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Strategic motives for international joint venture formation in Ghana (1).

Abstract

* This paper considers the strategic motives for international joint venture formation based on a sample of 41 firms in Ghana with partners from Western Europe, North America and Asia.

Key Results

* The main strategic motives influencing foreign partners to collaborate are to overcome government-mandated barriers, risk and cost sharing and to facilitate international expansion. Factor analysis produces three underlying factors for strategic motives: market development and power, partner synergies and production efficiency.

* The study finds that the relative importance of strategic motives vary most with the sector of JV activity, to a moderate extent with the ownership levels, and to a weak extent with the partnership type and nationality of the foreign partner.

Introduction

The last two decades have witnessed a growing emphasis on the use of joint ventures (JVs) as a dominant form of business organisation pursued both by firms from advanced industrial nations and firms from developing countries (Demirbag/Mirza 2000, Beamish/Delios 1997). Traditionally, JVs have been used as a means of tackling the problems of lack of capital and reducing foreign domination in sectors considered strategic by the host developing countries (Afriyie 1988). The analysis of the changes in the investment legislation in Ghana reveals progressive moves in favour of JV formation. For example, the Ghana investment legislation of 1973, 1976, 1981, 1985 and 1994 have consistently made it easier to form a JV, as against a wholly owned subsidiary (WOS), by requiring or placing lower equity capital requirements on prospective JV investors. Many developing countries continue to use JVs as a vehicle to gain local control over key economic sectors whilst utilising foreign capital to develop these sectors. However, many of the joint ventures formed in the past 20 years have become more 'strategic' in nature. Porter and Fuller (1986) and Glaister and Buckley (1996) highlight JVs as a strategic option in response to changing market conditions. Other studies such as Harrigan (1988), Osland (1994) and Dyer and Singh (1998) suggest that joint ventures are a primary means to obtain and sustain competitive advantage in the global marketplace.

On the other side of the coin, Killing (1983, 1988) points out that JVs are inherently risky and unstable. The propensity of joint venture instability is corroborated in the studies of Lorange and Roos (1992) and Dussauge and Garrette (1995). A study in Nigeria, for example, reported that out of some fifty agricultural JVs set up in the mid-1980s, only about 10 were said to viable by 1990 (British Nigerian Chamber of Commerce 1992). Pitfalls associated with JVs include problems associated with sharing proprietary know-how. Many firms fear a "Trojan Horse" situation in which a partner might gain access to important technology and then exit the venture, setting itself up as a competitor. Makino and Beamish (1998) and Makino and Delios (1996) suggest the primary problems in managing JVs appear to stem from the disparate skills and objectives of the partners.

Despite the difficulties associated with joint ventures, they remain popular and have grown unprecedentedly in both developed and developing countries (Deloitte, Haskins & Sells International 1989, Anderson 1990, Calantone/Zhao 2000). An analysis of FDI trends in Ghana by Boateng and Glaister (1999) provides further evidence to support JVs as the most prevalent means of making direct investments rather than investment through wholly owned subsidiaries. This is apparent from Table 1, which shows the region of origin and entry mode of the approved foreign direct investment projects in Ghana for the period 1990-1997. Table 1 indicates that out of the 1045 projects approved for the period, a total of 845 (80.9 percent) were JVs and 200 projects (19.1 percent) were wholly owned subsidiaries. For each region JVs are the most prevalent mode of FDI entry in Ghana.

The term joint venture often implies the creation of a separate corporation whose stock is shared by two or more partners, each expecting a proportional share of dividend as compensation (Contractor/Lorange 1988). A joint venture may be classified as an equity joint venture (EJV) or a non-equity joint venture (NEJV). EJVs involve two or more legally distinct organisations (the parents), each participates in the decision-making activities of the jointly owned entity (Geringer 1991). In contrast, NEJVs are agreements between partners to co-operate in some way, but they do not involve the creation of new firms (Contractor/Lorange 1988). The domain of this study comprises EJVs formed in Ghana involving a host country partner (public sector firms and private sector firms) and foreign partner firms from Western Europe, North America and Asia.

While there is a rich prior literature on why MNCs might seek a collaborative organisational mode, in the context of sub--Saharan Africa this has been given scant attention. This paper presents new data and new empirical insights into the strategic motivation for JV formation in Ghana. The paper builds on the few prior studies of international joint ventures (IJVs) in sub-Saharan Africa with particular reference to Ghana. This paper has three main goals:

1) To consider the relative importance of the strategic motives for JV formation by foreign MNCs in the context of the following characteristics: organisational type of host partner, ownership level, sector of operation and origin of foreign partner.

2) To provide a parsimonious set of strategic motives for the sample studied by means of factor analysis.

3) To formulate and test hypotheses on the way in which the relative importance of strategic motives may vary with the sample characteristics previously identified.

The remainder of the paper is organised in the following way: The next section reviews the literature relating to strategic motives for JV formation and sets out the research hypotheses. The research method of the study and the characteristics of the sample reported are set out in section three. The fourth section presents the results and discussion. The final section contains the summary and conclusions.

Literature Review and Hypotheses

Many researchers of international business, for example, Mariti and Smiley (1983), Harrigan (1985), Porter and Fuller (1986), Contractor and Lorange (1988), Glaister and Buckley (1996), Tatoglu and Glaister (1998) have examined the reasons for strategic alliance formation. Glaister and Buckley (1996) identified, classified and explained the key motives for international strategic alliance formation by UK firms. They reported that the main strategic motives were intrinsically linked to the market and geographical expansion of firms. Killing (1983), in a sample of 34 joint ventures in developed countries divided the reasons for creating a venture into three groups, namely: government suasion or legislation; partners' needs for other partners' skills; and partners' needs for the other partners' attributes or assets.

Miller, Jasperson, and Karmokolias (1996), identified the motives for joint ventures from two points of view i.e. developed country and developing country perspectives. They reported that government restrictions and foreign partner's conribution to finance the JV are the primary reasons for advanced country firms and firms from developing countries to invest through a JV respectively. Studies by Friedmann and Kalamanoff (1961), Goldenberg (1989), Kent (1991), and Selassie (1995) highlight the rationale for JV formation as the fulfillment of the needs and objectives of the parties involved, which otherwise would have been impossible to achieve with other business alternatives.

Several of the same motives are identified by various authors, while some of them overlap. The main motives discussed in the literature include the following:

Cost and Risk Sharing

Porter and Fuller (1986) identified joint ventures as a mechanism through which companies could hedge risk. By partnering with a firm in a different geographical market and/or different product market, losses in one market may be offset by gains in others, reducing the risk of the partner firm's overall portfolio of investment. Davidson (1982) argues that firms having lower market knowledge tend to reduce strategic risk by entering these markets through JV rather than wholly owned modes. A cooperative venture is also seen as a means of reducing cost because costs are shared, thus reducing the financial investment necessary to undertake a given business venture by any individual firm. By reducing financial investment the downside risk of the losses in the event of business failure is reduced.

Economies of Large-Scale Production

Economies of scale is concerned with the average cost of production in relation to the productive capacity of a plant. For example, if the productive capacity of a plant were increased, economies of scale would exist if the average cost of production fell. A joint venture can reduce average unit cost by pooling together each partner's capability and resources in order to achieve the benefits of large scale production. Furthermore, where components are made by both partners in different locations and with unequal costs, production could be transferred to the lower cost location thereby further lowering sourcing costs.

Transfer of Complementary Technology and Patents

Joint ventures, production partnerships, and licensing agreements may be formed in order to pool the complementary technologies of the partners. Several alliances in the pharmaceutical and biotechnology fields, for instance, are built on this rationale. Each partner contributes a missing piece. Pooling and ulitising partner resources through joint venturing do not only lead to superior product but may also create financial and operating synergies by sharing complementary resources between partners in a way not possible through internal development (Luo 2002, Buckley/Casson 1988). Contractor and Lorange (1988) suggest that JV agreements can also be a form of vertical quasi integration, with each partner contributing one or more different elements in the production and distribution chains. The inputs of the partners are in this case, complementary, not similar. In general, it is important to consider JVs as vehicles to bring together complementary skills and talents which cover different aspects of the know-how needed in high technology industries.

Shaping Competition

Porter and Fuller (1986) pointed out that strategic alliances can influence who a firm competes with and the basis of competition. Potential (or existing) competition can be coopted by forming a joint venture with the competitor or by entering into a network of cross-licensing agreements (Telesio 1977). Therefore, a strategic alliance may be used as a defensive strategy. On the other hand, a JV may also be made in a more offensive vein, for example, a company could link up with a rival in order to put pressure on the profit and market share of a common competitor (Contractor/Lorange 1988).

Overcoming Government-mandated Investment Barriers

One of the oldest and still common rationale for joint ventures is that they enable foreign parent firms to overcome government-mandated investment barriers. In many instances, host government policy makes JV formation the most convenient way to a market (Contractor/Lorange1988). In some countries investment regulations require a link with a local firm. In many cases, the regulations have called on foreign companies to limit participation to minority status. Until recently, India and Nigeria, for example, required foreign firms to be minority partners in a joint venture if they were to invest at all (Miller et al. 1996).

Facilitating International Expansion

For medium or small-sized companies lacking international experience, initial overseas expansion is often likely to be a joint venture (Contractor/Lorange 1988). Contractor and Lorange (1988) argue that, in general, it is an expensive, difficult, and time-consuming business to build up a global organisation and a competitive presence. JVs offer significant time savings in this respect. Even though one might consider building up one's market position independently, this may simply take too long to be viable. Again, though acquisitions abroad might be another alternative for international expansion, it can often be hard to find good acquisition candidates at realistic price levels--many of the "good deals" may be gone. All of these considerations add to the attractiveness of the joint venture approach.

Hypotheses

The literature gives little indication a priori of what to expect in terms of the relative importance of a set of motivating factors for joint venture formation (Glaister/ Buckley 1996). It may be conjectured, however, that the relative importance of the motives would vary with the underlying key characteristics of the sample. For the purpose of this study these characteristics have been identified as organisation type, ownership level, sector of operation and origin of foreign partner.

Organisational Type of Host Partner

A partner to a JV may either be a private sector organisation or a public sector organisation related to the government of the host country. It is expected that the motives for forming the JV are likely to differ according to the type of partner. A foreign partner, for example, may be able to enter certain sectors considered as vital to the interest of the host country, such as petroleum, telecommunication and gold mining, through a JV with the host government but not a private organisation, because these sectors are reserved for the state. Government organisations may exist to provide essential services whereas private sector organisations exist for commercial purposes. This reasoning leads to the following hypothesis:

Hypothesis 1. The relative importance of motives for JV formation will vary with the organisational type of the host country partner.

Ownership Level

Control in an international joint venture can be defined as a process through which parent companies ensure that the way the JV is managed conforms to their interest (Schaan 1983). Closely allied with control is the level of ownership of each partner, in that the split of ownership between the partners of a JV influences the level of resources commitment, control and consequently the strategic direction of the JV (Lorange/Roos 1990). There is therefore a strong theoretical basis for linking the setting of strategic motives with ownership level as the possession of a majority shareholding generally confers on the partner a major part of the decision-making control. It may be argued that ownership level is expected to influence the motives for setting up the JV. The reasoning leads to the second hypothesis of the study:

Hypothesis 2. The relative importance of motives will vary with the level of ownership of the joint venture.

Sector of Operation

Glaister and Buckley (1996) examined the relative importance of strategic motives for JV formation according to the industry of the venture in the UK. Other studies (see Afriyie 1988, Selassie 1995) on strategic motives for JV formation have implicitly focused on the manufacturing and agricultural sectors, with relatively little in the literature specifically dealing with motives for joint venture formation in the tertiary sector. A priori, several of the strategic motives appear to lend themselves more readily to JV formation in the manufacturing sector, for example, product rationalisation and economies of scale, and transfer of complementary technology, than they do to JV formation in the tertiary sector, where risk sharing and shaping competition appear to be more relevant (Glaister/Buckley 1996). It may be noted that most countries put certain sectors off-limits to wholly owned foreign investment, but the motives for these restrictions and the sectors differ among countries. In line with this reasoning, it is hypothesised that:

Hypothesis 3. The relative importance of strategic motives will vary with the type of JV business sector activities.

Origin of Foreign Partner

Prior literature (see Geringer 1988, 1991) indicates that the choice of a partner to a JV is influenced by the task to be accomplished by the venture and the characteristics required from the partner. For example, a Ghanaian firm may believe that a partner from a particular country can provide certain resources, such as access to finance or a type of technology, which it is hoped will enable the venture to accomplish its task or achieve its motives. Then when forming the JV it is expected that these partners will be chosen in preference to potential partners of different nationalities. Hence the fundamental motive for the JV may be expected to vary according to the nationality of the foreign partner. This reasoning leads to the following hypothesis:

Hypothesis 4. The relative importance of strategic motives will vary with the nationality of the foreign partner.

Research Methods and Sample Characteristics

Data Collection Method

The data were gathered via a cross-sectional survey using a questionnaire on a sample of equity joint ventures (EJVs) in Ghana with partners from Western Europe, America and Asia. The questionnaire presented a list of 10 strategic motives which were derived from the literature. A pre-test of the questionnaire was conducted in two stages. The first stage involved two academics, one from Ghana and one from the UK, who had previously conducted research in sub-Saharan Africa. The second involved six senior managers in Ghana.

The research population of interest was obtained from secondary sources (The Ghana Investment and Promotion Centre 1996, Franklin 1996). This resulted in an initial sample frame of 400 JVs. Two restrictions were employed in selecting the final sample frame. First, the sample was restricted to JVs with a minimum capital of $200 million because companies of that size are obliged by the Companies Act to keep proper records and that is likely to facilitate data collection. Second, the sample was restricted to JVs with only one foreign parent and a foreign equity holding of more than 10% because such parents are likely to participate in the JV's decision making. These restrictions led to a derived population of 90 JVs.

In July 1998, 90 questionnaires with covering letters were delivered personally to potential respondents in Ghana to eliminate the unreliability of the postal system typical of many sub-Saharan Africa countries. Two weeks after delivery, the questionnaires were collected personally from the respondents. A follow-up was made in the third and fourth weeks and a total of 41 usable questionnaires were collected, representing a response rate of 45.6 per cent. The survey for this study relies on data collected from managers of the JVs in Ghana. The study considers the ex post assessment of the managers' perception of the relative importance of each strategic motive at the time of JV formation (see Appendix 1).

As the questions were of a strategic nature, it was determined that respondents should be upper-level managers of JVs in Ghana. An examination of the job titles of the respondents revealed: Chief executive (70% of respondents), Finance Director (20%), Executive Director/Board Secretary (5%), Personnel Director (5%). It is likely that these respondents will be involved in strategic decision-making of their respective firms.

Using Armstrong and Overton's procedure (1977), a non-response bias was tested for by implementing a t-test comparing early and late responses along a number of key descriptive variables. Differences between the two groups were not significant, suggesting that non-response bias is not a major problem in this study.

Characteristics of the Sample

The characteristics of the sample are summarised below. The time dimension of the study runs from 1965-1995 with about 49 percent of the EJVs formed prior to 1978. Only 10 percent of the EJVs were formed in the 1978-1988 period with the remaining 41 percent established in the 1989 -1995 period. With regard to country of origin of foreign partner, about 66 percent are from Western Europe with most being from the UK. This followed by Asia/Pacific (17 percent) and North America (17 percent). The size of the EJVs are categorised according to total capitalisation: less than $5 million (41%); over $5 million and less than $10 (32%); and greater than $10 million (27%). The industry categories of the JVs are as follows: agriculture (9.8%), automobiles (12%), food/drink manufacturing (20.5%), textiles (9%), building and construction (7.3%), mining (9.8%), financial services (18.2%) IT and services (13.5%).

Statistical Analysis

The hypotheses were tested by considering differences in means of the importance of the strategic motives. As the sample size exceeds 30 it was reasonable to assume that the sample is from a normal distribution, and parametric tests were used, that is two sample t-test or ANOVA as appropriate. The non-parametric equivalent of the above tests (Mann-Whitney U and the Kruskal-Wallis Test) were also conducted to remove any doubt that may stem from the nature of the data. The non-parametric tests (not reported here) confirmed the findings of the parametric tests.

Results and Discussion

Strategic Motives

Table 2 shows the rank order of the strategic motives for JV formation in Ghana based on the mean measure of the importance of 10 strategic motives. The median measure is exceeded by five strategic motives: 'to overcome government-mandated barriers' (3.66), 'risk and cost sharing' (3.46), 'to facilitate international expansion' (3.34) 'to have access to low labour cost' (2.80), to obtain economies of large scale production' (2.66).

It is hardly surprising that 'to overcome government mandated barriers' is the highest ranked motive. This is because developing countries use a wide range of specific policies and institutions to regulate investments. These include ownership limits for foreign investors, investment screening and monitoring processes that tend to deter foreign investors from investing in many developing countries. Ghana is no exception and even with extensive liberalisation of investment policies, obstacles still remain and investment legislation tends to promote joint ventures (Boateng/Glaister 1999).

Under such circumstances JVs provide a means for faster entry. 'Risk and cost sharing' which is ranked second highest supports the earlier research findings by Bhattacharya et al. (1997) which reported that Africa, including Ghana, is perceived to be a risky place to do business. Many African countries including Ghana have been hostile towards foreign investors (Bennell 1990). For example, sudden changes in policies and rules were commonplace in sub Saharan Africa. It appears that every change of government, particularly military ones, brings about a change in investment rules and policies. The IMF (1996) reported that what worries foreign investors most is a sudden change in the 'rules of the game'. Besides the political risk, many sub-Saharan African countries suffer from civil strife, erratic monetary policies, large structural deficits and weaknesses in the financial system, which render running business more risky. Evidence from this sample indicates that EJVs are seen as a highly effective mode of FDI entry in order to reduce the perceived political risk.

Accessing a Ghanaian partner's financial resources appears not to be an important motivation for foreign firms to collaborate. This is not surprising given the prevalence of capital constraints on many Ghanaian firms. Domestic credit is scarce and where available tends to be prohibitive and costly. It may also be noted that forming a joint venture in order for the foreign partner to gain access to management know-how, and the Ghanaian partner's technology are ranked relatively low. It would be expected that the foreign partner would be bringing these resources to the joint venture. It is also apparent from Table 2 that to enable product diversification is a relatively unimportant motive for JV formation indicating that the foreign partners are not venturing into new business areas through JV formation in Ghana. Similarly, the formation of JVs in Ghana appears not to be motivated by the desire to block or reduce competition.

Factor Analysis of Strategic Motives

The correlation matrix of 10 strategic motives revealed a number of low to moderate intercorrelations. Due to potential conceptual and statistical overlap, an attempt was made to identify a parsimonious set of variables to determine the underlying dimensions governing the full set of 10 strategic motives. Exploratory factor analysis using varimax rotation was used to extract the underlying factors. The factor analysis produced three underlying factors with a total of 63.8 percent of the observed variance as shown in Table 3. The three factors may be summarised as follows: market development and power, partner synergies, and production efficiency.

To further investigate the underlying nature and pattern of the strategic motives for this sample of JVs, the analysis was developed by considering the strategic motives in terms of the characteristics of the sample. For each of the relevant characteristics of the sample under consideration, Tables 4 to 7 show the means and standard deviation of the three factors and individual strategic motives constituting each factor and the appropriate test statistic for comparing differences in mean scores.

Strategic Motives and Type of Host Partner

Table 4 shows that there is lack of support for hypothesis 1 in that the relative importance of the strategic motives hardly varies between the type of host partner (private sector or public sector). None of the factors have mean scores that are statistically different. With regard to individual motives, the relative importance of three--overcome government-mandated barrier (p < 0.05), to gain access to finance (p < 0.1), and access to low cost labour (p < 0.1) are found to vary significantly between the type of partner. In each case, the mean score is higher for JVs with government related partners.

The finding related to 'overcome government-mandated barrier' may be explained by the fact that, in Ghana, some strategic sectors can be entered by a foreign partner only through a JV with the host government. In the case of access to finance, the variation may explained by the fact that domestic financing of investment projects is considered to be a major problem in many African countries particularly for private investors (International Monetary Fund 1996). Where the JV project requires a large capital investment it is likely that the government is more able to supply the needed capital than the private sector firms. As regards to 'access to low cost labour', private sector wage rates are often higher than public sector wage rates partly because of workers' fears of the uncertainty of employment in the private sector. As a result foreign partners are more able to access low cost labour through partnerships with government organisations which are more likely to comply strictly with the payment of the minimum wage rate fixed by government.

Strategic Motives and Ownership Level

Strategic motives for JV formation by the level of partner's ownership is shown in Table 5. There is weak support for hypothesis 2, with the mean of the factor scores being significantly different for only one of the three factors, i.e., partner synergies (p < 0.05). Three of the four items constituting the partner synergies factor, i.e., risk and cost sharing (p < 0.05), access to partner's technology (p < 0.05), and access to management know-how (p < 0.05), have means significantly different between ownership level. In each case the mean score is highest for equal ownership (50-50), indicating an inverted U-shaped relationship between the importance of the motivating factors and the level of foreign partner ownership.

Strategic Motives and Sector of JV

To facilitate the statistical testing of the strategic motives, the industry of the JV was categorised in the conventional way by distinguishing between the primary, secondary and tertiary sectors in the following manner:

Primary: agriculture, mining and exploration

Secondary: automobiles, food/drink manufacturing, textiles, building and construction.

Tertiary: financial services, IT and services

Table 6 indicates reasonable support for hypothesis 3. Two of the three factors, partner synergies (p < 0.05) and production efficiency (p < 0.05), show a significant difference in the means of the factor scores, with the mean of both factors being significantly higher for JVs in the primary sector compared with those in the secondary and tertiary sectors. Three of the motives constituting partner synergies, i.e, risk and cost sharing (p < 0.1), to gain access to partner's technology (p < 0.01), and access to management know-how (p < 0.1), have means significantly higher for JVs in the primary sector. One of the two motives comprising the production efficiency factor, i.e, economies of large scale production (p < 0.05), has a mean significantly higher for JVs in the primary sector compared to the secondary and the tertiary sectors.

It is apparent that where there are significant differences in the strategic motives these are relatively more important for JVs in the primary sector than for either the secondary or tertiary sectors. For some of the individual strategic motives such as economies of scale, risk and cost sharing this is perhaps to be expected, as these strategic motives appear to constitute pertinent motivating forces to the primary sector. The primary sector, consisting mainly of agriculture and mining, employs about 70 percent of the working population in Ghana, is highly regulated and is considered strategic and is more subject to political risk. To reduce the perceived political risk foreign investors are likely to form a joint venture with the government. It is somewhat surprising however, that to gain access to partner's technology and access to management know-how are more important motives for JV formation in the primary sector than in the secondary or tertiary sectors. While intuitively there is an expectation that the foreign partner will be bringing technology and know-how to all sectors, this appears to be less so in the primary sector. Perhaps as the primary sector is considered strategic, local expertise may be more often found in this sector.

Strategic Motives and Foreign Partner Nationality

The strategic motivation for JV formation by regional category of nationality of the foreign partner is shown in Table 7. There is weak support for hypothesis 4 in that one of the three factors has mean scores that are significantly different, i.e., partner synergies (p < 0.1). One of the four individual motives constituting the partner synergies factor, i.e., risk and cost sharing, (p < 0.05), shows means significantly higher for JVs formed by North American partners compared with JVs formed by European and Asia/Pacific based partners. This finding is not surprising in that it has been reported that two thirds of North America's FDI in developing countries are in primary sector (UNCTAD 1995) and, as noted in Ghana the primary sector is considered strategic, highly regulated and appears susceptible to more political interference than other sectors. In order to reduce the perceived political risk, North American partners are more likely to form JVs to for the purpose of risk and cost sharing than either European or Asian/Pacific partners.

Summary and Conclusions

This paper identifies the main strategic motives that influence joint venture formation in Ghana with partners from Western Europe, North America and Asia. Joint ventures are seen primarily as a means to overcome government-mandated barriers, to allow cost and risk sharing, to facilitate international expansion, to provide access to low cost labour, and to enable partners to obtain economies of scale. The findings of this study differ significantly from those reported by Glaister and Buckley (1996) who also examined the motives for JV formation. This is not surprising as the sample for this study is drawn from JVs formed between a partner from a developed market economy and a partner from a developing country, while the Glaister and Buckley (1996) study was based on a sample of JVs between partner firms from developed market economies. However, this study tends to provide support for the findings reported by Killing (1983), Contractor and Lorange (1988) and Miller et al. (1996), which show that overcoming government-mandated barriers and cost and risk sharing are the oldest and most common strategic motives in a foreign partner's decision to invest through a JV.

The study also finds that 'to enable product diversification' and 'to co-opt existing competitor in order to reduce competition' appear to be relatively unimportant motives for JV formation in Ghana. This appears to support the findings reported by Appiah-Adu (1998) that before the introduction of economic reforms in Ghana, marketing decisions were made in an environment where competition was virtually non-existent. This is inconsistent with the views in the literature that highlight JVs as competitive weapons (Glaister/Buckley 1996, Porter/Fuller 1986). It therefore appears that after years of reforms and liberalisation, competition in Ghana remains largely undeveloped.

Due to potential conceptual and statistical overlap among the 10 strategic motives identified, factor analysis was conducted to produce a parsimonious set of distinct, non-overlapping strategic motives. The analysis yielded three non-overlapping factors which explained a total of 63.8 percent of the observed variance in the sample data. To investigate the underlying nature and pattern of the strategic motives for this sample of EJVs, the paper considered strategic motives across a range of sample characteristics: type of host partner, ownership level, sector of operation and origin of foreign investor.

Test of hypotheses 1 to 4 indicate that the relative importance of the strategic motives vary most with the sector of JV activity, to a moderate extent with the ownership levels and to the weak extent with the partnership type and nationality of the foreign partner. While the variation in importance of several of the strategic motives appears to be readily justifiable the reason for the variation in importance is not always apparent. Further investigation of the relative importance of strategic motives in the context of developed and developing country firm partnerships appears warranted.

Appendix 1.

As far as the foreign partner was concerned, how important were the following motives for entering into JV? (please circle)
 Not at all Very
 important important

 (1) To gain access to finance 1 2 3 4 5
 (2) To overcome government-mandated
 barrier 1 2 3 4 5
 (3) To gain access to partner's technology 1 2 3 4 5
 (4) To gain access to management know-how 1 2 3 4 5
 (5) Risk and Cost sharing 1 2 3 4 5
 (6) To obtain economies of large-scale
 production 1 2 3 4 5
 (7) To facilitate international expansion 1 2 3 4 5
 (8) To have access to low cost labour 1 2 3 4 5
 (9) To co-opt existing competitor in order 1 2 3 4 5
 to reduce competition
(10) To enable product diversification 1 2 3 4 5

Table 1. Approved FDI Projects by Ownership Type and Regional
Origin: All Sectors, 1990-1997

 Equity Joint
Region Wholly Owned Venture Total

 Number % (Row) Number % (Row) Number % (Col)

Africa 17 33.3 34 66.7 51 4.9
Asia/Pacific 58 23.9 185 76.1 243 23.4
Middle East 11 11.0 90 89.0 101 9.6
N/America 13 13.3 85 86.7 98 9.3
W/Europe 75 18.0 341 82.0 416 40.0
E/Europe 4 23.5 13 76.5 17 1.6
L/America 4 31.0 9 69.0 13 1.2
Multilateral 18 17.0 88 83.0 106 10.0
Total 200 19.1 845 80.9 1045 100.0

Triad Status
Triad 146 19.2 611 80.7 757 72.0
Non-Triad 54 18.7 228 81.3 288 28.0
Total 200 19.1 845 80.9 1045 100.0

Source: Ghana Investment Promotion Centre 1998

Table 2. Relative Importance of Strategic Motives for Joint Venture
Formation in Ghana

Rank Motivation Mean SD

 1 To overcome government-mandated barrier 3.66 1.37
 2 Risk and cost sharing 3.46 1.07
 3 To facilitate international expansion 3.34 1.41
 4 To have access to low cost labour 2.80 1.12
 5 To obtain economies of large scale
 production 2.66 1.20
 6 To gain access to finance 2.05 1.09
 7 To gain access to management know-how 1.93 0.91
 8 To gain access to partner's technology 1.59 0.92
 9 To enable product diversification 1.56 1.00
 10 To co-opt existing competitor in order to
 reduce competition 1.54 1.07

Notes: N = 41

The mean is the average on a scale of 1 ('not at all important')
to 5 (= 'very important')

SD = standard deviation

Table 3. Factor Analysis of Strategic Motivation

Factors Factor Eigenvalue
 loads

Factor 1: Market development and power 3.33
Facilitates international expansion 0.68
To overcome government-mandated barrier -0.78
To reduce competition 0.69
To enable product diversification 0.69

Factor 2: Partner synergies 1.79
Risk and cost sharing 0.63
To gain access to finance 0.67
To gain access to partner's technology 0.89
To gain access to management know-how 0.83

Factor 3: Production efficiency 1.25
To obtain economies of large scale production 0.67
To have access to low cost labour 0.92

Factors % Variance
 explained

Factor 1: Market development and power 33.4
Facilitates international expansion
To overcome government-mandated barrier
To reduce competition
To enable product diversification

Factor 2: Partner synergies 17.9
Risk and cost sharing
To gain access to finance
To gain access to partner's technology
To gain access to management know-how

Factor 3: Production efficiency 12.5
To obtain economies of large scale production
To have access to low cost labour

Factors Cumulative
 per cent

Factor 1: Market development and power 33.4
Facilitates international expansion
To overcome government-mandated barrier
To reduce competition
To enable product diversification

Factor 2: Partner synergies 51.3
Risk and cost sharing
To gain access to finance
To gain access to partner's technology
To gain access to management know-how

Factor 3: Production efficiency 63.8
To obtain economies of large scale production
To have access to low cost labour

Notes: Principal components factor analysis with varimax rotation
K-M-O Measure of sampling Adequacy = 0.5902
Barlett Test of sphericity = 135.737; p < 0.0000

Table 4. Strategic Motives for EJV Formation in Ghana: Partnership Type

Motivation Group Mean SD T-value

Factor 1: Market development
 and power Private sector 2.41 0.44
 Public sector 2.61 0.61 1.13
Facilitate international
 expansion Private sector 3.65 1.27
 Public sector 3.13 1.52 1.14
Overcome government-mandated
 barrier Private sector 3.12 1.77
 Public sector 4.04 1.22 2.18 **
To reduce competition Private sector 1.53 1.01
 Public sector 1.52 1.63 0.02
To enable product
 diversification Private sector 1.35 0.72
 Public sector 1.74 1.18 -1.20

Factor 2: Partner synergies Private sector 2.27 0.81
 Public sector 2.26 0.79 0.02
Risk and cost sharing Private sector 3.71 1.16
 Public sector 3.26 1.01 1.29
To gain access to finance Private sector 1.77 0.97
 Public sector 2.26 1.18 -1.42 *
To gain access to partner's
 technology Private sector 1.59 1.00
 Public sector 1.61 0.89 -0.07
Access to management know-how Private sector 2.00 0.87
 Public sector 1.91 0.95 0.30

Factor 3: Production
 efficiency Private sector 2.65 0.93
 Public sector 2.76 1.05 -0.35
Economies of large scale
 production Private sector 2.82 1.31
 Public sector 2.48 1.24 0.90
To have access to low cost
 labour Private sector 2.47 1.07
 Public sector 3.04 1.15 -1.61 *

Notes: The mean for the factors is the mean for the factor scores: the
mean for the individual motives is the average on a scale of (= not at
all important) to 5 (= very important); p < 0.1 * p < 0.05 **
p < 0.01 ***

Table 5. Strategic Motivation of EJV Formation in Ghana: Ownership
Level

Motivation Group Mean SD F-ratio

Factor 1: Market dev.
 and power More than 50% 2.57 0.70
 Co-ownership (50-50) 2.54 0.40
 Less than 50% 2.47 0.39 0.14
Facilitate international
 expansion More than 50 % 3.17 1.58
 Co-ownership (50-50) 3.67 0.82
 Less than 50% 3.41 1.42 0.31
Overcome gov't-mandated
 barrier More than 50% 3.83 1.43
 Co-ownership (50-50) 3.17 0.75
 Less than 50% 3.65 1.50 0.52
To reduce competition More than 50 % 1.44 0.98
 Co-ownership (50-50) 2.17 1.47
 Less than 50% 1.41 1.00 1.28
To enable product
 diversification More than 50 % 1.83 1.20
 Co-ownership (50-50) 1.17 0.41
 Less than 50% 1.41 0.87 1.34

Factor 2: Partner
 synergies More than 50% 1.90 0.67
 Co-ownership (50-50) 2.83 0.80
 Less than 50% 2.43 0.74 4.63 **
Risk and cost sharing More than 50% 3.11 1.28
 Co-ownership (50-50) 4.33 0.52
 Less than 50% 3.53 0.80 3.31 **
To gain access to
 finance More than 50% 1.83 1.15
 Co-ownership (50-50) 2.17 0.98
 Less than 50% 2.23 1.09 0.62
Access to partner's
 technology More than 50% 1.22 0.55
 Co-ownership (50-50) 2.33 1.37
 Less than 50% 1.71 0.92 4.06 **
Access to management
 know-how More than 50 % 1.44 0.62
 Co-ownership (50-50) 2.50 0.55
 Less than 50% 2.24 1.03 5.91 **

Factor 3: Production
 efficiency More than 50% 2.69 1.15
 Co-ownership (50-50) 3.00 0.32
 Less than 50% 2.68 0.98 0.25
Economies of large scale
 prod. More than 50 % 2.56 1.29
 Co-ownership (50-50) 3.17 0.75
 Less than 50% 2.59 1.23 0.63
Access to low cost
 labour More than 50 % 2.83 1.34
 Co-ownership (50-50) 2.83 0.75
 Less than 50 % 2.77 1.03 0.17

Notes: The mean for the factors is the mean of the factor scores: the
mean for the individual motives is the average on a scale of (= not at
all important) to 5 (= very important); p < 0.1 * p < 0.05 **
p < 0.01 ***

Table 6. Strategic Motives for JV in Ghana: Sector of Activity

Motivation Group Mean SD T-value

Factor 1: Market dev. and power Primary 2.44 0.42
 Secondary 2.55 0.66
 Tertiary 2.54 0.42 0.13
Facilitate international expansion Primary 2.87 1.36
 Secondary 3.40 1.54
 Tertiary 3.54 1.27 0.57
Overcome gov't mandated barrier Primary 3.75 1.04
 Secondary 3.60 1.47
 Tertiary 3.69 1.49 0.04
To reduce competition Primary 2.00 1.30
 Secondary 1.60 1.23
 Tertiary 1.15 0.38 1.66
To enable product diversification Primary 1.13 0.35
 Secondary 1.60 1.00
 Tertiary 1.77 1.24 1.06
Factor 2: Partner synergies Primary 2.94 0.80
 Secondary 2.11 0.75
 Tertiary 2.06 0.60 4.51 **
Risk and cost sharing Primary 4.12 0.64
 Secondary 3.20 1.20
 Tertiary 3.46 0.97 2.25 *
To gain access to finance Primary 2.63 0.52
 Secondary 1.90 1.21
 Tertiary 1.92 1.12 1.41
Access to partner's technology Primary 1.63 1.30
 Secondary 1.40 0.68
 Tertiary 1.23 0.44 9.07 ***
Access management know-how Primary 2.38 1.06
 Secondary 1.95 0.89
 Tertiary 1.62 0.77 1.83 *
Factor 3: production efficiency Primary 3.13 0.64
 Secondary 2.95 0.97
 Tertiary 2.15 0.99 3.82 **
Economies of large scale
 production Primary 3.13 0.99
 Secondary 2.95 1.14
 Tertiary 1.92 1.12 4.26 **
Access to low cost labour Primary 3.12 1.13
 Secondary 2.95 1.15
 Tertiary 2.39 1.04 1.43

Notes: The mean for the factors is the mean of the factor scores: the
mean for the individual motives is the average on a scale of (= not at
all important) to 5 (= very important) p < 0.1 * p < 0.05 **
p < 0.01 ***

Table 7. Strategic Motives for EJV in Ghana: Origin of Foreign Partner

Motivation Group Mean SD F-ratio

Factor 1: Market dev. and
 power North America 2.68 0.37
 Western Europe 2.51 0.61
 Asia/Pacific 2.43 0.35 0.40
Facilitate international
 expansion North America 3.57 0.98
 Western Europe 3.15 1.61
 Asia/Pacific 3.86 0.69 0.81
Overcome gov't mandated
 barrier North America 3.29 1.11
 Western Europe 3.85 1.49
 Asia/Pacific 3.29 1.11 0.78
To reduce competition North America 2.29 1.25
 Western Europe 1.44 1.09
 Asia/Pacific 1.14 0.38 2.43
To enable product
 diversification North America 1.57 1.34
 Western Europe 1.59 1.04
 Asia/Pacific 1.43 0.79 0.07

Factor 2: Partner synergies North America 2.71 0.78
 Western Europe 2.05 0.78
 Asia/Pacific 2.61 0.48 3.24 *
Risk and cost sharing North America 4.14 0.69
 Western Europe 3.15 1.17
 Asia/Pacific 4.00 0.00 3.94 **
To gain access to finance North America 2.71 1.11
 Western Europe 1.81 1.07
 Asia/Pacific 2.29 0.95 2.20
Access to partner's technology North America 2.14 1.35
 Western Europe 1.44 0.80
 Asia/Pacific 1.57 0.79 1.65
Access management know-how North America 1.86 0.90
 Western Europe 1.78 0.89
 Asia/Pacific 2.57 0.79 2.30

Factor 3: Production
 efficiency North America 2.86 1.03
 Western Europe 2.67 1.07
 Asia/Pacific 2.85 0.69 0.16
Economies of large scale
 production North America 3.00 1.16
 Western Africa 2.59 1.28
 Asia/Pacific 2.57 0.98 0.33
Access to low cost labour North America 2.71 1.38
 Western Europe 2.74 1.16
 Asia/Africa 3.14 0.69 0.37


Notes: The mean for the factors is the mean of the factor scores: the
mean for the individual location factors is the average of the scale of
(= not at all important) to 5 (= very important); p < 0.1 *
p < 0.05 ** p < 0.01 ***


Endnote

(1) The authors would like to thank the journal's referees for providing useful comments on an earlier draft of this paper.

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Agyenim Boateng, Senior Lecturer in Finance, Leeds Business School, Leeds Metropolitan University, Leeds, UK.

Keith W. Glaister, Professor of International Strategic Management, CIBUL, Leeds University Business School, University of Leeds, Leeds, UK.

Manuscript received March 2000, revised May 2003, revised July 2002.
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