed more often in joint ventures.
6.3.1.
Equity Share
To sum up, changes in equity share do not directly influence joint venture survival but joint venture stability. Findings further suggest that joint ventures undergo ownership changes as a result of the wrong choice of initial organisational form (or entry mode). In the industries, or countries, where the joint venture form was the most popular entry mode, equity changes resulting in wholly owned companies were the least likely. At the same time the level of ownership changes transforming wholly owned companies to joint ventures were the most likely in the industries and countries were joint ventures were the dominant form of entry. (Gomes-Casseres, 1987) Later findings show that a joint venture is more likely to be unstable if the equity is very unevenly divided between the partners (Blodgett, 1992). Companies with equity levels of less than 20% are also more likely to sell (their part of the) joint venture than partners with equity shares of more than 50% (Dhanaraj & Beamish, 2004).
6.3.2.
External Environment
The external environment influences both stability and survival. In open economies a partner contributing with technological know how is more likely to increase its equity, at the expense of the partner(s). In economies with hard restrictions on foreign investments, the local partner is instead more likely to increase its equity share regardless of resources provided by the foreign partner (Blodgett, 1991; Blodgett, 1992).
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Environmental uncertainty, which is not a result of governmental pressure on foreign actors, also influences joint venture survival and stability. According to Chung and Beamish (2005) companies can respond to environmental uncertainty by taking calculated risks. Companies that invest when a country has undergone an economic crisis can seize opportunities hidden to the competitors (Chung & Beamish, 2005).
6.4.
Factors Influencing Financial Returns
Financial measures on joint venture performance were popular during the earlier years of joint venture research. Since financial outcome is difficult to measure; as a result of creative accounting principles and use of transfer prices, financial measures have become somewhat unfashionable and are seldom used in recent studies. 6.4.1.
Type of Joint Venture
The first factor shown to influence financial performance is the type of joint venture. Luo (1997) shows that joint ventures in China are more likely to be satisfactory, in terms of financial return and sales growth, if the partners have related products and market position. A partner’s capacity to incorporate the counterpart’s tacit knowledge also has an impact on return on investment as well as over all performance and local sales (Luo, 1997). Merchant and Schendel (2000) also find the type of joint venture to be influential. Their result, however, suggests that shareholder value is influenced more by structural factors than partner related factors. Abnormal returns are related to the relatedness of the partner and joint venture. Other influential factors leading to abnormal returns are greater size of the partners and high levels of research and development attached to the joint venture (Merchant & Schende, 2000).
6.4.2.
Partner Selection
The organizing skills of the local partner are important when promoting organizational fit and hence joint venture efficiency. Cooperation between the partners in the past reduces risk and leads to more profitable joint ventures with higher export sales. The size of the
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local partner does not influence financial performance but has an impact on local sales; if the local partner is a state owned enterprise (which is usually the case in China) it can promote market development and enhance market power. (Luo, 1997). Foreign companies operating in developing countries (especially China) have had difficulties to influence partner selection. This is problematic, especially since selection criteria are known to influence not only financial returns but also expansion possibilities, export growth and over all performance (Luo, 1997).
6.5.
Problems in Joint Ventures
Many studies are concerned with problems in joint ventures. One explanation for this is the frequent use of the transaction cost perspective, favoured by so many joint venture researchers. Another explanation is the popular opinion that a majority of joint ventures fail. Many authors study factors that are assumed to explain joint venture failures, often without any further reflection.
6.5.1.
Conflicts between the partners
Joint venture satisfaction is closely related to management issues like knowledge transfer. In the developed world learning-related joint ventures are considered to be especially hard to manage. The reason for this is that the alliance must accomplish several objectives simultaneously; knowledge acquisition must not only take place, in most cases it has also to be brought back to the mother companies in order for the joint venture to be perceived as successful (Makhija et al., 1997). To transfer knowledge (especially tacit knowledge) is difficult since the mother company might be unwilling, or unconscious of the need, to change its behaviour and hence lose the learning opportunity (Inkpen et al., 1998).
Since knowledge is a part of a company’s competitive advantage, partners usually try to withhold knowledge from their counterparts. One important reason for this is because learning changes the bargain power division between the partners. Imbalance in bargain 33
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power can lead to that the partner with high bargain power (as a result of bringing knowledge as a valuable resources to the company) regards the costs higher than the returns; at the same time as the partner with the lower bargain power benefits greatly (Makhija et al., 1997). Conflicts concerning knowledge acquisition and technology transfer are even more visible in joint ventures in the developing world. In China this issue has been especially infected since the country has an insufficient legal system protecting intellectual property rights (IPR) (Käfling, 2004). As a result the Chinese aim for western technology becomes problematic since the western partner must protect that same knowledge (Weldon et al., 1999).
Other issues causing conflicts in Sino-foreign joint ventures in China are the number of working hours, commitment to the company, and trust within the joint venture. Differences in time perspective and business experience are others (Walsh & Wang, 1999). The most important reason for conflicts is, however, different goals and objectives with the joint venture company. When the Chinese partner desires to get access to high technological knowledge through the joint venture, the western partner often only wants a pass to the emerging Chinese market and return on investments.
6.5.2.
Conflicts within the joint venture company
Conflicts within developing country joint ventures are often regarded as rooted in different cultural perspectives. Many authors have, for example, claimed that the reason for why western companies have problems in China is because of their disregard of cultural differences (Antoniou & Whitman, 1998; Fang, 1999; Morris, 1998; Sergeant & Frenkel, 1998; Zheng, 1997).
Cultural differences become especially visible when dealing with matters concerning management of the workforce. Sino-western joint ventures have historically had a high employee turn over rate, despite the fact that Chinese employees generally are more loyal
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to their companies than western employees (Wong, Hui, Wong, & Law, 2001). Disputes between the Chinese and the Western partner often arise about the management of the workforce (Weldon et al., 1999). Other problems partly explained by different cultural backgrounds are the foreign companies’ difficulties in recruiting sufficient local managers and labor. Chinese managers are by many western executives regarded as unwilling both to take responsibility and delegate work tasks (Vanhonacker & Pan, 1997).
6.5.3.
External Influence
The legal difficulties related to investments in China have been emphasized by many authors. The role of the political influence in Chinese business ventures is also a source of conflict. Especially western partners engaging in Sino-Western joint ventures voice frustration because of the inertia and slowness when dealing with government bureaucracy (Weldon et al., 1999). Despite the fact that the regime claims to be simplifying procedures for foreign direct investments, there are still a vast number of legal pitfalls for foreign owned joint ventures in China (Frankenstein, 1993; Si et al., 1999).
One complicating factor for the Sino-foreign joint ventures is that they are bound by different laws depending on if the Chinese partner is state owned or a private company (Si et al., 1999). To do business within the Chinese legal system is by many companies considered as to work by “trial and error” (Lee, 1999).
However, the difficulties caused by the external environment that foreign companies face when they engage in joint ventures in China are no different from those they would have experienced if they had invested in China through a wholly owned subsidiary.
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7.
Joint Ventures – A Story of Success or Failure?
The opinion that the majority of joint ventures fail is common in the literature 9 . This statement is however problematic, in several ways. Firstly, since no consensus has yet been reached about how performance should be measured in joint ventures (Child, 2003) it is difficult to evaluate if joint ventures are successes or a failures. Secondly, few comparative performance studies exist. The majority of articles that investigate performance are not focusing on studying the performance construct per se but how performance is related to other factors (e. g. control, partner selection and bargain power). The studies that are usually referred to when establishing the “fact” of the high level of joint venture dissolution are often old and not always methodologically well founded 10 .
Another complicating factor is the large differences in legal and political framework the joint ventures face in different countries. These differences are reflected in perceived performance; joint ventures formed by developed country partners in developing countries are usually described as more unstable compared to joint ventures in developed countries (Beamish, 1985). The Chinese situation is widely acknowledged to be especially challenging (Beamish, 1993; Child & Markóczy, 1993). Despite these potential straining factors, studies show that “EJVs in China have a higher level of profitability than cooperative operations or wholly foreign-owned subsidiaries.” (Pan 1999: p369) This result, together with the findings that joint ventures are less likely to be dissolved than wholly owned subsidiaries (Gomes-Casseres, 1987), gives a different picture from joint ventures as unprofitable and highly risky projects. To summarize, the discussion about the level of joint venture failure is both more complex and rich in nuance than many authors claim. For a summary of studies ranging from about 30% to 70% dissolution rates for international joint ventures see Hennart (2002) 10 Several of the most cited sources (with the highest dissolution rates) are reports from consultancy agencies; something that is problematic since these companies do not share the methodological standards of the academia, and since they have an selfinterest when it comes to depict joint ventures as hard to manage 9
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