Number of partners and JV performance

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Abstract

Using the largest ever sample of international equity JVs with three or more partners, this study examines the relationship between the number of partners in a JV and performance. Resource-based theory and the transaction cost perspective are used to explore whether the increases in transaction costs are balanced off by increased benefits as the number of partners grows. Four hypotheses are developed and tested on a sample of 1,335 Japanese JVs in 73 countries, not including Japan. No significant relationship was observed between number of partners in an international JV and JV performance, even when moderators like JV type were considered.

Section snippets

Background research

Equity JVs are a frequently used organizational form, particularly for firms making direct investments in foreign countries (Emmott, 1993, Jalilian, 1996, Yu & Tang, 1992). We define equity JVs as ventures where two or more partners establish a separate organization in which each partner holds a minimum equity stake of 5% (Killing, 1983). IJVs allow firms to better deal with pressures related to efficiency and flexibility (Powell, 1987). The complex structure of a JV, while potentially

Theory and hypotheses

Research on the relationship between the number of partners and JV performance has either taken an agnostic approach with respect to theory (e.g., Hu & Chen, 1996) or made the assumption of a negative relationship between performance and number of partners (e.g., Park & Russo, 1996). Van de Ven (1976) provides an explanation that renders some insight into why performance may decrease as the number of partners in a JV increases. He states that as the number of partners increases, there is a

Sample

The four hypotheses were tested using a sample of 1,335 Japanese JVs established in 73 countries before 1997. The sample was derived from information published in three editions of Kaigai Shinshutsu Kigyou Soran (Toyo Keizai, 1989, 1992, 1994, 1997). This directory is compiled annually from public information as well as a survey of top-level Japanese managers in foreign subsidiaries. The coverage of the survey is extensive, and the publication is a valid source of data for the study of Japanese

Model estimation and fit

Several logistic regressions were run. The results for the full sample model (Model 1) are found in Table 8. Here, the overall χ2 statistic, 68.955, is significant (p<0.01) which indicates that the model distinguishes well between high and low performing JVs. More specifically, the variables in Model 1 correctly classify 80% of the IJVs, which represents an improvement of 12% over the random classification rate, indicating good explanatory power and predictive abilities.

For Model 2, the χ2

Discussion

This study found that number of partners does not affect JV performance. This result is important as it provides evidence regarding an important question for multinational enterprises contemplating the use of JVs, and for researchers. Many authors who have used transaction cost logic to understand multi-partner JVs (Cartwright & Zander, 1968; Park & Russo, 1996; Parkhe, 1993a), have reasoned that multi-partner JVs will not perform as well as two-partner ventures because of the myriad of

Acknowledgements

Financial support from the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged. The authors would like to thank Professor Andrew Delios for his comments on an earlier version of this paper.

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