Academic journal article Management International Review

Direct Competition, Number of Partners and the Longevity of Stakes in Joint Ventures

Academic journal article Management International Review

Direct Competition, Number of Partners and the Longevity of Stakes in Joint Ventures

Article excerpt

Abstract

* In this paper, we draw attention to the interaction between the number of partners and the direct competition between these when explaining the longevity of stakes in joint ventures (JVs).

* We argue that increases in the number of partners have a positive effect on the longevity of stakes in JVs only when all of these are competitors, especially if the JV includes marketing activities. In contrast, if not all of the partners are competitors, the effect of the number of partners will be the opposite. Our hypotheses are empirically tested via several estimates of proportional hazard regressions, using a sample of JVs carried out by Spanish firms.

Key Results

* Our results allow us to shed light on the influence of the number of partners on the longevity of stakes in JVs. Specifically, the contradictory results obtained in prior research may be explained by the moderating role that competition among the partners plays.

Introduction

What are the determinant factors of the duration of strategic alliances between firms? Numerous studies have been carried out with the aim of answering this research question, mainly in the field of JVs (Kogut 1989, Blodgett 1992, Barkema et al. 1996, Park/Russo 1996, Park/Ungson 1997, Delios/Beamish 2001, Hennart/Zeng 2002, among others). Initial research was aimed at analyzing JV performance, simplistically considering (Gomes-Casseres 1987) JV duration or instability to be good proxies of its performance. Later on, the study of JV longevity became a research question per se, constituting a field of study in its own right. At the same time, researchers began to use more precise statistical techniques, such as econometric duration models. Numerous empirical studies have tried to analyze the impact on JV longevity of factors such as cultural distance (Barkema et al. 1996, Barkema et al. 1997, Barkema/Vermeulen 1997, Park/Ungson 1997), experience--either in the host country of the venture or in the management of alliances--(Li 1995, Barkema et al. 1997, Delios/Beamish 2001), the number of partners (Park/Russo 1996, Hennart/Zeng 2002), the share of equity (Blodgett 1992, Pennings et al. 1994, Park/Russo 1996, Park/Ungson 1997, Dussauge et al. 2000, Hennart/Zeng 2002), previous alliances among the partners (Kogut 1989, Park/Russo 1996, Park/Ungson 1997) or size (Barkema et al. 1997, Hennart et al. 1998, Delios/Beamish 2001, Hennart/Zeng 2002). Table 1 synthesizes the results of the main empirical studies based on duration models, highlighting the evidence for the analyzed factors. It can be seen that for certain factors the empirical results have not been conclusive and have even been contradictory.

Given the lack of conclusive results regarding the aforementioned factors, it would seem that the influence of most of these may well be more complex than what might be expected. In this paper we focus our attention on one of these factors, the number of partners, whose interaction with direct competition has not yet been explored. We argue that its in-depth analysis will help us to better understand the dynamics of JVs. In particular, we argue that increases in the number of partners reduce the longevity of stakes in JVs when they are formed by partners from different industries. However, when all of the partners belong to the same industry, the longevity of the stakes increases, especially if the JV includes marketing activities. These predictions are tested using empirical evidence from the results of a survey carried out on a group of Spanish firms that have participated in JVs.

The paper is organized as follows. A theoretical framework for analyzing the interaction between number of partners and direct competition is presented in the first section. The empirical propositions derived from our framework are then tested. After discussion of the empirical results, we present a summary of our main conclusions.

Theory and Hypotheses

Value creation is at the core of JV formation and survival (Zajac/Olsen 1993, Doz/ Hamel 1998, Dyer/Sing 1998, Madhok/Tallman 1998). …

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