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The evolution and internalization of international joint ventures in a transitioning economy

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Abstract

Although international joint ventures (IJVs) may mature over time and develop competitive viability, they maintain some risk of instability owing to their shared ownership. Such instability can ultimately lead to their internalization by one of the partners. In this study, we consider factors that influence (1) whether IJVs evolve toward becoming a wholly owned subsidiary, and (2) which parent (foreign or local) gains ownership of the venture. We use a sample of Hungarian joint ventures, and find that only when there is both a power imbalance between the parents and high levels of conflict is the likelihood that the joint venture converts to a wholly owned subsidiary enhanced. The extent to which the joint venture has learned from the foreign parent indirectly determines which parent gains full ownership. Extensive knowledge transfer to a joint venture in a transitioning economy combined with high levels of conflict increases the likelihood of the foreign parent gaining full ownership. In contrast, when there is extensive knowledge transfer and low conflict between the parents, the local parent is more likely to internalize the venture. Our results suggest that the relationship between partner power and outcomes in ventures is more complex than originally believed, and is contingent upon the level of conflict between the parents of the IJV.

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Notes

  1. Consistent with Williamson (1975), we define opportunism as self-interest seeking with guile. This is distinct from simple instrumental self-interest in that it involves the use of false, self-disbelieved promises or threats to gain unfair, asymmetric advantage over another party. As such, we recognize the conceptual parallels between opportunism and injustice, which has been thoroughly investigated at the inter-personal level (see Tyler & Smith, 1997, for a review) and identified as a meaningful construct at the inter-organizational level (Ring & Van de Ven, 1994).

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Acknowledgements

This material is based upon work supported by the National Science Foundation under Grant No. 0080152. Any opinions, findings, conclusions, or recommendations expressed in this paper are those of the authors and do not necessarily reflect the views of the National Science Foundation.

We wish to thank three anonymous reviewers and Yadong Luo for their helpful comments throughout the review process.

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Authors and Affiliations

  1. University of Washington, Seattle, USA

    H Kevin Steensma & Jeffrey Q Barden

  2. Grenoble Ecole de Management, France

    H Kevin Steensma

  3. Kelley School of Business, Indiana University, Indianapolis, USA

    Charles Dhanaraj & Marjorie Lyles

  4. Texas A&M University, College Station, USA

    Laszlo Tihanyi

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  1. H Kevin Steensma
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  2. Jeffrey Q Barden
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  3. Charles Dhanaraj
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Correspondence to H Kevin Steensma.

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Accepted by Arie Y Lewin, Editor-in-Chief, 22 March 2007. This paper has been with the authors for two revisions.

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Steensma, H., Barden, J., Dhanaraj, C. et al. The evolution and internalization of international joint ventures in a transitioning economy. J Int Bus Stud 39, 491–507 (2008). https://doi.org/10.1057/palgrave.jibs.8400341

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  • DOI: https://doi.org/10.1057/palgrave.jibs.8400341

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