Academic journal article Management International Review

Distinctive Feature of Domestic and International Joint Ventures

Academic journal article Management International Review

Distinctive Feature of Domestic and International Joint Ventures

Article excerpt

Introduction

The joint venture has been one of the contractual forms most frequently used in strategic alliances (Marity and Smiley 1983, Ghemawat et al. 1986): two or more firms agree to set up a new entity, owned by them, to carry out some activities in which they are interested, although not necessarily for the same reasons.

The research on joint ventures is twofold: the study of domestic joint ventures - all partners with the same nationality - and international joint ventures - set up by partners of different nationalities -, the latter having been the most widely analysed. Although all of them participate of the same organizational structure, the aspects and problems studied differ greatly. The literature on international joint ventures, either in developed or less developed countries, analyse them as a means to put the international strategy of the firm into practice. The literature on domestic joint ventures has revealed that their formation contributes to restrict competition or to facilitate the transfer of technological knowledge.

Such circumstance has led us to think that the nationality of partners is not the only difference between domestic and international joint ventures: it seems that the decision to choose a domestic or international partner is influenced by the goals sought with the alliance. The hypothesis that we want to verify in this paper is whether the domestic or international character of a joint venture conditions its other features so that each type shows a visibly differentiated profile. The interest of the work is twofold: from the point of view of research on joint venture issues, it allows to contrast whether significant differences exist between them which justify the separate treatment they have received. From the point of view of the practice of management, the recognition of the distinctive features of domestic and international joint ventures will allow to identify the managerial problems and singularities affecting these companies, so that some practical recommendations for their management could be made.

In order to do that, we compare two data bases which include joint ventures created by Spanish firms. The first one - DB1 - has been built through the collection of news published by the economic press, and it comprises domestic and international joint ventures. The second data base - DB2 - consists of the joint ventures established by firms subsidized by the "Instituto de la Pequena y Mediana Empresa Industrial" (IMPI) (Institute of Small and Middle Sized Industrial Firms), a public institution which depends on the Spanish Ministry of Industry and Energy. All joint ventures collected in this data base are domestic.

The structure of the paper is as follows: in the next section we offer a brief summary of the literature on domestic and international joint ventures. In section 3 we describe the main differences between domestic and international joint ventures resulting from the analysis of the above mentioned data bases. Finally, in section 4 we summarize and discuss the main results.

International and Domestic Joint Ventures

According to the literature on joint ventures, the main reasons given for their setting up are the following:

* Improvement of efficiency. The creation of a joint venture permits to achieve greater efficiency in the performance of certain tasks. This efficiency may derive from economies of scale and scope which are difficult to accomplish by a single firm, from the spreading of risks among partners, as well as from synergies which stem from the complementarity of the resources provided by the partners (Gullander 1976, Harrigan 1985, Contractor/Lorange 1988).

* Learning or access to knowledge. In joint ventures every partner has access to the knowledge and skills of the others. For example, when entering foreign markets, a local partner provides the joint venture, among other aspects, with a good knowledge of this market as to special needs of customers, channels of distribution available or the political situation of the country (Killing 1983, Berlew 1984, Schillaci 1987). …

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