Study Reveals New Information On Mangement Control In U.S.-China Joint Ventures

Study Reveals New Information On Mangement Control In U.S.-China Joint Ventures

UNIVERSITY PARK, PA-China is expected to join the World Trade Organization later this year, opening up new opportunities for joint ventures between firms in the U.S. and China, like the recent joint-venture announcement between AOL Time Warner and Legend Holdings, China's largest computer maker.

While partners share control as well as the benefits of cooperation in international joint ventures, groundbreaking research by Barbara Gray of Penn State's Smeal College of Business is revealing new information on management control, performance and goal achievement in U.S.-China joint ventures.

She co-authored a recent study, "Antecedents and Effects of Parent Control in International Joint Ventures," with Amin Yan of Boston University. The study appears in the May issue of The Journal of Management Studies. Using a sample of 90 U.S.-China manufacturing joint ventures, the study examined the factors that contribute to a firm having management control over its joint venture.

"Our results suggest that greater operational control exercised by a partner is associated only with a higher level of achievement on this partner's strategic objectives, and the division of control (e.g. dominant vs. shared or independent) is not necessarily related to the international joint venture's overall success, as previous research has suggested," says Gray.

In comparison with wholly owned enterprises, international joint ventures (IJV) have been characterized as mixed motive games between the firms who simultaneously cooperate and compete, explains Gray, professor of organizational behavior and director of the Center for Research in Conflict and Negotiation in the Smeal College of Business.

"On one hand, the partners cooperate to purse strategic interests that would not be achievable if they each acted alone. On the other hand, they compete with each other to achieve their own agenda for the joint venture," explains Gray.

Among the study's other results:

• Within an international joint venture, the partner with a greater number of alternatives available in the negotiations will achieve a higher level of strategic control. The partner for whom the venture is strategically less important will achieve a higher level of operational control.
• The partner contributing more capital resources will exercise a higher level of strategic control.
• The partner who gains more bargaining power by contributing more non-capital resources is able to exercise more operational and structural control over the international joint venture.
• The greater the operational control a parent exercises in the IJV's operations, the more likely it is to achieve its strategic objectives.
• The more that the partners agree about the strategy and operating procedures for the joint venture itself, the more likely the strategic objectives of both partners will be achieved.

"The study has significant implications for practitioners who are operating or intend to pursue IJVs, particularly in China or other transitional economies," says Gray. "The results may prove useful in understanding the dynamics that interdependence and competition occur simultaneously between partners. Because international joint ventures are relatively long-term partnerships, an appropriately designed structure of operational control and a trustworthy interpartner working relationship are among the key factors in IJV success."