Measuring performance of Sino-Japanese joint ventures in China: the relationship among methods, parties, approaches, and impact of national culture.

AuthorLu, Lung-Tan

INTRODUCTION

The way in which to enter a foreign market successfully has been a major issue in the field of international business research (Anderson and Gatignon 1986). Some market entry strategies could be used for firms such as export, licensing, joint venture (JV), and wholly owned subsidiary (WOS), but joint venture is probably the most popular form. As one of the major entry modes since the 1980s, joint ventures are formed because of the following advantages: access to markets, cost and knowledge sharing, economies of scale, efficiency improvement, and enhancement of competitiveness of parent firms (Auster 1987, Harrigan 1988, Glaister and Buckley 1996). In contrast, the disadvantages of cooperating with a foreign partner may lead to conflict and dissolution due to cultural differences (Barkema et al. 1996, Shenkar and Zeira 1992).

Over the past 20 years, the economic growth in China has exploded following the economic reform. The growth of GDP in real terms reached almost 9 percent on average in the 1990's, which is the highest and most stable period after the Second World War. China becomes the biggest Foreign Direct Investment (FDI) inflow in the world. FDI has shared a major role in the economy growth and reached $ 72.4 billion in 2005 (UNCTAD: World Investment Report 2006). China now attracts FDI successfully whilst the investment climate is in growing markets and the possibility of establishing joint ventures.

International joint venture (IJV) has been one of the most popular modes of entry to the China market for foreign companies since the 1980s (Luo 2002). However, the impact of cultural difference on IJV is one of the biggest difficulties that should be overcome by local, foreign parent firms, and IJV general managers. IJV performance has been found more difficult to achieve in developing countries than in developed countries (Lecraw 1983, Schaan and Beamish 1988). It implies that the criteria of evaluating performance should be different in developing countries.

This paper aims to examine the relationship among the performance measurements including subjective and objective methods, different approaches, and different parties' viewpoints in IJVs, and the impact of national culture. The specific aims of this study are as follows: (1) to consider the relationship between objective and subjective performance measures; (2) to examine the relationship between different approaches; (3) to clarify the relationship between different parties' viewpoints and IJV performance; and (4) to examine the impact of the national culture of the parent firms on performance. The next section discusses the issues relating to IJV performance measurement and develops the hypotheses. The following section describes the research methods for the study. The fourth section presents the findings and discussions. Conclusions are in the final section.

LITERATURE REVIEW

Measuring performance has been an important issue in international joint venture since performance difficulties affect the financial structure of parent firms (Beamish 1985, Lee and Beamish 1995). Numerous studies have been addressing this issue with different criteria such as partner satisfaction, financial indicators, survival, duration, instability, and stock-market reaction (e.g., Blodgett 1992, Barkema and Vermeulen 1997, Glaister and Buckley 1998). However, the use of economic measures has limitations that may fail to reflect a joint venture's achievement of its long-term goals (Geringer and Hebert 1991). The goal of this paper is to examine the relationship among the subjective and objective measures, different parties' point of view, and effect of national cultural on IJVs. In this study, four approaches are introduced to measure performance: economic, strategic, behavioral, and learning which have been examined in previous studies (Buchel et al. 1998, Glaister and Buckley 1999, Yan 2000, Buchel and Thuy 2001).

METHODS: SUBJECTIVE AND OBJECTIVE

Objective performance measures of IJVs include financial indicators, such as profitability, IJV survival, IJV duration, instability of IJV ownership and so on (Harrigan 1988, Geringer 1990, Kogut 1988). Obtaining financial data from the IJVs is a substantial challenge for researchers because these financial results are usually calculated as part of parent firms' accounts. Some objective measures such as duration or survival may include both success and failure of IJVs, which reflect if IJV's goals have been achieved. In other words, an IJV that ends does not necessarily mean an IJV that fails. Geringer and Hebert (1991) argue that an IJV may have achieved the parent firm's goals and be considered as successful by one or both parent firms.

An advantage of using subjective measures is that these indicators can offer inside information on whether or not the IJV has achieved its overall goals (Glaister et al. 2004). The majority of studies use degree of satisfaction as the criteria for measuring performance of international joint ventures (e.g., Beamish 1987, Beamish and Inkpen 1995, Schuler and Rogovsky 1998). There has been a debate on the relationship between objective and subjective performance measures (e.g., Geringer 1998, Glaister and Buckley 1998). It is found that there is a positive correlation between the objective measures of stability and duration, and subjective measures of IJV performance in a sample of US IJVs (Geringer and Hebert 1991). This relationship is also confirmed by a sample of UK IJVs (Glaister and Buckley 1998). Ali and Sim (1999) found that the subjective measure was positively related to objective measures of IJV survival by a sample of IJVs in Bangladesh. The finding that the correlations between overall performance and IJV stability were positive but hardly significant is slightly different from that of Geringer and Hebert (1991) but closer to that of Glaister and Buckley (1998). Hence, the hypothesis will be:

H1: There is a significant correlation between objective and subjective measures of IJV performance.

APPROACHES: ECONOMIC, STRATEGIC, BEHAVIORAL, AND LEARNING

Early studies employ some financial indicators such as profitability and growth in measuring the performance of joint ventures (Lecraw 1983, Lee and Beamish 1995). There are three limitations of using this type of measure. First, many joint ventures have no public financial reports. Second, it is difficult to compare joint ventures across different industries with financial performance (Brown et al. 1994). Third, a joint venture may reach a long-term performance but using short-term financial measures could indicate poor performance (Anderson 1990). However, IJV managers in China still put more focus on profits than...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT