Academic journal article Competition Forum

Impact of Organizational Culture on Trust and Commitment in International Joint Ventures (IJVs): An Empirical Investigation

Academic journal article Competition Forum

Impact of Organizational Culture on Trust and Commitment in International Joint Ventures (IJVs): An Empirical Investigation

Article excerpt

INTRODUCTION

Changes in the geopolitical environment over the last three decades are responsible for the increasing globalization of business activities. Since the early 1990s, integration in the economies of industrialized nations and liberalization of trade policies of developing and under-developed nations has resulted in globalization of products, markets, consumer tastes and lifestyles. Competitive pressure, among other reasons, has caused organizations in developed countries to pursue opportunities aggressively in other countries. This increase in international business activity has also meant an increase in organizational partnerships between organizations from different nations. Researchers and practitioners have suggested that the development of such partnerships is a key to success in the global marketplace. These partnerships among firms, also referred to as strategic alliances, can take various forms from licensing agreements to fully blown joint ventures.

Not all firms have the resources or the ability to form Greenfield ventures in other nations. Many organizations decide that the best approach to enter a foreign market is via a joint venture. However, the decision to enter a joint venture needs careful management consideration, because history has shown that joint ventures tend to be unstable and prone to failure (Berquist et al., 1995). Firms that enter into joint ventures often focus on the benefits that the venture will provide without considering costs involved in the formation and maintenance of the venture. Even with clear identification of the potential benefits, the costs incurred are often both substantial and difficult to predict (Morris & Hergert 1987). Firms choose to enter into such alliances to gain access to world markets even when faced with the high rate of failures for joint ventures. In fact, on the micro level, job satisfaction ranked higher in joint venture managers than in wholly owned subsidiary managers (Medina, 1996).

The high failure rate of international joint ventures (IJVs), coupled with the increase in the number of IJVs, has necessitated research in this area. Researchers as well as practitioners have conducted and continue to conduct research in hopes of discovering relationships and linkages to increase the success of these ventures. Among the many important linkages in IJVs is the relationship between organizational culture, organizational trust and partner commitment to the IJV (Cullen et al., 1995; Hofstede, 1980). This study will focus on Indian IJVs because of the emergence of India as a major market for foreign companies. Given the variables mentioned above, this study will test relationships and questions in Indian IJVs. The purpose of this study is to answer the following questions:

1. Do organizations with certain types of organizational culture display more trust?

2. Are organizations with certain types of organizational culture more committed to their IJV partners?

INTERNATIONAL JOINT VENTURES

In order to discuss the various issues involved in IJVs, it is necessary to define an international joint venture. An international joint venture (IJV) is defined as "a separate legal organizational entity representing the partial holdings of two or more parent firms in which the headquarters of at least one is located outside the country of operation of the joint venture. This entity is subject to the joint control of its parent firms each of which is economically and legally independent of the other" (Shenkar & Zeira, 1987, p. 549).

Researchers (Beamish, 1994; Cullen et al., 1995; Varadarajan & Cunningham, 1995) have identified important variables to be examined in the field of strategic alliances, more importantly, international joint ventures. Among the important topics of discussion are the motives for IJV formation, partner selection characteristics, trust, knowledge, experience and stability of the IJVs and control issues. …

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