Explanation of conflicts in international joint ventures.

Author:Bogun, Lyubov A.
 
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  1. INTRODUCTION

    Reduction and elimination of conflicts in IJVs is important research area in contemporary management. The objective of this paper is to answer the following questions: What traits influence co-management contradictions and conflicts in international joint ventures (IJVs)? What can be done to reduce these conflicts? These questions are also driven by Knight et al.'s (1999) suggestion that a promising area for future research might be investigation of different kinds of conflicts along different dimensions. I examine conflicts between Western and transition economy partners in IJVs operating in the context of transition economies, as there are numerous research works suggesting the severe character of conflicts in such a setting. The paper starts with identification of a conflict and causes for conflicts. Major differences leading to greater management complexity and conflicts in IJVs may be explained by different perceptions of reality and differences in functional area knowledge and skills. The present paper proposes new dimensions of conflicts in IJVs in the context of transition economies. As implications for theory and practice, I suggest concrete ways of reducing the conflicts.

  2. BACKGROUND

  3. 1. Conflict in an IJV: Importance to Prevent It

    Some definitions of conflict emphasize its consequences or concomitant behavior. Conflict behavior was defined by Habib (1987) as overt activity expressing disagreement between two or more parties consisting of passive resistance or overt aggression. For Rubin, Pruitt, & Kim, "conflict" meant perceived divergence of interests, or belief that the parties' current aspirations could not be achieved simultaneously (1994: 5). However, these definitions of conflict behavior focusing only on expressed disagreement between parties are not sufficient to understand the nature of conflict. George, Jones, & Gonzalez note that "conflict is, by definition, stressful" (1998: 759), and increases pessimism, tension, and anxiety between parties. Stulberg also remarked that upon hearing the word "conflict", typically the first things that came to mind included "anger, fear, tension, anxiety, frustration, distrust, hostility, damage, destruction, disruption" (1987: 11). Thus, conflict goes along with negative feelings, and some authors argue that conflict stems from negative feelings. For example, a study of Nugent (2002) named anger, frustration or hurt, arising from contrasts between facts and normative expectations about the other person's behavior, as reasons for conflict. Anyway, importance to prevent conflicts expressed by many authors can be understood from the point of view that negative feelings in conflict behavior are unwanted. A situation that gives rise to anxiety, frustration, stress or anger can be resolved by eliminating the source of these negative feelings (Stulberg, 1987: 12). At the same time Fey and Beamish note that "a small amount of conflict may be healthy for the joint venture since it may force management to evaluate their decisions more carefully" (2000: 142). Rubin et al. (1994) argue that conflict nourishes social change, facilitates the reconciliation of people's legitimate interests, fosters group unity. However, Parkhe stressed that while in some cultures conflict was viewed as a healthy and inevitable part of relationships, other cultures focused on destructive character of conflict:

    "But in other cultures, vigorous conflict and open confrontation are deemed distasteful. Embarrassment and loss of face to either party is sought to be avoided at all costs by talking indirectly and ambiguously about areas of difference until common ground can be found, by the use of mediators, and other techniques" (1991: 585).

    And from the point of view of IJV performance the nature of conflict is not healthy. For example, Jehn (1995) argued that conflicts led to lower levels of satisfaction with the group and to expressing less desire to remain with the group. Fey, & Beamish also note that as a result "frustration, unpleasantness and dissatisfaction is likely to contribute to managers losing interest in, or in extreme cases even terminating, their IJVs" (2000: 142). Interviews conducted by the authors might raise a thought that even small amount of conflict as destructive for human being and IJV performance had to be prevented. There are some quotations from these interviews: "In general, IJVGMS viewed the absence of conflict as a necessary, but not sufficient, condition for good performance" (2000: 148); "When conflict exists between parent firms in a joint venture, the joint venture has little possibility of reaching its top possible performance" (2000: 148); "In fact, I have found that conflicts that directly involve the joint venture are the most detrimental" (2000: 148); "conflict is something like a cancer" (2000: 148). Some IJV managers "felt conflict was important to monitor because they viewed it as a performance indicator, not because it was a dependent variable which affected something else" (2000: 149). Indeed, Fey & Beamish (2000) found a strictly linear relationship between performance and conflict at all levels of conflict. Hyder (1999) also argues that conflict link to performance of IJVs, and empirical study of Demirbag & Mirza (2000) indicates that general performance improves with decreasing level of conflicts.

  4. 2. Groupings of Causes for Conflicts

    The main reason for conflicts may be differences in values, which according to Hofstede, Neuijen, Ohayv, & Sanders reside mainly in individuals:

    "The core of culture ... is formed by values, in the sense of broad, nonspecific feelings of good and evil, beautiful and ugly, normal and abnormal, rational and irrational--feelings that are often unconscious and rarely discussible, that cannot be observed as such but are manifested in alternatives of behavior " (1990: 291).

    "Values" is important concept as different values may result in negative affect or stress (George et al., 1998; Hennart & Zeng, 2002). While Hennart & Zeng focus on national level of values noting that " a firm's values are largely a reflection of its national culture, and JV parents based in different countries will tend to have different values" (2002: 700), Hofstede et al.'s (1990) findings suggest independent character of values. Specifically, among national cultures Hofstede et al. (1990) found considerable differences in values, and people with the same values were found to have considerable differences in organizational cultures. Therefore, in the present research values were given a status which is distinct from national or organizational cultural traits. As in a broad sense values are "the individual's personal preference in work-and life-related issues" (Hofstede, Bond & Luk, 1993: 490), they can relate to different concepts, including need for security, work centrality, need for authority (Hofstede et al., 1990), informal relationships and oral agreements as a basis for trust (George et al., 1998), goals, solving problems, resolving conflict (Hennart & Zeng, 2002). The present research operates by concrete measures of values, which were found in the literature as influential causes for conflicts.

    To find out dimensions of factors leading to conflict it is important to consider conflicts which are the most frequent and detrimental for IJV performance. However, most of published works in the field of strategic management and international business stresses on differences in functional knowledge and skills. For example, Demirbag, & Mirza (2000) clustered conflicts by their relative frequency and intensity mentioning control imbalance, different goals and priorities. However, one may classify these conflicts also as conflicts in strategic management area. It is worth noting that most research works did not clustered conflicts by their relative frequency and intensity. In addition, although some authors (e. g., Jehn, & Mannix, 2001; Li, & Hambrick, 2005) considered such types of group conflict, as relationship (emotional) conflict, task conflict and process conflict, and Perrewe et al. (2004) focus on another type of conflict, role conflict, the classifications employed tell us nothing about reasons for conflicts.

    In general, several classifications of conflicts can be employed to analyze reasons for conflicts. For example, analysis of causes for conflict found in the literature by Fey, & Beamish (2000), suggests that most of the causes may be included in functional area knowledge and skills cluster. Specifically, control, parent need, goal differences may be included in strategic management field; desire for autonomy, need for scarce resources may belong to legal field. In other words, conflicts on sharing the scarce resources (Habib, 1987; Nugent, 2002), and conflicts on desire to control, dominant managerial influence, autonomy considerations (Demirbag, & Mirza, 2000; Habib, 1987) may be regarded as conflicts in functional area. Ding (1997) also found that the fields of the most severe conflicts in functional areas were quality control, export and import, wages and labor policy, administration and supervision.

    I borrow the term "functional area knowledge and skills", which refers to traditional domains of business, from the work of Forbes, & Milliken (1999). Functional area knowledge and skills can be bound by traditional domains of business, including production, strategic and operative management, accounting, finance, marketing, law, and so on. Generally speaking, differences in objectives, expectations, goals and priorities, belonging to strategic management area are the most frequently mentioned as reasons for conflicts in strategic management and international business literature (Anderson, & Weitz, 1989; Demirbag, & Mirza, 2000; Ding, 1997; Habib, 1987; Hennart, & Zeng, 2002; Nugent, 2002; Simiar, 1983).

    However, the analysis of research works from other research domains has produced results suggesting...

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