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Factors influencing international joint venture performance in China.

1. Introduction

High-speed technological development and market globalization have catalyzed the upsurge and prevalence of international joint venture (IJV) over the past 30 years (Beamish and Delios, 1997a). As a modern commonly organizational mode, IJV exceeds over other international collaborative forms such as exporting, licensing, acquisition and new wholly owned subsidiary for the reasons of shared risks and complementary resources, low-cost leadership resulted from the scale of economics and convenient knowledge flows (Contractor and Lorange, 2002). Based on the preceding advantages and on the Chinese governmental supports, IJVs have been the first choice for most foreign firms when they enter the Chinese markets for the first time (e.g., Wash et al., 1999). Despite the fact that the wholly foreign-owned subsidiaries have been increased a lot since China joined into the World Trade Organization (WTO), IJVs still play an important role on sino-foreign trade businesses for the potentially local involvement required by certain protectionist regulations (e.g., Meschi and Cheng, 2002; Pan and Chi, 1999).

While plenty of research on IJVs has been made since Franko (1971) published his article named "Joint venture survival in multinational corporations" on New York, many researchers have only focused on some particular performance drivers or detailed but unsystematic factors, not to mention authentic studies on sino-foreign IJVs. Moreover, referring to the performance measurement approaches, quite a few of chosen ways are a little general such as only from objective and subjective views or lack of close relationships from one to another. Consequently, it is hard to make warranted conclusions and then provide directions for future research.

This article presents a newly integrated and systematic framework for measuring the performance of sino-foreign IJVs. Considered the specific conditions and characteristics of sino-foreign IJVs, I classify the influencing factors as internal factors and external factors in general to discuss the factors influencing IJV performance and primary stakeholders' satisfaction and secondary stakeholders' satisfaction in general to formulate the performance measurement approaches. Therefore, the article proposes possible directions for future research.

2. Literature review

Over the past three decades, the great majority of world-wide researchers do have made plenty of studies about IJVs and provide a number of empirical statistics (e.g., Delios and Beamish, 1999; Li et al., 2001), however, they merely focus on partial parameters and do not provide a systematic and complete framework. For example, the paper of Osland and Cavusgil (1996) does not mention a number of parameters and the relationships between them which are currently mainly studied. Moreover, although Larimo (2003) do does a quite job and summarize the previous research on Asian IJVs, his paper is lack of essentially conceptual framework. Even until 2009, it still has a long way for researchers to provide a relatively perfect paper on IJV. It is no doubt that article written by Ren et al. (2009) has an innovation that they study IJV performance in a multilevel way, but the reasoning and necessity of this new mode are still questioning, let alone the over-detailed yet less organized analysis of IJV performance drivers. Finally, the studies about sino-foreign IJVs are limited or lack of integrated framework to analyze them completely, except the research taken by Nippa (2007) which does a detailed analysis of performance drivers yet less analysis of the measurement approaches. Therefore, in this article I build on previous research result and propose a comprehensive and theory-based framework.

3. Theoretical Background

In this paper, stakeholder theory is used to measure a sino-foreign IJV performance. As what Hoskisson et al. (2009) stated, stakeholders can be divided into three groups: capital market stakeholders, product market stakeholders and organizational stakeholders. The authors originally use stakeholders' satisfaction as measurement of IJV performance.

4. Paper Content

This integrated and systematic framework (figure 1) includes seven factors influencing IJV performance and two briefly classified performance measurement approaches.

It is appropriate to divide factors into internal factors and external factors in general for the consideration of particularly economic and political environment in China. Furthermore, the writer applies stakeholder perspective to the IJV performance measurement approaches to make the conventional measurement ways more complete. For example, some studies only use financial assessment or objective indicators, such as return on investment (ROI), market share or sales to measure IJV performance (Hofer, 1983). Some studies base the measurement approaches on perceptual assessment or subjective indicators such as the evaluation of the IJV's managers or the satisfaction of firm's employees (e.g., Luo, 2002b). While the other studies rely on multidimensional assessment which includes objective and subjective indicators, the classification is too sweeping to be systematic (e.g., Luo and Park, 2004). Shareholders are the individuals and groups who can directly or indirectly affect the organizational operations and decision-making (Jones and Wicks, 1999). As a significant role stakeholders play on IJV, it is reasonable to measure the IJV performance based on the satisfaction of kinds of stakeholders. In this paper, I use the primary stakeholders' satisfaction and secondary stakeholders' satisfaction to measure IJV performance. Furthermore, primary stakeholders can be separated into three groups: the capital market shareholders, the product market shareholders and the organizational shareholders (Hoskisson et al., 2009). Secondary shareholders include kinds of nongovernmental organizations (Eesley and Lenox, 2006).

4.1 Factors Influencing IJV Performance

* IJV-Parent Characteristics

Based on previous studies, it is certain that the parent firm plays a rather significant role on IJV performance, or as what Beamish (1984) said that a parent firm's collaborative attitudes and behaviors are beneficial for the satisfying performance of an IJV. Furthermore, the influence of a parent firm's size is uncertain: though Isobe et al. (2000) found that the larger a parent firm, the worse the IJV performance, Barkema and Vermeulen (1997) revealed that the size of a parent firm has no relationship with the IJV performance. However, the sino-foreign IJVs are faced with a specific situation: The resource base such as size and location of Chinese parent firms' results in the success of IJV on a large extent (Isobe et al., 2000; Luo, 1997). In addition, a commonly accepted hypothesis given Chinese market is that a first mover can earn an entry advantage such as customers' loyalty to the brand (Isobe et al., 2000), but a year later Li et al. (2001, p. 128) claim that a later entry would be more preferred.



* Contractual Characteristics

Equity ownership is the main component of contractual characteristics. Some researchers find that IJVs with balanced ownership are more likely to achieve positive performance than those with partially dominated do (Blodgett, 1992; Bleeke and Ernst, 1991; Park and Kim, 1997). Similarly, Killing (1993) revealed that the major owners of an IJV would risk minor owners' interests in honor of the firm's interests. With regard to sino-foreign IJV, it is important to consider about a major ownership mode--state-ownership. Given the special political environment in China, business market changes as the political policies change. For example, as the process of economic reforms, the number of state-ownership reduces (Luo, 2002b), although Luo (1997) said that state-ownership positively influence sino-foreign IJV performance. In addition, Meschi and Cheng (2002) stated that a substantial ownership by a foreign parent firm has no positive effect on sino-foreign IJV performance, either.

* Constitutional Characteristics

Refer to an IJV's constitutional characteristics; size, operation age and location are the essential items should be discussed below. Some scholars' research on the relationship between size of sino-foreign IJN and IJV performance indicate no significant bonds with them (Luo, 2001, 2002b; Luo et al., 2001). In addition, the operation age of a sino-foreign IJV deeply influence the firm's performance, such as brand loyalty resulted from the early entry advantage. With regard to the advantage of a sino-foreign IJV's location, a pitfall should be clarified. Meschi and Cheng (2002, p.124) find that a so-called "coastal advantage" which means sino-foreign IJVs in coastal region perform better than those located inland region. However, since relevant study about resource-based drivers of sino-foreign IJV performance are limited (Luo, 1995), it would better to notice and collect more studies in the future.

* Fitness Characteristics

With the increasing attention on cross-culture management in modern IJV, the fitness between foreign parent and local parent, such as product relatedness and cultural distance, has been an important consideration when firms think about jointing ventures. Through years' empirical research, it has been found that cultural distance is a main factor influencing sino-foreign IJV performance (e.g., Anh et al., 2006; Brouthers and Bamossy, 2006; L.-T. Lu, 2007; L-.T. Lu and Lee, 2005; Luo and Shenkar, 2002). On one hand, Li et al (2001), for example, present a positive relationship between high cultural distance and sino-foreign IJV performance for leading to more cross-cultural communication and creative ideas (Park and Ungson, 1997). Similarly, Barkema and Vermeulen (1997) find cultural differences in power distance and individualism do not affect the IJV's survival. On the other hand, some studies reveal negative relationship between cultural differences and IJV performance (e.g., Li and Guisinger, 1991; Shenkar and Zeria, 1992; Pennings, Barkema and Douma, 1994; Hennart and Zeng, 1997; Lin and Germain, 1998; Luo and Park, 2002a; Luo and Park, 2004). For example, high cultural distance is more likely to cause misunderstanding in the process of daily management or ambiguity in the process of strategy setting (Simonin, 1999) and to increase IJV instability (Makino et al., 2007; Meschi and Riccio, 2008). Except the previous opinions, some researchers even find no relationship between them (Luo, 2002b; Luo and Tan, 2003).

* Managerial Characteristics

With regard to managerial characteristics, it can be divided into two parts: relationship management and venture control. Firstly, relationship management is always an important base for the success of a firm in China and it includes conflict resolution and cooperative working style based on previous research results. For example, Lin and Germain (1998) indicate that problem-solving is the most effective way to resolve kinds of conflicts after analyzing sizeable cases before. In a similar vein, some researchers find that cooperative working style is a feasible and relatively efficient way for sino-foreign IJVs (e.g., Luo, 1997, 2002c). For the consideration of high emphasis on relationship management in sino-foreign IJVs but less academic theories to support the conclusion, Parkhe (1993, 2004) suggest that this blank area can be a direction for future research. Secondly, venture control refers to the decision power that each parent venture has, which largely influences sino-foreign IJV performance (Killing, 1983). From previous research results, different venture control type has different influence on sino-foreign IJVs. Some researchers find that shared venture control by each parent firm leads to higher performance (e.g., Steensma and Lyles, 2000; Yan and Gray, 1994). However, Choi and Bcamish (2004) demonstrated that equally owned venture control was superior to partial owned venture control in terms of the influence on sino-foreign IJVs. Contrary to two mentioned opinions, Killing (1983) stated that partial owned venture control outperformed shared control and equally owned venture control for the reduce of coordination cost.

* Operational Characteristics

Based on previous research on sino-foreign IJVs, the influence of operational factors on sino-foreign IJV performance is similar to general IJVs. This area is composed of research and development, marketing and human resource. For the part of research and development, Kogut (1989) found positive association, while other researcher asserted no necessary relationship between high research and development abilities and IJV performance (e.g., Luo, 1995). For the part of marketing, the relationship between extensive marketing operations in general and IJV performance appeared negative according to Kogut's finding (1988b), while other researchers found moderate (Merchant and Schendel, 2000) or positive (Liu and Pak, 1999) relationship. Furthermore, Robson et al. (2002) stated that intensive marketing strategy poorly improved IJV performance, which was true merely in developed countries. Researches on last part of human resource are sufficient through decades' effort by different researchers. With regard to employee training, some researchers identified that insufficient training leads to poor performance (e.g., Fey, 1995; Lyles et al., 1999), while other researchers disagreed the association (e.g., Good, 1972; Lyles and Salk, 1996). When mention to employee wellbeing, Lyles and Baird (1994) found that stimulation system has a positive influence on IJV performance. Similarly, the degree of empowerment by employers has positive relationship as well (Fey, 1996).

* Regularity Characteristics

Given the unique political situation in China, regularity characteristics such as local government policies and institutional restrictions play an important role on influencing sino-foreign IJV performance (Osland and Cavusgil, 1996; Nippa, et al., 2007). Some scholars demonstrated that unexpected changes in local government policies, such as regulation changes about foreign investment, can lead to instability of IJV and then influence IJV performance (Vernon, 1977; Blodgett, 1992; Brewer, 1992; Boddewyn and Brewer, 1994). The past several decades have witnessed such political changes a lot (Contractor, 1990; Vachani, 1995; Yan and Gray, 1994). With regard to institutional restrictions, Nippa et al. (2007) found that institutional deterrence negatively influence sino-foreign IJV performance, especially for those that largely dependent on nationally important resources. Makino and Delios (1996), for example, stated that local ownership restrictions have negative impact on IJV performance. Refer to local protectionist regulation, researchers have different findings. For example, Makino (1995) revealed a moderate influence on IJV performance while Blodget (1992) and Osland and Cavusgil (1996) found a positive effect on IJV performance.

* Industrial Characteristics

Research results on success factors regarding industry characteristics reveal anticipated results. Isobe et al. (2000) and Luo (1997; 1999) found that industry growth and industry opportunities have a significant impact on sino-foreign IJV performance. For example, some researchers signified a positive relationship and were uncertain of the existence of negative effect on IJV performance (Inkpen and Currall, 1997); some asserted that ventures in certain industry that experience frequent consolidation and changeable situation are less stable and more difficult to do a satisfied performance (Kogut, 1989, 1991; Hennart and Zeng, 1997). With regard to the influence of industry concentration on IJV performance, years' findings of different researchers are controversial. Some researchers revealed a negative relationship (e.g., Kogut, 1988b), but Kogut (1989) claimed a positive relationship and Good (1972) identified no relationship at all. In addition, the influence of industry profitability was positive according to Luo (1999) and Tiessen and Linton (2000); and Hu and Chen (1996) revealed that labor intensity and technology level have no relationship with IJV performance.

4.2 Performance Measurement Approaches

* Capital market stakeholders' satisfaction

Capital market stakeholders, such as shareholders and lenders, expect a firm to preserve and enhance the wealth they have entrusted to the firm (Hoskisson et al., 2009). In addition, Hoskisson et al. (2009) stated that shareholders are particularly interested in receiving high returns for the investment they made in a stock and comparing those returns with the average return of all stocks in the market as a whole or in a designed industry for a particular period. With the capital market stakeholders' satisfaction, the most commonly used way to measure IJV performance is to check the firm's financial statement, that is the objective evaluation, in which some items such as return on assets (ROA) and debt to equity (DOE) can indicate the firm's financial situation (Hofer, 1983). Apart from the objective evaluation, recently subjective evaluation has caught increasing attention from researchers. For example, a number of recent studies prove that IJV's announcement regarding the firm's future will vastly influence the share-price immediately, which suggests the satisfaction of shareholders (Koh and Venkatraman, 1991). Furthermore, a partner of an IJV, as a particular capital market stakeholder, plays an important role on influencing IJV performance in a way of showing commitment to his Chinese or foreign partners by increasing the capital investment, for example (Hu and Chen, 1996), while other researchers claim that partners' mutual commitment has no relationship with IJV performance (Lee and Beamish, 1995).

* Product market stakeholders' satisfaction

Product market stakeholders primarily consist of primary customers, suppliers, social organizations (Hoskisson et al., 2009). In this paper, the writer adds governmental organizations into "social organizations" part. In the preceding stakeholders, the satisfaction of the first one, primary customers is measured by the complaints from customers and the percentage of product returns, which are subjective and objective evaluation respectively (Hoskisson et al., 2009). Secondly, Nakos and Brouthers (2008) suggested that the mutual trust between the firm and the firm's suppliers can positively influence the financial performance and future cooperation (e.g., percentage of contract renewals). Lastly, the satisfaction of social organizations, such as communities and unions, can be measured by the number of new jobs created by IJV in local community per year and Labor Union's assessment of IJV, which from subjective and objective measurement approaches separately (Hoskisson et al., 2009). In addition, that the satisfaction of governmental organizations can be measured by rules and regulations launched by governmental organizations, as what Osland and Cavusgil (1996) identified, which can directly influence decision making and performance of IJV. While it is obvious that the satisfaction of governmental and social organizations, such as environmental protection ranking of IJV published by official institutions or well-known nongovernmental organizations, can measure sino-foreign IJV performance, limited research have be taken in this area for lack of monitoring from mature social organizations in China and less emphasis on this part. In the end, direction for future research can consider about this potentially fruitful area.


* Organizational stakeholders' satisfaction

In this part, organizational stakeholders' satisfaction will be divided into two groups: IJV managers and other employees (Hoskisson et al., 2009). As objective evaluations such as financial statistics may be incomplete or hard to interpret certain parts of an IJV, recently a number of researchers use managers' subjective evaluations

to measure IJV performance (Boateng and Glaister, 2002; Demirbag and Mirza, 2000; Isobe et al., 2000; Kwon, 2008; Li and Hambrick, 2005; Luo and Park, 2004; Nakos and Brouthers, 2008; Yeheskel, Zeira, Shenkar and Newburry, 2001; Zhang and Li, 2001). Though managers' evaluations do provide more information to measure IJV performance, this approach still exist flaws, such as managers from IJV and the parent firm whose appraisal criteria are different (Ren et al., 2009). In order to solve those drawbacks, some scholars improve their measurement approaches by classifying managers. For example, Dhanaraj and Colleagues (2004) and Lane, Salk and Lyles (2001) divided managers into three parts: local parent, foreign parents and IJV general managers to record their evaluations separately. Referring to the satisfaction of ordinary employees, Anderson (1990) suggested that employee morale and knowledge acquisition be considered when evaluating an IJV performance. Similarly, Ancona et al. (2002) found that professional development and advancement opportunities can affect employees' satisfaction with their firms in the way of the turnover rate of employees or annual employee satisfaction survey.

5. Conclusions and implications

The primary objective of this paper was to evaluate success factors influencing sino-foreign IJV performance, provide appropriate measurement approaches and point out potential directions of future research. While researchers have studying relevant matters on IJV performance for decades, papers based on china-specific conditions are limited. In addition, not only did the writer study previous research results but lack first-hand materials, but also lots of researchers mainly adopted research material from official data which were offered by governmentally controlled institutions (Malhotra et al., 1996). Additionally, the appropriateness and usefulness of chosen success factors need to be evaluated further (March and Sutton, 1997). Therefore, in the future, it would better take more research on following directions.

Firstly, more empirical research and theoretical approaches should be taken to analyze the greater influence (positive or negative) of cultural distance on sino-foreign IJV performance, while some researchers have inconsistently studied this area (Li et al., 2001). In addition, fitness between characteristics of parent firms and those of newly setup IJV; fitness between characteristics of sino-foreign IJV and external political situations in China are ignored by majority of previous research except the paper written by Luo and Park (2004). In the end it is of great potential for future research. Furthermore, although it is obvious that the higher the commitment from foreign parent firm, the better performed of sino-foreign IJV, Osland and Cavusgil (1996) stated dangerous consequences if foreign parent firm takes the majority control power. Therefore, it is likely to be fruitful for some researchers to study this area.

Secondly, more research based on more primary data could be taken, such as survey results from local nongovernmental organizations, to avoid secondhand bias (Nippa et al., 2007). Additionally, Roy et al. (2001) not only identified inaccurate justification resulted from language obstacles and avoidance of losing face but also posed a new survey instrument, named 10- point Likert scales, to replace conventional 5-point Likert scales. Simultaneously, researchers study on management in China have realized the importance of solving language obstacles (e.g., Luo, 2001, 2002c) and more appropriate data collection system (e.g., Lin and Germain, 1998; Luo, 2002b; Wang et al., 1999).

Thirdly, success factors regarding foreign parent firm attributes, such as market power of foreign parent firm and customer loyalty to foreign parent firm, are under analyzed in China. Then it might be better to consider about chose of success factors in other countries and try to apply them in china-specific conditions. In addition, as rapidly growth and greater influence power of nongovernmental organizations in modern society, more research should be taken about influence of secondary shareholders' satisfaction on sino-foreign IJV performance. Moreover, as previous research evaluate preference between coastal region and inland region IJV in China merely by ventures' stock price reaction; it is likely to obtain partial or controversial conclusions. Therefore, it is better to consider about other success factors, such as industry effects, to comprehensively evaluate the influence of location on sino-foreign IJV performance.


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ZHENG XIAOSONG (1, 2) e-mail:,

ZHANG JINMING (1) e-mail:

(1) Sydney Institute of Language and Commerce, Shanghai University, China

(2) Department of Marketing, University of Vaasa, Finland
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Author:Xiaosong, Zheng; Jinming, Zhang
Publication:Annals of the University of Bucharest, Economic and Administrative Series
Article Type:Report
Geographic Code:9CHIN
Date:Jan 1, 2011
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