Joint Venture Performance In Developing Countries

Abstract

Given the predominance of joint ventures over wholly owned subsidiaries in less developed countries, the issue of joint-venture performance is an important one. An analysis of the literature, plus a pilot survey conducted as a first step in this research, indicated a weakening of the link between dominant management control and satisfactory performance when the focus shifted from developed to developing countries. This survey of the experience of multinational enterprises (MNEs) in 34 manufacturing joint ventures with local, private firms in developing countries also indicated that many characteristics of joint ventures in developed and developing countries differ significantly. More important, the survey suggested several variables crucial in determining joint venture success: partner need, and commitment.;Using interviews in companies involved in an additional 32 ventures, with particular emphasis on 12 comparative core cases, operational measures of need, commitment, and performance were developed following the pilot survey. A questionnaire incorporating these measures was administered to both the foreign and local partners (where possible) and to the general manager in each of 12 core ventures. The core ventures were from two less technology-intensive sectors. There were both satisfactorily and unsatisfactorily performing ventures in each sector.;Following analysis of the data, a managerial guideline was developed which the research suggests will lead to improved performance of joint ventures in developing countries. The guideline recommends forming joint ventures with partners when there will be a mutual long term need; when the need will be specific rather than general in nature; when the companies are committed to the use of joint ventures; and when a company is committed to the particular joint-venture partner. Staffing with local managers, selling equity to the general manager, and avoiding situations where the MNE has dominant ownership and/or dominant control are additionally recommended.;The research also extends the theory of the multinational enterprise to include an expanded role for joint-equity ventures. This is done in a way that maintains the acceptability of internalization theory as a suitable explanation of the MNE.

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