Nowadays the world seems to be moving closer together and markets are becoming increasingly global. Firms take part in this globalization process and become international. A joint venture, particularly a cross-border joint venture, presents companies a promising oppor-tunity to expand into new markets. Joint ventures can help firms to broaden their geographical market participation, to acquire new knowledge, to create economies of scale and scope and, most importantly, reduce risks. The number of newly formed joint ventures is growing worldwide at an increasing pace. Yan (1998) discovered that the rate of alliance formation in the U.S. has been growing at an annual rate of more than 25 percent since 1985. A lot of the joint ventures endure for a long time but many do not. Kogut (1989) discovered a termination rate of international joint ventures of about 70%. There must be several reasons why they are vulnerable to instability and why so many fail. The aim of this thesis is to discuss which determinants have an impact on the survival of joint ventures. Guidelines are presented regarding aspects that need to be considered if a company wants to form strategic alliances with other firms. There are internal and external factors that influence the survival of joint ventures. Experts believe that some factors are con-troversial as they can influence the stability in a positive as well as in a negative way. No clear consensus is found yet. Therefore I describe their positive as well as their negative im-pacts on the longevity of a jointly owned entity.
Table of Contents
1 INTRODUCTION
2 THE JOINT VENTURE
2.1 WHAT IS A JOINT VENTURE?
2.2 DIFFERENT FORMS OF JOINT VENTURES
2.3 GOALS AND MOTIVES OF THE FORMATION
2.4 NEGATIVE EFFECTS FOR THE JOINT VENTURE PARENTS
3 HOW TO MEASURE JOINT VENTURE SURVIVAL
3.1 DIFFERENT METHODS IN THE LITERATURE
3.2 PROBLEM OF CLASSIFICATION
4 VARIABLES INFLUENCING THE SURVIVAL RATE OF JOINT VENTURES
4.1 INTERNAL FACTORS
4.1.1 Differences in equity ownership
4.1.2 Cultural distance
4.1.2.1 National culture differences
4.1.2.2 Corporate culture differences
4.1.3 Direct competition between the parents
4.1.4 Differences in size
4.1.5 Complementarity of partners’ resource contribution
4.1.6 Economic linkages
4.1.7 Trust
4.1.8 Partners’ joint venture experience
4.1.9 Organizational learning
4.1.10 Diversification strategy
4.2 EXTERNAL FACTORS
4.2.1 Risk and uncertainty in the host country
4.2.2 Currency fluctuation
4.2.3 Number of partners
5 SURVIVAL RATE FIGURES IN THE LITERATURE
6 NEGATIVE EFFECTS OF A DISSOLUTION
7 CONCLUSION
Research Objectives and Topics
The primary aim of this thesis is to identify and analyze the internal and external determinants that impact the longevity and survival rate of joint ventures. It seeks to provide management guidelines for strategic alliances by examining how various factors, such as ownership structure, cultural differences, and host-country risks, influence the stability and performance of these entities.
- Theoretical definitions and forms of joint ventures
- Methodological approaches to measuring joint venture survival
- Internal variables influencing longevity (equity, culture, competition, trust)
- External variables influencing longevity (country risk, currency, number of partners)
- Quantitative assessment of termination and instability rates
Excerpt from the Book
4.1.1 Differences in equity ownership
There has been a lot of research on the relationship between equity control and joint venture survival. However, no clear consensus on this issue exists. Some researchers reported a positive relationship (Killing, 1983) between ownership control and duration of joint ventures while others reported a negative relationship (Blodgett, 1992). The ones who advocate the dominant share position argue that equity is a measure of control and dominance in a joint venture. This implies that the more absolute control on party exercises the less potential for conflict exists as decisions can be made easily by the major partner and hence the venture remains stable. However, the ones who reported a negative relationship argue that the more the ownership is equally shared the less the instability will be as such arrangements allow for maximum involvement of both partners.
In this paragraph I present an overview of the impact that different apportionments of ownership between the partners can have on the longevity of a joint venture.
Summary of Chapters
1 INTRODUCTION: This chapter introduces the globalization context and the prevalence of joint ventures, outlining the thesis's purpose to explore the determinants of their survival.
2 THE JOINT VENTURE: This chapter defines joint ventures, identifies their various forms, and explains why firms use them for market expansion despite potential negative effects for the parent companies.
3 HOW TO MEASURE JOINT VENTURE SURVIVAL: This chapter reviews the academic literature on how scholars define and operationalize survival, stability, and failure, acknowledging the lack of a consistent measure.
4 VARIABLES INFLUENCING THE SURVIVAL RATE OF JOINT VENTURES: This core chapter categorizes and examines internal factors (e.g., equity, culture, trust, experience) and external factors (e.g., country risk, currency fluctuation) that influence venture longevity.
5 SURVIVAL RATE FIGURES IN THE LITERATURE: This chapter summarizes quantitative empirical results regarding termination rates and instability, highlighting the variance found in different research samples.
6 NEGATIVE EFFECTS OF A DISSOLUTION: This chapter explores the adverse consequences of joint venture termination, including reputational loss, the creation of new competitors, and impacts on the host country.
7 CONCLUSION: This chapter synthesizes the main findings, provides management implications for enhancing survival, and suggests directions for future academic research.
Keywords
Joint Venture, Survival Rate, Termination, Instability, Equity Ownership, Cultural Distance, Corporate Culture, Partner Experience, Organizational Learning, Country Risk, Currency Fluctuation, Strategic Alliance, International Business, Management Stability, Dissolution
Frequently Asked Questions
What is the core focus of this research paper?
The paper focuses on identifying the internal and external factors that determine whether a joint venture will survive or fail.
What are the central themes discussed in the thesis?
The central themes include the definition and motivation for joint ventures, methods for measuring their survival, and the impact of specific variables such as equity distribution, cultural differences, and host-country risks.
What is the primary goal of the author?
The goal is to provide guidelines for companies entering strategic alliances to help them minimize the risk of premature dissolution.
Which scientific methodology is used?
The author uses a literature review and synthesis of previous empirical studies to analyze how different variables correlate with the survival and instability of joint ventures.
What topics are covered in the main section?
The main section details internal factors like equity control, trust, and organizational learning, and external factors like host country political uncertainty and currency fluctuations.
How is the research characterized by its keywords?
The research is characterized by terms related to international business management, focusing on stability, strategic alliance performance, and specific risk factors in joint ownership.
Why might high equity control for a foreign partner be preferred?
A higher equity level can lead to higher survival rates in cases of high asset specificity, as it incentivizes the foreign partner to transfer firm-specific knowledge and reduces the potential for opportunistic behavior.
What is the 'honeymoon effect' in the context of joint ventures?
The 'honeymoon effect' suggests that high initial commitments by parent firms shield a joint venture from failure during its early stages, with mortality risks increasing as time passes and problems arise.
- Quote paper
- Ilka Müller (Author), 2007, Determinants influencing the survival rate of joint ventures, Munich, GRIN Verlag, https://www.grin.com/document/79372
