Key Criteria for Selecting a Joint Venture Partner on Emerging Markets

A Case Study of Austrian Companies on the Indian Market


Seminar Paper, 2014
66 Pages

Excerpt

Table of contents

Abstract

List of figures

List of tables

List of abbreviations

1. Introduction
1.1. Research question and objective
1.2. Research methodology

2. Theoretical review
2.1. Joint venture
2.2. Key criteria for selecting a partner
2.2.1. Tangible resources
2.2.2. Intangible resources
2.2.3. Partnership experience
2.2.4. Product
2.2.5. Partner compatibility
2.2.6. Culture
2.2.7. Networks
2.3. Emerging markets
2.3.1. Key characteristics of emerging markets
2.3.2. Key partner selection criteria on emerging markets

3. Methodology

4. Results

5. Discussion

6. Conclusion

List of references

Appendix

List of figures

Figure 1 Joint venture process

Figure 2 Key partner selection criteria on emerging markets

Figure 3: Key selection criteria final results

List of tables

Table 1 Interviewpartner

Table 2 Mosdorfer selection criteria

Table 3 Kostwein selection criteria

Table 4 General selection criteria on emerging markets

Table 5 : Coding guideline

Table 6 Level-of-importance guide

Table 7 Interview results

List of abbreviations

illustration not visible in this excerpt

Abstract

This case study paper focuses on defining the key criteria for selecting a joint venture partner on emerging markets to minimize the risks of its failure. The literature dealing with general partner selection criteria is rich. Only a little research was, however, conducted in terms of emerging economies. Therefore, the study combines a theoretical model with an empirical evidence to extend knowledge in this area. The literature review results in four main partner selection criteria, such as human resources (tangible resources), local market knowledge (intangible resources) as well as business and governmental networks. An empirical research was conducted through qualitative interviews to challenge the theoretical findings. The sample consisted of two leading Austrian manufacturing companies operating a joint venture in India. Although those participants confirmed that local market knowledge and networks are crucial on emerging markets, they accommodate different perspective in terms of tangible resources. Moreover, they add that company control and local partner’s international experience are fundamental.

Key words: joint venture, partner selection, key criteria, emerging markets

The authors would like to sincerely thank to Mr. Haas (Mosdorfer GmbH) and Mr. Schlagbauer (Kostwein AG) for sharing their expertise, interesting business insights and their time. Without them, analysing the actual steps in joint venture partner selection process would have been difficult. In addition, warm thanks also belong to Mr. Sternad for his effective supervision.

Claudia Knoll Filip Linhart

1. Introduction

Foreign direct investment (FDI) is a key internationalization strategy for companies worldwide. In the last years, emerging markets gained importance for international investors because of the fast positive development of these economies.[1] For example, the OECD[2] announced that within 2005 - 2011 the FDI inflows in China rose about 84% and in India about 70%. According to the UNCTAD World Investment Report 2012[3], especially BRIC countries (Brazil, Russia, India and China) attract significant amount of FDI and belong to the promising destinations for international production of cross-national cooperation.

One direct investment mode into international and especially developing markets which is used more intensively in the last years is the formation of a joint venture with a local partner. This form of direct investment entails some important benefits for the companies, such as the division of investment cost, a reduction of risks or the discovery of new opportunities. Nevertheless, a big percentage of joint ventures do not perform successfully on a long-term basis because of poorly defined strategies, inadequate or unfeasible agreements, improper management or incompatible joint venture partners.[4] Some recent studies underline that the selection of a suitable and adequate joint venture partner is a crucial step in the establishment of a joint venture and in the long run essential for a successful international business.

The differences between transitional and developed economies in terms of economic, political, social and cultural conditions might also be reflected in the selection criteria of joint venture partners. Therefore, companies have to apply the most appropriate selection criteria on emerging markets to create a basis for successful business cooperation.

1.1. Research question and objective

Based on the findings above, the following research question will be investigated:

The goal of this paper is to highlight the most important selection criteria for companies which want to establish a joint venture on an emerging market and identify their potential partner. As a result, one of the common issues resulting in a joint venture failure should be reduced.

1.2. Research methodology

In order to answer the research question and to achieve the set target the paper in hand is divided into two main sections. First, a general review of the existing literature is carried out to construct a base to build on the empirical research. The theoretical part of the study provides information about joint venture lifecycle and gives an insight into seven general key partner selection categories. In addition, the reader is provided with key characteristics of emerging countries to understand why partner selection in those economies might differ from developed markets. Moreover, a theoretical model is created to combine the necessary data and to get topic-relevant results derived from the literature. Second, a multiple case investigation is conducted to analyse and compare contemporary real-life examples and to identify partner selection patterns. The applied case study research method is a qualitative approach to investigate empirical incidences by analysing multiple current cases[5]. The aims are to explore a scenario in detail, determine similarities or discrepancies throughout the examples and to identify the practical impacts[6]. This research strategy has been chosen as it allows to get a deep insight into two suitable model cases and to answer the research question in depth. Consequently, out of the case research, an analytical generalisation is possible. In other words, the acquired results might be useful for companies in similar decision-making situations. The case study research was conducted with two Austrian manufacturing companies active on a sample market of India: Mosdorfer GmbH and Kostwein Maschinenbau GmbH.

2. Theoretical review

The theoretical review deals with the key concepts of joint ventures, selecting partnership and emerging markets.

2.1. Joint venture

According to Khemani and Shapiro[7] a joint venture is a project focusing on strategic accomplishment in a particular area where cooperation between companies or individuals is essential. This specific form of strategic alliance is defined mainly by shared resource capacity[8] and initiative scope of actions exceeding traditional role of investment[9]. Moreover, joint venture projects are generally characterized by existence of an environment with higher risk scenarios[10]. Considering an international joint venture, one or more businesses’ headquarters must be situated across the border of joint venture country[11].

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Figure 1 Joint venture process[12]

Describing the joint venture process, only a few models focus on its entire life cycle. One particular example is a general concept for strategic alliances that was developed by Dyer, Kale and Singh[13]. In hand with the strategic steps in terms of selecting the right partner and choosing the suitable strategy, they also include an alliance management stage where operative issues, such as tracking systems or communication infrastructure are considered. Moreover, the assessment and termination stage consists of e.g. regular evaluations. Whereas the literature regarding the entire joint venture life cycle is rather weak, vast majority of the authors provide the readers with information about strategic decisions that are essential for establishing and preparing the international joint venture. However, despite growing tendencies in joint venture establishment, the high number of partnerships results in unrealistic goals and unsuccessful cooperation[14]. This also leads to the fact that the probability of strategic alliance termination is rather high[15].

Ulas says that the general purpose of international joint venture is to utilize the advantages of mutual cooperation that none of the parties could gain without the partnership[16]. Although the success of the alliance might be strongly dependent on suitable resources and skills, he argues that the essential step towards successful international joint venture is to choose the appropriate counterpart. Similarly, other examples support his assumption of the strategic importance of partner selection in joint venture. For example, Luohighlights that for emerging markets, it is especially important to find an appropriate local partner[17]. Another illustration drawn by Roy and Oliver states that there are also external factors, such as legal environment that companies have to consider when selecting a suitable alliance partner[18]. Nevertheless, they confirm the importance of this procedure to successfully build an international joint venture.

2.2. Key criteria for selecting a partner

The partner selection is considered as one of the most important and complex steps in joint venturing. An exhaustive literature research presents a broad variety of criteria that should be taken into account during this process. Those criteria have been clustered into 7 selection categories and are described in the following section.

2.2.1. Tangible resources

One of the joint venture theories indicates that strategic alliances are being employed to gain admittance to the local partner’s resources and fill thus the internal resource gap[19]. Another approach asserts that the company’s strategic partner itself is a resource which can be exploited[20]. For example, Kadobayashi et al.[21] point out that foreign companies can utilize local partner’s tangible assets, such as factories, equipment or land and thus shorten the time period of production initialization. Literature, in the context of resources, uses a variety of classification to cluster them in groups. For example, Barney[22] identifies organizational, human and physical capital. He adds that companies perceive human and organizational capital as major source of competitive advantage because of their intangible characteristics and difficulties in trading. Moreover, Das and Teng[23] develop the resource-based view further by stating that different impacts on strategic alliance can be caused by using various resources. Moreover, they point out the access to financial capital and physical resources[24], such as distribution channels, materials or production capacity as aspects of great importance in an international strategic alliance. In addition, Miller and Shamsie[25] cluster resources in property-based and knowledge-based. They argue that while knowledge-based resources incorporate know-how and capabilities, property-based resources are connected with ownership rights (licenses, financial assets or physical resources).

2.2.2. Intangible resources

Further elements for partner selection, extensively discussed in the literature, are external and internal competencies. By selecting the right partner, a lot of companies focus on possible associates who provide them access to their knowledge of local market conditions. Connected to this, the superior understanding of the host country culture is a crucial criterion because it also eases the customer contact. Nevertheless, it is emphasised that in culturally-close countries this factor is less relevant.[26]

In the partner selection process, not only the expertise about external factors but also internal know-how of the alliance partner is vital. For example, Rumpunen[27] mentions access to regulatory permits and the reputation of partner as major selection criteria. Regarding internal abilities, on the one hand, companies are searching for partners with new and unique skills or complementary competences to achieve competitive advantage[28]. Meier[29] adds that on the other hand companies search for joint venture partners with whom they can develop entirely new know-how. In all cases, the commitment, openness and readiness to contribute the own expertise of the partner is essential to support knowledge exchange. Although gaining access to knowledge and sharing of know-how is important for the companies, the protection of intellectual property rights is also an issue and an optimal way that has to be found. In this case trust plays a predominant role too[30].

2.2.3. Partnership experience

Another criterion which influences the decision-making process is the experience which is brought into the alliance by the potential partner. First, experience gained in earlier associations and also in previous international partnerships can be beneficial for the future joint venture because obstacles and difficulties could be reduced and management effectiveness could be enhanced. Second, potential partners with cooperation experience are also seen as more reliable because other companies were also committed to them.[31] Luo adds that especially in transitional economies international experience of the alliance partner is advantageous. It improves the ability to respond to foreign company’s requirements, such as management and business practises as well as global competition.[32]

In addition, in a contemporary research the existence of a past alliance between the potential cooperation companies was underlined as one of the most important selection criteria as it reduces transaction costs and expenses for searching a suitable company[33]. Moreover, it is emphasised that the partner selection done in an already developed network has benefits for the companies because the know-how spill-over is facilitated, the partner-fit is given and the necessary trust is built[34]. Similarly, Owens, Zueva-Owens and Palmer underline the argument that sometimes companies select partners out of their well-established networks to firstly eliminate insecurity and risk and secondly ensure quality. Nonetheless, the appropriateness of the potential partner should always be objectively analysed.[35]

2.2.4. Product

Similarities and relatedness of the partner's products brought to the strategic alliance could help opt for an appropriate cooperation partner. Harrigan[36] states that the companies utilize the local partner’s products to complete their product lines. For example, a recent joint venture between Black Horse LCC (IJV Caterpillar and Ariel) and ProSource leveraged the engineering experience to develop and fill out the product line of ProSource[37]. Yan and Luo[38] determine that significant differences in products can cause severe implications on economies of scale or efficiency of transaction costs in the business relationship. To draw a particular example, a high value partnership between the international joint venture and local customers, distributors or government might be the consequence of interlinked counterparts’ products. Relatedness of products and its benefits for joint venture partnerships were also pointed out by Lu and Xu[39]. They imply the positive direct relation between the product linkages and the learning experience that can be an added value over time. In addition, Kadobayashi et al.[40] highlight that the companies should take into consideration the transfer risks related to know-how and technology brought to the joint product development.

2.2.5. Partner compatibility

A frequently mentioned selection criterion dealing with joint ventures is the business compatibility of the parties involved. Alliance partners with homogenous vision, mission, strategies and objectives can cooperate more effectively as well as establish easier a harmonious working relationship.[41] To support this, Wu, Shih and Chan state that compatible goals and strategies are an important aspect for the partner selection[42]. For example, different objectives, such as a focus on paying dividends rather than investing into long-term potentials can lead to difficulties in the partnership. Moreover, not only a common strategic direction is essential but also the companies’ size and structure should be comparable. Lower financial capacities or growth potential of the local joint venture partner could, for instance, cause future restrictions.[43] In addition, a match of participants in their operative procedures might also benefit the joint venture due to lesser need of adaptation, facilitated management and faster information flow[44]. Islam et al.[45] point out that the fit of the firm’s corporate cultures is a fundamental element. Likewise, Zutshi and Tan[46] also highlight that cultural compatibility, such as similar values, ethics, management and decision-making scenarios as well as communication styles can lead to lower conflict potential, higher engagement and an overall simplified cooperation. These authors also indicate that the culture of the company that searches for a potential partner influences the structure, ownership-division and level of power distribution. Notwithstanding, too little importance is placed on compatibility of companies’ values and culture as a selection criterion. It is still considered as one of the major factors for international joint venture breakdown[47]. In general, a strategic misfit between the companies can result in a joint venture failure because the partners cannot pursue their motives and realise their actual targets. Therefore, compatibility of essential business drivers should be inspected carefully at the beginning.[48]

2.2.6. Culture

The success of a joint venture might also be determined by cultural similarities and differences of the parties. The possibility of intensive and open communication with the partner is critical for the counterpart choice. Furthermore, a transparent flow of information ensures the overview of the company’s progress from the outside and reduces the perceived risk.[49] Moreover, Mohamed[50] also argues that partners with different languages and behaviours must find a common basis to be able to create a favourable joint venture. In addition, the value of trust is also a main element in the selection process because finding a trustful partner minimizes uncertainty and cooperation barriers as well as strengthens commitment and relationship[51].

2.2.7. Networks

The literature investigates particular country cases where government networks play an essential role in setting up an international strategic alliance. For example, Hitt[52] et al. describes that some countries require the presence of a domestic company in order to establish a strategic alliance. Similarly, Luo[53] recommends that multinational corporations need to cooperate with their local counterparts in complex environments to strengthen the relations with governments and subsequently the performance of the joint venture. In both cases, governmental networks are crucial to succeed on the particular market. Moreover, Campbell[54] illustrates that in some countries the industries might be under governmental sight and regulation (official approvals, licenses, permits) and might, thus, complicate the business operations. Therefore, he mentions that good governmental relations of the local partner play an essential role in the partner selection process. Hitt et al.[55] contributes to the importance of local partner selection. He claims that the foreign partners may face consequences of the institutional instability in a specific country. According to him, this lability negatively influences the length of strategic alliance. A particularly relevant example of good governmental relationships is drawn by Kadobayashi et al.[56] They point out that when the local company has an opportunity to purchase an indispensable land for production, good relations with the authorities might be beneficial in reducing the time, costs and efforts. Moreover, another key issue regarding networks and connections could be social networks. Gulati[57] points out that informal networks and personal relationships might be exceptionally relevant when building trust with a joint venture partner.

The chapter 2.2 discussed various theoretical perspectives on selecting a joint venture partner. Several criteria were identified and clustered into seven selection categories. However, literature implies disparity between the importance of the different criteria. To demonstrate this, whereas tangible and intangible resource were described to a greater extent, only a little was written about soft components, such as culture and networks. In order to recognise the relevance of aforementioned criteria for partner selection on emerging markets, the following section deals with characteristics of those economies.

2.3. Emerging markets

As the emerging markets are on the rise, the particular challenges may differ from those on developed markets. Therefore, the goal of the chapter is to analyse characteristics of developing countries and to combine the results with general criteria for joint venture partner selection to get the specific ones for the emerging markets.

2.3.1. Key characteristics of emerging markets

According to Hoskisson et al.[58] emerging markets are characterised by an unstable governmental and political environment where arbitrary behaviour and corruption are still a critical issue. Moreover, in a lot of emerging economies the legal system is weak which increases the uncertainty on the markets. Nevertheless, the authors state that transitional economies also provide a lot of benefits for international companies but especially well-established ties with the local government are crucial to be successful. Equally, Mohammed[59] underlines that cooperating with a local company that created close relationships with the government can reduce the risk for the joint venture. Besides that, networks are of significant importance as on emerging markets collectivistic cultures are dominant. International companies may benefit from the joint venture partner’s contacts with local businesses, industries and powerful people in general[60]. Additionally, Peng, Wang and Jiang[61] emphasise the importance of relationships and the access to societal networks in transitional economies. It helps to overcome the lack of well-developed formal institutions and it is perceived as a success and growth factor.

In addition to the importance of relationships, transitional countries are very diverse and dispose with a great variety of cultures, languages, infrastructures and consumer behaviours. This increases the need of local knowledge and awareness to develop an effective business strategy on those markets.[62] Companies from emerging economies often possess a special understanding of local consumer requirements and may provide well-established sales-channels which increase their differential advantage.[63]

Furthermore, Sun and Lee[64] point out that the companies are not anymore only imitators but creativity and innovativeness have been developed over the last decades. This might be beneficial for their partner companies too. Likewise, they argue that companies from emerging markets often develop innovative cost-saving strategies to get a competitive edge. Due to the cost structure in those countries it is possible to hire cheap manpower with high knowledge. Nevertheless, foreign companies find it complicated to detect those competent people as specialised recruiting companies are missing especially on emerging markets.[65] It can be concluded that cooperating with the right partner firm can therefore give access to skilled human resources.

To sum up, the most frequently stressed market characteristics of emerging economies should be considered in the partner selection of joint ventures to overcome barriers and also to benefit from advantages of the transitional markets.

2.3.2. Key partner selection criteria on emerging markets

A model was developed out of the information derived from the literature. First, it visualises the key findings of the theoretical review. Second, it provides a basis for the following empirical part of the case study analysis. In order to conduct in-depth analysis of which criteria are the most important for international joint venture partner selection in general, the literature findings with a similar content were clustered into seven main categories under selection categories (Figure 2). As an illustration, physical capital, human resources and financial resources fell under tangible resources.

The literature theory and definitions are, however, usually generalized for any markets and any conditions. There might be a correlation between characteristics of developing countries and selection categories, as defined above. This chapter, thus, combines those two aspects to develop a structured concept. As a result, three key selection criteria companies should generally consider in transitional economies were identified.

For instance, the availability of cheap and educated labour force as a characteristic of emerging markets goes in hand with human resources as an important selection criterion defined by the literature. The matching principle identifies, therefore, tangible resources as a first key partner selection category with a special focus on human resources on emerging markets. Intangible resources, specifically knowledge of a country’s business environment, arose as a key element by combining market characteristics for developing countries, such as great cultural diversity and intangible resources described by literature (e.g. local market knowledge). While the governmental and social networks are of a great importance in literature, the emerging markets are characterised by weaker rule of law and collectivistic culture which demands even tighter relationships. Thus, the third key aspect, governmental and business networks are seen as essential selection criteria on emerging markets.

illustration not visible in this excerpt

Figure 2 Key partner selection criteria on emerging markets

3. Methodology

The empirical analysis aims to give a concrete answer to the predefined research question “What are the key criteria for selecting a joint venture partner on emerging markets?” built on the theoretical section.

As aforementioned in the introductory chapter, a multiple case study approach is applied to investigate two Austrian companies operating with a joint venture on the Indian market. These companies were selected based on the following characteristics:

at least 5 years of joint venture partnership

a joint venture on an emerging market,

To ensure the comparability and relevance of the answers, the location of the joint venture was specified to India.

The two selected Austrian companies come from the manufacturing industry. Mosdorfer GmbH produces transmission lines and customer specific components in energy industry. While Mosdorfer established its joint venture on the Indian market in 2007, Kostwein founded it there in 2009. Kostwein is an industry supplier of machines for world leading companies in various sectors of mechanical engineering.

The necessary data was collected by conducting individual telephone interviews with the Austrian manager’s involved in the joint ventures. To ensure the flexibility and flow of the conversation the approach of semi-structured interviews was executed. This survey method requires a predefined questionnaire to provide a guideline but it is still elastic for additional important information given by the interviewee[66]. As suggested in the literature, an interview-guideline with 18 fundamental questions and several sub-questions has been prepared. Those questions were merged into three categories - joint venture, partner selection criteria and emerging markets – to structure the interviewee’s answers. The first category deals with the company’s position in the joint venture and their intention to choose this entry mode. The second part investigates the relevance of all seven theoretical categories and other possible criteria. The last group of questions focused on the influence of emerging markets on the partner selection. The questions were developed based on the beforehand literature and with a clear focus on solving the research question (see Appendix 4).

The interviews were done between April and May and the exact dates can be seen in the following table:

Table 1 Interviewpartner

The interviews were conducted in German language to simplify the conversation with the interviewees and to obtain as concrete information as possible. The discussion leader followed the guideline and did not interrupt or manipulate the interview consciously to guarantee objectivity. Moreover, the two interviews were transcribed (Appendix B) and translated into English. This allows English and non-English speaking readers to access the raw data, which secures reliability of the case study research. Moreover, all relevant data are stored in a database to further ensure reliability[67].

The data were analysed according to the structured qualitative content analysis of Mayring. On the one hand, relevant quotes were selected from the interview content and paraphrased in line with the selection categories derived from the theoretical model. On the other hand, the interviews brought also unique information neglected in the literature. Therefore, new criteria (e.g. company control or expansion potential) were established to extend the theoretical limitations. Furthermore, a significance test was designed to objectively asses the relevance and the importance of the criteria mentioned by the interviewees. All in all, the quantity of similar criteria was calculated and ranked according to the importance level. To ensure the objectivity and reliability of the analysis a coding-guideline as well as a guide for the level of importance were developed and are attached in the appendix. (Appendix 1 2) All results are presented in following chapter.

4. Results

The two interviews, conducted with Mosdorfer GmbH and Kostwein GmbH, were analysed in depth to identify the most crucial partner selection criteria on emerging markets. The interview quotes were paraphrased and assigned to the selection criteria to generate universally applicable results (see Appendix 3). The findings from both surveys are presented as well as compared in the following section and underlined with direct quotes to support them.

Both, Mosdorfer and Kostwein highlighted during the interview that the partner selection phase is the most crucial step for potential success of the international joint venture project. Whereas Mosdorfer mentions: “it [the partner selection] is actually one of the most important decisions[68].”, Kostwein asserts: ”I would say it was a K.O. criterion for us – when the partnership does not work in the joint venture and is not build on solid partner pillars, then it is foreseen for failure[69].”

First of all, the partner selection process of Mosdorfer was analysed. The company primarily focused on four selection categories (see Table 2). The analysis of the interview revealed that the company highly emphasised both tangible and intangible resources as well as networks and partner experience. Within those theoretical categories, only a particular criterion prevailed over the others and was, therefore, considered as essential for the choice of the partner. Specifically, business networks were identified as the most important selection criterion, as they provide access to a variety of customers and local companies. As Mr. Haas underlines: “Absolutely important was the access to the Indian construction companies[70].” , he supports his answer by saying: “In China we didn’t have a concrete partner – we know a lot of people there but we don’t have a partner with such a good network.[71]

In addition to the significance of business networks, three other criteria were weighted equally with high relevance. Those are financial capital, competences and a past cooperation between the partners. Regarding financial capital, Mr. Haas states that: “His [the partner’s] financial capacity was also crucial (...) that the partner can grow and that he can keep up with the capital-increases.[72]“ Besides this, the local company’s ability to complement the competences and to provide industrial knowledge was fundamental. The prior cooperation with the local partner also played a major role due to reduced business transactions and existing trust. Mr. Haas asserts: “We had already established a long trustful and respectful relationship with this partner and I think it simplified the decision a lot.[73]” Another criterion – company control - emerged from the interview with an equivalent significance. This means to maintain the major voting rights, brand identity and quality standards. Although the company highlighted local market knowledge and trustworthiness of the partner as criteria with lower importance, they still might be necessary for emerging markets. The CEO asserts that: “(...) you always need a partner which (...) knows the local market (...)[74]” and “In the end you have to rely on your local partner that he manages the business successfully.[75]” Finally, as other criteria were less regularly pointed out in the interview, it can be concluded that they were also considered in the selection process but not determining for the ultimate decision.

Table 2 Mosdorfer selection criteria

Although Kostwein’s priorities fell within similar categories as Mosdorfer’s, the companies focused on different selection criteria within those categories. The international experience and partnership turned out to be the most essential criteria for Kostwein. This criterion consists, for instance, of the ability to deal with international companies due to the partner’s previous experience. Mr. Schlagbauer indicates: “We were searching for a partner that had already a lot of experience and that knows the European culture very well[76].” Furthermore, Kostwein valued the local market knowledge. To the CEO, this term symbolizes, for example, local cultural understanding, industrial overview as well as staffing particularities in India. This is underlined by the following example: “We sourced our employees ourselves. Of course, he supported us because of a lot of cultural topics[77].” A high priority was placed on the provision of physical capital, such as equipment or property by the local partner. “We did not build any location but we had an opportunity to use the location of our joint venture partner to establish the company.[78]” says Mr. Schlagbauer. According to him, other factors considered as crucial for the partner choice were company control and governmental networks (see Table 3). The opportunity to become a major shareholder in the project, similarly to Mosdorfer, seemed to be an essential criterion for Kostwein. Finally, unlike Mosdorfer’s preference of business connections, Kostwein favoured more the governmental relationships within the category of networks. The company illustrates: “Important is that you can use the good contacts to good [suitable] authorities on operative level that have to be established already[79].” Other criteria, such as financial capital, skills competences (e.g. adaptability to European conditions or know-how of company foundation) and communication style were considered. However, they were perceived as criteria with secondary, respectively supportive function. Consciously, some criteria did not play any role (e.g. human resources or product know-how) for Kostwein in their selection process.

Table 3 Kostwein selection criteria

As a conclusion, the interviews revealed some criteria for international joint venture partner selection on emerging markets. A fusion of the results generated eight major aspects the companies focus on when making a strategic decision about a joint venture partner (see Table 4). Out of the developed categories, networks and intangible resources were represented with all pre-defined selection criteria. Besides this, a new criterion (not defined by the literature) of greater importance was company control. In terms of importance, tangible resources, such as financial and physical capital, ranked on higher positions as well. Lastly, international experience and partnership within the category of partnership experience turned out to be another key criterion for both of the participants.

Table 4 General selection criteria on emerging markets

5. Discussion

In order to identify the key criteria for partner selection on the emerging markets, literature and empirical study need to be compared. The theoretical model illustrates certain key criteria for partner selection on emerging markets that are seen as important in literature. The relevant criteria lay within the key categories: tangible resources, intangible resources and networks. Those theoretical results are contrasted with the empirical findings in the following part.

First of all, within the category of tangible resources, theory defined human resources as a key factor on emerging markets. Although cheap labour is available, foreign companies see it difficult to find the adequately qualified talents. Thus, they might benefit from the local partner’s human resources. On the contrary to the theoretical findings, one interviewee underlined that sourcing human capital can be done by the foreign company itself. However, other tangible resources are more necessary. Physical capital is more crucial on emerging markets as the companies need appropriate locations and equipment for establishing the joint venture business. Moreover, financial sustainability and capacity of the partner was for the interviewees an important aspect on the emerging market to make sure that the partner can keep up with the growth of the international company. Second, regarding the intangible assets, the literature focuses on the local market knowledge because of market’s not negligible cultural diversity and the need for understanding of local business processes as well. The empirical study supports this by underlining the comprehension of business specifics on emerging markets. Moreover, the theory constitutes that skills and competences are generally not perceived as crucial on the emerging markets. Nevertheless, the interviewees ranked it as one of the most influencing criteria. It is required that the local company has technical expertise as well as industry knowledge and know-how about business foundation in the country. Third, the theoretical model emphasizes the networks which are divided into governmental and business connections. The major reasons for having contacts are insufficient rule of law and collectivistic culture. Both companies confirmed the relevance of networks due to the strong orientation on relationships on emerging markets. As establishing networks require time and connections, it is crucial to find a partner with already well-established relations. For instance, while business networks ease the logistics and distribution opportunities, governmental networks might support the business foundation process. Although the international experience of the partner was not theoretically considered as an essential factor on emerging markets, the empirical evidence uncovers an opposite trend. The companies see as a huge advantage that local partners dispose with international awareness, such as advanced knowledge about international business practises. In addition to all criteria that were discussed in the literature, another criterion emerged from the empirical study. Company control turns out to be vital on emerging markets because both of the participants required majority in share distribution to be able to set the direction for the business cooperation. To sum up, the categories from the literature and empirical analysis match. However, there are different focal points within those categories in terms of partner selection criteria. Out of the eight categories (theory and practise), five were identified as relevant on emerging markets. Within these categories, nine partner selection criteria were derived as crucial for establishing a joint venture in transitional economies (See figure 3).

[...]


[1] cf. Chen Dhara, 2013, "Emerging Markets FDI Inflows” [online].

[2] cf. OECD, 2013, p. 88 [online].

[3] cf. UNCTAD, 2012, p. 21.

[4] cf. Bamford et al., 2004, “Launching a World-Class joint venture” [online].

[5] cf. Yin, 2009, pp. 2-5.

[6] cf. Creswell, 2013, pp. 97-99.

[7] cf. Khemani, Shapiro, 2005, p. 51 [online].

[8] cf. Kogut, 1988, p. 320.

[9] cf. Geringer, 1991, p.41.

[10] cf. Killing, 2013, p. 7.

[11] cf. Schuler, Tarique, Jackson, 2004, p. 105.

[12] adapted from Dyer, Kale, Singh, 2001, p.40.

[13] cf. Dyer, Kale, Singh, 2001. p.40.

[14] cf. Madhok, Tallman, 1998, p. 326.

[15] cf. Hennart, Kim, Zeng, 1998, p.382.

[16] cf. Ulas, 2005, p. 11.

[17] cf. Luo, 1998, p. 145.

[18] cf. Roy, Oliver, 2009, p. 780.

[19] cf. Das, Teng, 2000, p. 34.

[20] cf. Hamel, 1991, p. 83.

[21] cf. Kadobayashi et al., 2013, p. 8.

[22] cf. Barney, 1991, pp. 99-100.

[23] cf. Das, Teng, 1998, p. 24.

[24] cf. Das, Teng, 2000, p. 41.

[25] cf. Miller, Shamsie, 1996, pp. 521-522.

[26] cf. Islam, Ali, Sandhu, 2011, pp. 29-32.

[27] cf. Rumpunen, 2011, p. 23.

[28] cf. Hitt et al., 2004, p.177.

[29] cf. Meier, 2010, pp.11-12.

[30] cf. Baughn et al., 1997, pp.104-114.

[31] cf. Hitt et al., 2004, pp.177-178.

[32] cf. Luo, 1998, p.157.

[33] cf. Islam, Ali, Sandhu, 2011, p. 26.

[34] cf. Li et al., 2008, p. 317.

[35] cf. Owens, Zueva-Owens, Palmer, 2012, pp. 385-387.

[36] cf. Harrigan, 2003, p. 288.

[37] cf. Peoria, 2012, Caterpillar and Ariel Corporation Create joint venture [online].

[38] cf. Yan, Luo, 2001, p. 24.

[39] cf. Lu, Xu, n.d., p. 2 [online].

[40] cf. Kadobayashi et al., 2013, p. 8.

[41] cf. Echambadi, Cavusgil, Aulakh, 2001, pp. 362-369.

[42] cf. Wu, Shih, Chan, 2009, p. 4647.

[43] cf. Adarkar et al., 1997, p.124.

[44] cf. Echambadi et al., 2001, pp. 369-370.

[45] cf. Islam, Ali, Sandhu, 2011, p. 35.

[46] cf. Zutshi, Tan, 2008, pp. 376-377.

[47] cf. Islam, Ali, Sandhu, 2011, p. 37.

[48] cf. Nielsen, 2010, p. 686.

[49] cf. Islam Ali, Sandhu, 2011, pp. 35-36.

[50] cf. Mohamed, 2003, p. 620.

[51] cf. Zutshi, Tan, 2008, pp. 376-387.

[52] cf. Hitt et al.,2004, p. 175.

[53] cf. Luo, 1997, p. 650.

[54] cf. Campbell, Netzer, 2009, p. 91.

[55] cf. Hitt et al., 2004, p.177.

[56] cf. Kadobayashi et al., 2013, p. 8.

[57] cf. Gulati, 1998, p. 303.

[58] cf. Hoskisson et al., 2000, pp. 254-257.

[59] cf. Mohammed, 2003, p. 618.

[60] cf. Luo, 1998, p.151.

[61] cf. Peng, Wang, Jiang, 2008, p. 927.

[62] cf. Cui, Liu, 2000, p. 57.

[63] cf. Govindarajan, Ramamurti, 2011, p.198 [online].

[64] cf. Sun, Lee, 2013, p. 16.

[65] cf. Khanna, Palepu, Sinha, 2005, pp. 63-67.

[66] cf. Myers, Newman, 2007, pp. 12-14.

[67] cf. Baxter, Jack, 2008, p. 554.

[68] For detailed information see 1. Interview with Mr. Haas (Mosdorfer GmbH), appendix 5, p. 42.

[69] For detailed information see 2. Interview with Mr. Schlagbauer (Kostwein AG), appendix 5, p. 53.

[70] For detailed information see 1. Interview with Mr. Haas (Mosdorfer GmbH), appendix 5, p. 43.

[71] For detailed information see 1. Interview with Mr. Haas (Mosdorfer GmbH), appendix 5, p. 45.

[72] For detailed information see 1. Interview with Mr. Haas (Mosdorfer GmbH), appendix 5, p. 44.

[73] For detailed information see 1. Interview with Mr. Haas (Mosdorfer GmbH), appendix 5, p. 44.

[74] For detailed information see 1. Interview with Mr. Haas (Mosdorfer GmbH), appendix 5, p. 42.

[75] For detailed information see 1. Interview with Mr. Haas (Mosdorfer GmbH), appendix 5, p. 42.

[76] For detailed information see 2. Interview with Mr. Schlagbauer (Kostwein AG), appendix 5, p. 52.

[77] For detailed information see 2. Interview with Mr. Schlagbauer (Kostwein AG), appendix 5, p. 54.

[78] For detailed information see 2. Interview with Mr. Schlagbauer (Kostwein AG), appendix 5, p. 57.

[79] For detailed information see 2. Interview with Mr. Schlagbauer (Kostwein AG), appendix 5, p. 55.

Excerpt out of 66 pages

Details

Title
Key Criteria for Selecting a Joint Venture Partner on Emerging Markets
Subtitle
A Case Study of Austrian Companies on the Indian Market
College
University of Applied Sciences Villach
Authors
Year
2014
Pages
66
Catalog Number
V289007
ISBN (eBook)
9783656914051
ISBN (Book)
9783656914068
File size
1576 KB
Language
English
Series
Aus der Reihe: e-fellows.net stipendiaten-wissen
Tags
Strategic Management, Joint Venture, Emerging Markets
Quote paper
Filip Linhart (Author)Claudia Knoll (Author), 2014, Key Criteria for Selecting a Joint Venture Partner on Emerging Markets, Munich, GRIN Verlag, https://www.grin.com/document/289007

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