Academic journal article Management International Review

Incremental Corporate Reconfiguration through International Joint Venture Buyouts and Selloffs

Academic journal article Management International Review

Incremental Corporate Reconfiguration through International Joint Venture Buyouts and Selloffs

Article excerpt

Abstract

* This paper examines the determinants of US multinationals' decisions to buy out or sell off their international joint ventures (IJVs). The paper brings out the importance of a parent firm perspective on the phenomenon of IJV dynamics, suggesting that the venture be viewed within the context of the parent firm's corporate strategy.

* The empirical findings provide evidence of an incremental, convergent process of corporate reconfiguration.

Key Results

* Firms tend to increase their resource commitments to core IJVs, and the likelihood of IJV buyout is elevated further when the parent firm has ready access to capital and already maintains significant control over the venture. The proclivity of US firms to buy out their IJVs is also magnified when the venture operates in a culturally similar host country.

* Conversely, IJV selloffs are likely when the venture is more exploratory or peripheral to the multinational firm on product-market, control, and cultural dimensions and when the firm may benefit from the release and redeployment of financial proceeds.

Introduction

During the last decade, scholarly interest in the evolution and instability of international joint ventures (IJVs) has experienced a renaissance. This renewed attention to IJV dynamics traces its roots to the pioneering research of Franko (1971) on IJVs' changing roles in multinational corporations' (MNCs') evolving organizational structures as well as Killing's (1983) early research on IJV control. Building on this foundation, recent work has also sought to account for the high termination rates of IJVs, both in absolute terms and in comparison with other modes of entry into foreign markets (e.g., Li/Guisinger 1991).

This renewed interest in IJV dynamics might be attributed to a number of factors. Among them are the more general interest in the evolution of MNCs, visible IJV terminations appearing in the business press, and better understanding of IJV formation issues. Most important perhaps is the development of new theoretical perspectives on joint ventures that underscore the transitional character of IJVs as a key property of interfirm collaboration. For instance, various learning views on collaboration (e.g., Balakrishnan/Koza 1993, Hamel 1991, Inkpen/ Beamish 1997, Khanna/Gulati/Nohria 1998) argue that IJV instability is often a natural by-product of parent firms' strategic intents and competitive behavior in collaborative ventures. Similarly, real options theory suggests that firms may enhance value by staging organizational commitments through joint ventures in highly uncertain contexts (e.g., Chi/McGuire 1996, Kogut 1991).

As an important point of departure from Franko's (1971) early work on the evolution of multinational firms, current research tends to focus on the individual joint venture as the unit of inquiry. This is appropriate and interesting for many research objectives as IJVs can be seen as competitive entities in their own right. Viewing IJVs as stand-alone businesses rather than as embedded within parent firms' strategies also brings some limitations, however. For instance, research investigating IJV survival and its determinants has typically regarded IJVs like other business units, pooling together distinct types of IJV termination within a residual, "nonsurvival" category even though these different modes of IJV termination may be subject to different antecedents and parent firms may experience them uniquely. The few empirical studies that disaggregate joint venture termination types do so from the perspective of the venture rather than from the vantage point of one of the parent firms either increasing commitments to the venture or withdrawing from the collaboration. For example, Park and Russo (1996) show that ventures engaged in R&D activity are more likely to be acquired vis-a-vis other ventures. Dussauge, Garrette, and Mitchell (2000) suggest that link alliances are more likely to undergo acquisition than are scale alliances since the former combine parent firms' complementary resources and create inter-partner learning opportunities. …

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