Joint Venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a task. In JV, each of the participants has to be responsible for profits, losses and costs associated with it. However, the venture is its own entity that is separate and apart from the participants’ other business interests. Reuer (1998) is among the first who observes the instability of international joint ventures. He has made a critical observation on 272 international IJVs and demonstrates that IJV ownership is often relocated between existing parent firms. The changes in ownership contributes significantly to the instability of IJVs. However, through depicting empirical evidences, Reuer (1998) also discovers that even though IJVs may have the problem of instability, it is not the dominant factor leading to the collaborative failures of the joint ventures. He suggests that more research efforts should be put on analyzing the partner risks and venture risks in order to further understand why IJV may not be an effective business structure for international business collaboration and partnership.
Meschi and Riccio (2008) point out that cultural difference is one potential partner risk that accounts for the instability of international joint ventures. The two researchers have made two important hypotheses before conducting the research. Research hypotheses predict that national distance and country risk will adversely affect the stability of international joint ventures. The hypotheses are examined in a sample of 234 IJVs from Brazil within the period from 1973 to 2004. They observe that cultural difference between local and foreign partners is the dominant factor that leads to the collaborative failures in Brazil’s IJVs. Besides, the two researchers also discover that economic and political uncertainty will not have a dominant effect on the survival of IJVs. This observation is very meaningful because previously many researchers assume that economic growth and political stability can make IJVs survive in the global market. Meschi and Riccio (2008) prove that these assumptions are without roots. In addition, the two researchers also discover that national distance is also negatively correlated with the survival of IJVs. In other words, if two countries are distant from each other, it is not advisable for local and foreign firms to have an international joint venture.
Moreover, Ozorhon et al., (2008) discover that organizational compatibility is another partner risk in IJVs. This group of researchers first acknowledge that IJVs have inhere complexities because IJV partners may have different managerial systems, organizational cultures, business strategies, performance management systems, HRM systems, etc. Ozorhon et al.,(2008) manage to conduct a questionnaire survey to explore the effective of organizational incompatibility on the survival and success of international joint ventures. The performance of IJVs are mainly reflected by two factors, namely “project performance” and “effectiveness of IJV management”. Through eliciting opinions from 200 managers from IJV firms worldwide, Ozorhon et al., (2008) manage to prove that organizational compatibility is a very critical factor for a successful IJV operations. Without organizational fit, firms may suffer from collaborative failures in IJV projects and operations. Ozorhon et al., (2008) further suggest that in order to improve IJV operations, it is recommendable for IJV firms to employ the strategic fit policy. In other words, in IJV operations and projects, partners should negotiate and coordinate with compatible management skills, financial resources, workload, organizational size and project experiences in order to have a greater IJV success.
Apart from partner risks, venture risks may also arise when firms decide to have IJV operations. Burgers and Padgett(2009) indicate that environmental risk is one significant venture risk that many foreign firms may encounter when having IJV operations or projects in China. Burgers and Padgett (2009) critically examined the previous literature and case studies with respect to IJV failures in China’s context and summarize that international firms are predominantly facing three environmental risks, that is, lack of integration of unique China’s environmental characteristics, negligence of distinction between different types of environment risks, and lack of conceptualization about risk pattern changes during China’s economic transition. Burgers and Padgett (2009) notice that the process of gaining localized knowledge and adapting to both political and legal environment is necessary and essential for IJV success. But in the real world scenario, it is often difficult for foreign firms to have rapid adaption when risk pattern changes. China in the past few decades have very significant economic transformation. It can be noticed by its extraordinary economic growth rate. At the same time, China’s political and legal system is also changing very fast in accordance to the economic transition. Burgers and Padgett (2009) point out that even a large MNC like General Motors (GM) had suffered from an IJV failure when starting up its initial IJV project with a small vehicle venture in Shenyang in 1992.
Through understanding both the partner and venture risks,Nippa and Reuer(2019) further acknowledge that there is a trend to end international joint venture in the future business operations and partnerships.Through closely examining previous researches, theories and frameworks, it can be observed that the risks and instability associated with IJV projects and operations adversely affect the business performance and economic profits among partners. However, Nippa and Reuer (2019) refuse to believe that IJV is destined to be ended. Albeit the conflicts of interests are widely existed in IJVs, the two researchers point out that it also provides a good opportunity for researchers to correct the flaws and mistakes within the international joint venture structure. For instance, Nippa and Reuer (2019) suggest that interdisciplinary researches should be conducted among legal and tax experts, business management researchers, consultants, etc, in order to gain a full insight about how to enhance the effectiveness and performance of IJVs. Besides, other important stakeholders such as government policymakers and employees should also be introduced into the empirical study of IJV performances. In conclusion, it is indisputable that IJV may fail because of partner and venture risks but it is still a cost-effective ways to enter a foreign market. It allows companies to share risks and exploit synergies with partner companies. On the future of IJV researches, interdisciplinary studies should be carried out to further examine whether IJV should be disqualified or ended.
Reference
Burgers, W., & Padgett, D. (2009). Understanding environmental risk for IJVs in China. Management International Review, 49(3), 337-357.
Meschi, P. X., & Riccio, E. L. (2008). Country risk, national cultural differences between partners and survival of international joint ventures in Brazil. International Business Review, 17(3), 250-266.
Reuer, J. (1998). The dynamics and effectiveness of international joint ventures. European Management Journal, 16(2), 160-168.
Nippa, M., Reuer, J.J.(2019). On the future of international joint venture research. Journal of International Business Studies, 50(2), 555–597.
Ozorhon, B., Arditi, D., Dikmen, I., & Birgonul, M. T. (2008). Effect of partner fit in international construction joint ventures. Journal of Management in Engineering, 24(1), 12-20.