Performance Of International Joint Ventures In China, Controlled By A Parent

International joint ventures became one of the main strategies for themultinational firms to enter oversea markets in last several decades. In 1980s,international joint ventures have already been used broadly by firms from differentcountries or areas. In 1990s, the number of the international joint ventures wasincreasing worldwide. Although international joint ventures are used broadly,previous studies have found that the failure rate among the international joint venturesis quite high and the average failure rate is more than 30% in the world. So a conflicthas come out, that is, on the one hand, international joint ventures are used broadly,on the other hand, the failure rate of the international joint ventures is quite high. Asimilar phenomenon is here in China: the Sino-foreign joint ventures are used broadly;however, the parent firms are not satisfied with the performance of their Sino-foreignjoint ventures. The investigations indicate that many foreign parents are disappointedabout the performance of their Sino-foreign joint ventures and less than 5% foreignparents are satisfied with their Sino-foreign joint ventures. The common contradictivephenomenon in international joint ventures and Sino-foreign joint ventures needstheoretical analysis and explanation.In order to explain this contradictive phenomenon in international joint ventures,lots of studies have studied the impact of culture difference, strategy diversity, thecharacteristics of the parent firms and previous cooperative relationship betweenparents on performance. These studies assume that the condition or background mayincrease or decrease the difficulties faced by parent firms during operating theinternational joint ventures, thus influencing the performance or the life-spans of theinternational joint ventures. But why some international joint ventures have goodperformance while others have bad performance in similar situations? The real reasonmay lie in the internal management difference, which is closely related to the parentcontrol on the international joint ventures. Therefore, the relationship between parentcontrol and performance becomes one of the core problems in international jointventure studies.At present, the studies on the relationship between parent control andperformance in international joint ventures and Sino-foreign joint ventures havedifferent conclusions or even contradict conclusions because of the differences insample origins, parent control dimensions and the measurements, the performancemeasurements of the international joint ventures, the research perspectives and so on. The fundamental reasons why the studies have not reached consistent results or evenhave contradictive conclusions are as followed: Firstly, these studies have notanalyzed the internal mechanism of the performance of joint ventures, so it is difficultto further analyze the influencing factors on the relationship between the parentcontrol and performance. Secondly, previous studies are lack of theoretical foundation.Several studies are based on the transaction cost theory, emphasizing how to decreasetransaction costs and avoid opportunism. Such studies have not analyzed jointventure's value creating issue which is closely related to the relationship betweenparent control and performance. Besides, these studies focus on the amount dimensionof the parent control, rather than other dimensions, such as control activities.Furthermore, these studies are based only on the perspective of one parent.In view of the limitations of previous studies on the relationship between parentcontrol and performance in international joint ventures, based on the resource-basedtheory and from the perspective of value creating, this research studies therelationships between parent control and performance in Sino-foreign joint venturesaccording to the effects of parent control on the transfer of parents' firm-specificadvantages and on the value realization of Sino-foreign joint venture.Firstly, based on the resource-based theory, the formation of the joint venture,the objectives of the parent firms, the necessity, aims and dimensions of the parentcontrol and the internal determination mechanism of performance are analyzed. Thentwo important control dimensions of the parent control, control activities choice andcontrol degree choice, are identified. At last, how parent control affects performanceis identified, they are, whether parent controls help the transfer of parents'firm-specific advantages to Sino-foreign joint venture and the value realization of theSino-foreign joint venture.Secondly, from the perspectives of Chinese and foreign parents, this researchproposes a model through two control dimensions (control activity choice and controldegree choice), parent's goal achievement performance and parent's satisfaction.Thirdly, from the value creating perspective, the positive relationship betweenresource complement and performance in joint ventures is hypothesized.Fourth, based on the impact of the parent control dimension on the transfer ofparents' firm-specific advantages and on the value realization of parents' firm-specificadvantages in Sino-foreign joint venture, this research proposes hypotheses on therelationships between parent control and performance. (1)Based on the impact of the parent control degree choice on the transfer of parents' firm-specific advantages andon the value realization of parents' firm-specific advantages in Sino-foreign jointventures, this research puts forward the Control Shared Hypotheses, which point outthat the strategic control shared between the parents is not related to the performanceof Sino-foreign joint ventures, and the more operational control shared between theparents, the better the performance of Sino-foreign joint ventures.(2)Based on theimpact of the parent control activity choice on the transfer of parents' firm-specificadvantages and on the value realization of parents' firm-specific advantages inSino-foreign joint ventures, this research proposes Control Fitness Hypotheses, whichpoint out that parent firm's control on their own firm-specific advantages havepositive effect on the performance of joint ventures, but parent firm's control on theother parent's firm-specific advantages have negative effect on the performance ofjoint ventures.(3)Based on the impact of both the parent control degree choice andparent control activities choice on the transfer of parents' firm-specific advantagesand on the value realization of parents' firm-specific advantages in Sino-foreign jointventures, this research brings forward Control Structure Hypotheses, which point outthat the performance of joint ventures with split control structure would be better thanthat with dominant control structure and that with joint control structure.Fifthly, we design the survey questionnaire according to the hypotheses, andcollect data through various channels. Finally, 75 Sino-foreign joint ventures areidentified as samples. The hypotheses are verified and analyzed using factor analysis,cluster analysis, correlation analysis and multiple regression analysis in the SPSSstatistic software.The following conclusions can be drawn from this research: First, theSino-foreign joint ventures are vehicles by which multinational corporations and localfirms can overcome their resource limitations. The stronger the degree of parents'resource complements in Sino-foreign joint ventures, the better the performance of theSino-foreign joint ventures are. Second, the degree of strategic control shared betweenthe parents is not significantly related to the performance of Sino-foreign jointventures while the operational control shared between the parents is positively relatedto the performance of the joint ventures significantly. Third, parent firms' control ofthe activities of their own firm-specific advantages results in better performance ofSino-foreign joint ventures. However, parent firms' control of the activities of otherpartner's advantages leads to worse performance of Sino-foreign joint ventures. Fourth, as for various control structures of Sino-foreign joint ventures, theperformance of Sino-foreign joint ventures with split control structure is better thanthe performance of Sino-foreign joint ventures with joint control structure.This study is based on the previous studies, yet overcomes the defects of them.The contributions are as followed: First, it employs the resource-based theory andanalyzes the formation of joint venture, parent control and the internal determinationmechanism of the joint venture performance. This overcomes the defects ofemphasizing decreasing joint ventures' transaction costs but ignoring the valuecreation of the joint ventures. Second, based on the resource-based theory, thisresearch proposes hypotheses on the relationships between two important parentcontrol dimensions and performance at the same time according to whether parentcontrols can help the transfer of parents' firm-specific advantages and the valuerealization of parents' firm-specific advantages in joint ventures. This not onlyintroduces theory foundation which previous studies did not employ, but also is betterthan the transaction cost perspective which analyzes this relationship only from parentcontrol degree dimension. Third, based on two parents' perspectives, the parentcontrol is studied according to the allocations of the parent control power and parentcontrol activities between the two parents, and the performance of the Sino-foreignjoint venture is not only evaluated by the two parents' judgments of their goalachievement but also the two parents' satisfaction with the joint venture. So thisresearch overcomes the defects of considering only one parent's perspective in studyon the parent control and performance based on transaction cost theory.This study is subject to several limitations: First, the industry in which theresearch samples are is only the manufacturing industry. The service industry isexcluded. Second, the amount of the research samples is limited and the samples aremainly around Shanghai. Third, the data are collected from the high-level managers inSino-foreign joint ventures, but not from the Chinese parent and foreign parentrespectively. Last but not least, objective data, such as financial data, are not availableto examine the hypotheses. So the conclusions in this study are only suitable for the75 Sino-foreign joint venture samples. It still needs rigorous validity in future studies.