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R&D intensity and international joint venture performance in an emerging market: moderating effects of market focus and ownership structure

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Abstract

In this study we examine the contingent relationship between R&D intensity and performance of international joint ventures (IJVs) in an emerging market context. Based on Teece's (1986) arguments regarding the appropriability of innovation, we identify two types of appropriability hazard related to IJVs’ R&D activities in this context: local-market-related and local-partner-related hazards. We argue that a positive relationship between R&D intensity and IJV performance is more likely to occur if these appropriability hazard can be mitigated. Results using a sample of manufacturing IJVs in China provide support for these arguments. We find that R&D intensity is positively related to performance in export market-focused IJVs but not in local market-focused IJVs. In addition, using a configuration approach, we find that R&D intensity is positively related to performance in IJVs that have an export market focus and in which the multinational companies (MNCs) have a majority ownership, but not in other market focus-ownership structure configurations. These findings contribute to our knowledge of R&D activities of MNCs’ overseas subsidiaries.

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Notes

  1. We adjusted industry variance for IJV performance by subtracting industry median ROA from IJV ROA. Other studies may use alternative ways to adjust industry variance – for example, dividing IJV ROA by industry median ROA.

  2. Since almost half of the IJVs in the sample have zero R&D intensity, one may be concerned that our results might be biased. In supplementary analyses, we re-estimated our model using Heckman's two-stage model, which can account for the self-selection effect (Heckman, 1979; Shaver, 1998). In the first stage, probit regression was used to estimate the probability that an IJV has R&D intensity greater than zero. The model is as follows. R&D Intensity Dummy (coded 1 if R&D intensity is greater than zero and 0 otherwise)=α+(β1 × split ownership)+(β2 × IJV age)+(β3 × IJV size)+(β4 × Location 1)+(β5 × Location 2)+(β6 × Origin 1)+(β7 × Origin 2). Based upon the results of the first-stage model, we predicted and saved the value for the inverse Mill's ratio (λ i ). The inverse of Mill's ratio is the monotonically decreasing function of the probability that an IJV has R&D intensity greater than zero (Heckman, 1979). The inverse of Mill's ratio was then included as a regressor in the second-stage models to estimate an IJV's performance (Heckman, 1979; Shaver, 1998). This two-stage procedure generates consistent and asymptotically efficient estimates (Heckman, 1979). Results of these analyses (available from authors upon requests) are consistent with those reported here.

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Acknowledgements

We gratefully acknowledge the insightful comments and suggestions of the Department Editor Yadong Luo and two anonymous reviewers, which have greatly helped us to improve this paper. We also would like to thank Nandini Rajagopalan for insightful comments on earlier drafts of this paper.

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Authors and Affiliations

  1. Jesse H. Jones Graduate School of Management, Rice University, Houston, TX, USA

    Yan Zhang & Haiyang Li

  2. Department of Management, Texas A&M University, College Station, TX, USA

    Michael A Hitt

  3. Department of Marketing and International Business, Lingnan University, Hong Kong

    Geng Cui

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  1. Yan Zhang
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  2. Haiyang Li
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Correspondence to Yan Zhang.

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Accepted by Arie Y Lewin, Editor-in-Chief and Yadong Luo, Departmental Editor, 20 March 2007. This paper has been with the authors for two revisions.

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Zhang, Y., Li, H., Hitt, M. et al. R&D intensity and international joint venture performance in an emerging market: moderating effects of market focus and ownership structure. J Int Bus Stud 38, 944–960 (2007). https://doi.org/10.1057/palgrave.jibs.8400301

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