JVs are, first and foremost, a device for mitigating the worst consequences of mistrust. In the language of internalization theory, they represent a compromise contractual arrangement which minimizes transaction costs under certain environmental constraints. But some types of JV also provide a suitable context in which the parties can demonstrate mutual forbearance, and thereby build up trust. This may open up possibilities for co-ordination which could not otherwise be entertained. The prospect of this encourages partners to take an unusually open-ended view of JV partnerships, and gives JVs their political and cultural mystique.
An important role of JVs, from the limited perspective of internalization economics, is to minimize the impact of quality uncertainty on collaborative research and training. From the more open-ended perspective of long-term co-operation, however, JVs designed to cope with quality uncertainty are also well adapted to help partners to reciprocate, and also to learn the values which inspire the other partner to unreserved commitment to a venture. Without doubt, JVs of this type offer a way forward to genuine co-operation in international economic relations in the future.
The analysis also suggests, however, that a degree of cynicism may be warranted in respect of the claims advanced for JVs of certain kinds. A JV may be merely a subterfuge, luring partners into making commitments which leave them exposed to the risk of renegotiation under duress. It may be a device for enhancing collusion--a practice that may be warranted if it is necessary to recover the costs of technological or product innovation, but not otherwise. It may represent a pragmatic response to regulatory distortion--as when a misguided national competition policy outlaws a merger between the partners that would afford considerable efficiency gains; the JV, in this case, is better than nothing at all, but is only second best to a policy of removing the distortion itself.
One of the most topical applications of the theory of the JV is to industrial co-operation and production-sharing arrangements involving Japanese firms ( Hull, Slowinski, Wharton, and Azumi, 1988; Pucik, 1988). To what extent, for example, can quality uncertainty in the training process support the argument that the Japanese JV is an appropriate vehicle for tutoring partners in developing countries? Are Japanese JV networks in South East Asia merely agglomerations of independent JV operations, or are they part of a wider strategy to play off one partner against another in an effort to maintain low prices for Japanese imports and thereby assure the competitiveness of Japanese re-exports?