Joint Ventures and Organizational Learning
Advanced International Business Management & Marketing Rijksuniversiteit Groningen / Newcastle University
Dr. S. R. Gubbi & Dr. E.
S2767104 (Rijksuniversiteit Groningen) /
Organizational Learning: the Moderating Role of
Acquisition Experience
Advanced International Business Management & Marketing Rijksuniversiteit Groningen / Newcastle University
Dissertation
Dr. S. R. Gubbi & Dr. E. Alexander
Juul Brinkbäumer
S2767104 (Rijksuniversiteit Groningen) / B170807359 (Newcastle University)
: the Moderating Role of
Advanced International Business Management & Marketing
2
ABSTRACT
This study examines the moderating impact of acquisition experience on the relationship between a firm's engagement in joint ventures and the focal firm's level of organizational learning. Negative binomial regressions using fixed effects were conducted on patenting data from 113 companies operating in the chemicals, rubber, plastics and non-metallic products industry. However, the moderating role of acquisition experience was not found. Indeed, no empirical support was found for the relationship between joint ventures and organizational learning. This implies that managers need to think carefully on whether they want to make the investment in setting up a joint venture, if the goal is to learn from the partner firm. If so, active measures need to be taken in order to reap the potential benefits. Moreover, managers ought to be cautious in applying their acquisition experiences to subsequent joint venture settings.
3
Table of Contents
ABSTRACT ... 2
1. INTRODUCTION ... 4
2. LITERATURE REVIEW AND HYPOTHESES ... 7
Joint Ventures and Focal Firm's Organizational Learning ... 7
Firm Experience and Subsequent Performance in the Same Domain ... 8
Acquisition Experience, Joint Ventures and Cultural Differences... 9
Acquisition Experience, Joint Ventures and Absorptive Capacity ... 11
3. METHODOLOGY ... 13
Data and Sample ... 13
Measures ... 14
4. FINDINGS ... 17
Summary Statistics and Correlations ... 17
Robustness Checks ... 19
5. DISCUSSION ... 20
Theoretical Implications ... 20
Practical Implications ... 22
Limitations and Suggestions for Future Research ... 23
4
1. INTRODUCTION
In the past few decades, the world has been characterized by strong forces of globalization. Namely, the number and volume of connections between countries has increased, and more and more countries are becoming integrated into a common economic system (Kohl & Brouwer, 2014). Johanson & Vahlne (2009) state that markets are networks of relationships, which offer potential for learning from the partner organization(s). The authors conclude that they have to revise their former internationalization model to reflect the importance of networks in the internationalization process of firms. External sourcing strategies, such as mergers, acquisitions, licensing models and alliances, are means through which firms acquire new knowledge and resources from other firms (Brusnwicker & Vanhaverbeke, 2015). Hereby, the involved firms establish strong relationships with each other. In order to successfully internationalize, being part of such a network of firms is pivotal (Johanson & Vahlne, 2009). In this paper, acquisitions and joint ventures are being investigated. Numerous reasons exist to engage in a joint venture, such as the achievement of economies of scale and faster product development (Beamish & Lupton, 2009). In a high-tech industry such as the one under study in this paper, the main motivation for the engagement in a joint venture is to learn from the partner firm (Hagedoorn & Duysters, 2002).
Several factors that influence the outcomes of these external sourcing strategies have been investigated. These factors include geographical distance (Ly, Esperança & Davcik, 2018), home-country regulations (Stoian & Mohr, 2016), knowledge differences between the involved firms (Makri, Hitt & Lane, 2010), level of trust (Holtgrave & Onay, 2017), cultural distance (Tao, Zhanming & Xiaoguang, 2013; Tihanyi, Griffith & Russell, 2005; Qian, Ying Chun, Yu Qi & Qi, 2017) and experience (Kavusan, Noorderhaven & Duysters, 2016; Galavotti, Cerrato & Depperu, 2017).
Previous studies of organizational learning have shown that firm experience in a specific domain may have a positive impact on future firm performance in the same domain (Cho & Arthurs, 2018), where a 'domain' refers to a specific external sourcing strategy (i.e.,
5
and have developed new capabilities, hereby improving organizational performance (Argote & Miron-Spektor, 2011).
Now, scholars have begun to investigate the influence of experience in a specific domain on organizational outcomes in another domain. In particular, the influence of alliance experience on acquisition outcomes has been investigated. This stream of research has focused on both alliance experience in general (Porrini, 2004; Zollo & Reuer, 2010) and previous alliance partnerships with the target firm (Chang & Tsai, 2013). However, understanding of this relationship is still limited (Cho & Arthurs, 2018). In addition, no research has yet been conducted regarding the impact of previous experience in the acquisition domain on organizational outcomes in another domain.
Researching this topic will provide additional insights into the role of experience and the development of absorptive capacity, which is a firm's ability to recognize the value of new information and to assimilate and commercialize this information (Cohen & Levinthal, 1990). Contrary to the assumption often made in prior research, a firm's absorptive capacity is not fixed, but can be developed over time (Barkema & Nadolska, 2003). An increased absorptive capacity may allow firms to excel in other areas than the one through which their absorptive capacity had increased in the first place (Zollo & Reuer, 2010). Thus, to add to the emerging literature on spillover effects towards other domains, this paper seeks to answer the following research question:
What is the influence of acquisition experience on the relationship between a firm's engagement in joint ventures and its level of organizational learning?
Based on the literature on organizational learning and joint ventures, I first hypothesize that engaging in a joint venture has a positive impact on the focal firm's organizational learning. Namely, by engaging in a joint venture, the firm acquires new capabilities and resources (Lin, 2017). Moreover, joint venture alliances are effective relationships through which the partners can acquire new external knowledge (Huang, 2010). Next, building on the role of absorptive capacity, cultural differences and the literature on acquisitions and joint ventures, I
6
effectively. Moreover, through prior acquisition experience, firms have become more competent in dealing with organizational and national cultural differences (Dikova & Rao Sahib, 2013). These skills can be applied in a joint venture setting to stimulate knowledge sharing between the focal and partner firm. To test my hypotheses, I look at the acquisition and joint venture data of 113 firms operating in the chemicals, rubber, plastics and non-metallic products industry. Moreover, I look at the patenting frequency of these firms for the years that follow after the joint ventures have occurred. However, my findings show that the focal firm's enagement in joint ventures does not directly significantly influence its level of organizational learning, and the moderating impact of acquisition experience was not apparent.
First, this research offers an important contribution to the literature on organizational learning and absorptive capacity by suggesting that accumulated acquisition experience positively moderates the relationship between the focal firm's degree of engagement in joint ventures and its level of organizational learning. This is in line with the logic of organizational learning and absorptive capacity suggesting that experience improves firms' learning capabilities, which can lead to better results not only in the area in which the experience was gained, but in other related areas as well (Cho & Arthurs, 2018). Furthermore, this paper adds to the
literature on external sourcing strategy by looking at crossover effects between different sourcing strategies (i.e., joint ventures and acquisitions). Becoming more competent in
dealing with cultural uncertainties and acquiring relevant routines and know-how may explain a moderating role of acquisitions on joint venture outcomes. However, this specific crossover effect was not found in the empirical examination.
This study shows that it is not self-evident that learning occurs from joint venture partners. Managers need to make sure that the necessary systems are in place to acquire and exploit the partner's knowledge. Moreover, the fact that no moderating role of acquisitions was found implies that managers can not blindly apply their acquisition experiences to a joint venture setting to improve learning outcomes.
In the following section, past literature on acquisitions, joint ventures, organizational learning and cultural differences will be elaborated upon and the hypotheses will be developed.
7
2. LITERATURE REVIEW AND HYPOTHESES
Joint Ventures and Focal Firm's Organizational Learning
The resource-based view of the firm argues that a sustainable competitive advantage stems from the possession of valuable, rare and inimitable resources (Barney, 1991). The attributes of a firm's resources directly relate to the value of that firm's competitive actions (Barney, 2001). In the past, firms used to be seen as independent entities. Yet, this perspective only partially explained firm performance as it ignored relationships between firms (Lavie, 2006). In contrast, Johanson & Vahlne (2009) argued that markets are networks of relationships in which firms are linked to each other in various and complex patterns, and firms' establishment of interorganizational relationships is vital as this permits access to other firms' resources. In order to be successful in the marketplace, firms need resources and competences that can generate a competitive advantage (Banker, Mashruwala & Tripathy, 2014). Subsequently, those firms that are able to sustain their advantage are able to outperform their competitors in the long run (Liu, 2013). In conclusion, resources (i.e., assets, knowledge, capabilities, etc.) form the basis for a sustainable competitive advantage. However, in contrast to the traditional resource-based view, these resources may extend beyond firm boundaries due to cooperation between firms (Lavie, 2006).
An example of this kind of interfirm cooperation where resources are being exchanged is the establishment of a joint venture. Joint ventures involve two or more legally independent firms that jointly establish a third organization, and all firms share the decision-making activities of this jointly owned organization. Joint ventures are critical elements of an organization's network and are increasingly being perceived as strategic weapons for competing within the firm's market (Geringer & Herbert, 1991).
8
knowledge while protecting its own resources. Additionally, firms may exploit any
unintended knowledge transfers and spillovers that occur through the partnership (Kumar, 2010). Indeed, joint ventures are vehicles through which knowledge of innovative activities and new technology is acquired. By partnering up in the form of a joint venture, the focal firm gains access to the knowledge that is embedded in the partner firm. Thus, the joint venture provides the focal firm the opportunity to internalize the partner's knowledge (Lin, 2017). Through 'grafting', which can be seen as a subprocess of information acquisition (Huber, 1991), the partner firm's knowledge is added to the focal firm's knowledge base (Lin, 2017). Due to the transfers of knowledge that occur within joint ventures, organizational learning occurs, which can be defined as the process of improving organizational actions through better knowledge and understanding (Edmondson, 2002). According to Huang (2010), relative to other cooperative relationships, joint ventures provide more opportunities for the involved firms to acquire knowledge and know-how. In his study, the author divided the focal firm's learning into three processes. The first step consisted of recognizing and valuing the knowledge embedded in the joint venture, the second step consisted of acquiring this new external knowledge and the third step consisted of internalizing the external knowledge to create its own knowledge base and capabilities. Through this process, the focal firm acquires knowledge from the joint venture, after which the firm is able to apply it outside of the joint venture, or internally, to contribute to its own creative and innovation processes. Accordingly, I state my first hypothesis as follows:
Hypothesis 1: A firm's degree of engagement in joint ventures positively influences its level of organizational learning.
Firm Experience and Subsequent Performance in the Same Domain
As mentioned in the introduction, previous literature on external sourcing strategies and experience has mainly focused on experience in one domain and subsequent performance in the same domain (Chao, 2018; Galavotti et al., 2017; Kavusan et al., 2016; Tseng & Chen, 2017). First, according to Kavusan et al. (2016), by accumulating alliance experience, firms enhance their alliance management capabilities and enhance their ability to learn from outside knowledge sources. Tseng & Chen (2017) argue that parent firms with relatively little alliance experience often face great difficulty in selecting the right partner. Partly due to this
9
marginal benefits from each partnership. With respect to acquisitions, Galavotti et al. (2017) discovered the existence of a U-shaped relationship between domestic acquisition experience and the likelihood of cross-border acquisitions. Through domestic acquisition experience, the acquisition process becomes more familiar to managers, which leads to a reduction of
perceived uncertainty and risk associated with cross-border acquisitions. The authors
demonstrate that important learning processes are associated with acquisitions. Lastly, based on organizational learning theory, Chao (2018) writes that firms develop routines to manage subsequent acquisitions as they learn from cumulative acquisition experience. Experienced acquirers have become familiar with the acquisition process, including selection and
evaluation of the target, due diligence process, negotiation and the integration of the acquirer and target.
Acquisition Experience, Joint Ventures and Cultural Differences
In the literature, acquisition experience has been used as a control variable for examining the relationship between alliances and performance (Bos, Faems & Noseleit, 2017; Sampson, 2005). However, more elaborate research regarding the moderating role of acquisition experience is needed. Similar to above, through an increased ability to absorb external knowledge and through similarities between acquisition and joint venture settings, the influence of prior acquisition experience is not limited to subsequent acquisitions as it may also impact subsequent joint venture outcomes.
10
leads to a lot of misunderstandings (Dikova & Rao Sahib, 2013). Lastly, cultural differences can blur information exchanges (Popli, Akbar, Kumar & Gaur (2016). Arguing that acquirers with more cross-border acquisition experience are more competent in recognizing cultural differences and are better in resolving organizational incompatibilities, Dikova & Rao Sahib (2013) found a positive effect of cultural distance on post-acquisition performance, but only when acquirers were more experienced with cross-border acquisitions. Moreover, due to the development of routines to deal with post-integration and other issues, Chao (2018) found a positive influence of prior acquisition experience on post-acquisition performance, up to a certain number of days that pass by between the prior and focal acquisition. Lastly, Popli et al. (2016) state that managers and expatriates build a pool of knowledge as they experience M&A deals, resulting in a cultural experience reserve. This reserve, in turn, functions as a mechanism for the parent firm to reduce the negative impact of cultural differences.
When two or more firms make the decision to establish a joint venture together, they have to deal with similar integration issues that occur because of national cultural differences and/or organizational cultural differences. Due to differences in values and behaviours, joint ventures may suffer from interaction problems. National cultural differences may also make it difficult for the partners to be fully committed towards each other. Moreover, differences in
organizational culture lead to conflicting expectations and incompatible organizational processes (Pothukuchi, Choi, Park, Damanpour & Chen, 2002).
According to Hong & Lee (2015), cultural uncertainty, as perceived by the firm's
management, can be reduced through experience with foreign direct investment (FDI). They hypothesized that FDI experience in another country culturally similar to the focal host country reduces cultural uncertainty. Additionally, they hypothesized that joint venture experience in the domestic market with a partner firm from a country culturally similar to the focal host country reduces cultural uncertainty. Both hypotheses were supported, and the authors found that joint venture experience facilitates the focal firm's future expansions into (some) host countries. This notion of experiental learning supports the claim that spillover effects across different external sourcing strategies may occur, where managers can reduce uncertainties for future expansions through prior experience (Hong & Lee, 2015).
11
setting and stimulate efficient cooperation and knowledge sharing between the involved firms. Acquisition Experience, Joint Ventures and Absorptive Capacity
For 'the company of the future', the most important capability to achieve a competitive advantage is that of its managers to learn faster than the competition. Firms need to learn and acquire new knowledge and skills to deal with threats and to exploit opportunities. Through organizational learning, the firm's competitive advantage can be strengthened and innovation can be stimulated (Bolaji Bello & Adeoye, 2018). Given the definition of absorptive capacity, the amount of learning that occurs within an organization strongly depends on that
organization's level of absorptive capacity. Namely, through absorptive capacity, external knowledge is being acquired. Then, the sharing of this knowledge throughout the organization causes organizational learning.
A firm's absorptive capacity is not fixed. Rather, it is cumulative and results from prior experiences (Oumaya & Gharbi, 2017). External sourcing strategies, such as mergers, acquisitions and alliances, are prominent means through which absorptive capacity can be increased, as the transfer and acquisition of knowledge is very important in
interorganizational relationships. For example, with regard to acquisitions, it is very important for acquirers to transfer and integrate knowledge and capabilities to and from the target firm as this is pivotal for the creation of synergies (Argote & Miron-Spektor, 2011).
Porrini (2004) argues that alliances often occur with different partners, allowing firms to enrich their knowledge bases and gain from the challenge of managing these different learning experiences. The author finds that alliance experience correlates with acquisition value creation in high-tech and low-tech acquisitions, thus observing that engaging in alliances allows organizations to 'learn how to learn'.
In their proceedings article, Barkema & Nadolska (2003) claim that, to economize on cognitive efforts when doing an acquisition, firms develop routines which allows for faster learning, and these routines improve the firm's absorptive capacity as they form
organizational capabilities and learning skills. As mentioned by Jain & Kashiramka (2018), the experiences that acquiring firms go through, such as integrating diverse corporate cultures, enhances their absorptive capacity and build a large repository of acquired knowledge that can be applied in future occasions.
12
found a U-shaped relationship between domestic acquisition experience and acquisition succes. Moreover, they found an inverted U-shaped relationship between prior international joint venture experience and the danger of acquisition failure. Their findings imply that firms may inappropriately apply routines and knowledge learned from previous foreign acquisitions to subsequent acquisitions. However, this may be corrected by applying routines and
knowledge developed from domestic acquisitions and international joint ventures. Thus, their results point to the fact that substitution effects exist between acquisitions and joint ventures as an expansion strategy. Additionally, Child & Yan (2003) found that prior international joint venture and international business in general have a positive influence on international joint venture performance, implying crossover and cumulative effects of experience. Moreover, Fang, Jin, Sun & Wang (2015) found empirical support for their claim that alliance
experience positively influences acquirers' stock price performance. Firms that intend to enter new markets benefit from first establishing alliances to 'test the waters'. Then, valuable
experience can be obtained which can be applied in subsequent acquisitions. When firms form an alliance, they learn from each other as they become exposed to each other's knowledge, and they develop valuable new skills and capabilities. The extent to which these new
knowledge bases and competences can be applied to future situations depends heavily on the focal firm's absorptive capacity, as the size of this capacity determines the extent to which repertoires of knowledge and capabilities are built, and the extent to which they are exploited in future situations (Cohen & Levinthal, 1990). Looking at the concept of absorptive capacity, experiential knowledge gained in a certain domain can also easily be applied to related
domains (Popli & Sinha, 2014). Therefore, the authors argue that a large degree of
interdependency exists between acquisitions and alliances, such that cross-border alliance and joint venture experience of the focal firm positively influences the firm's likelihood of
achieving a first-mover advantage with respect to cross-border mergers and acquisitions. Indeed, alliance experience helps firms develop routines, skills and capabilities that are also required when doing an acquisition. Investigating a sample of Indian acquirers over a ten-year time period, the authors found support for this hypothesis.
In conclusion, joint ventures are established by firms as they lead to intense
13
acquisitions have been found (Barkema & Nadolska, 2007; Child & Yan, 2003; Popli & Sinha, 2014). When establishing a joint venture, the focal firm may benefit from prior acquisitions by having developed relevant routines, skills and capabilities that can be redeployed in joint venture settings due to the interdependencies that exist between acquisition and joint venture processes.
Furthermore, the firm's absorptive capacity tends to be larger as a result of prior acquisition experience, which can benefit the focal firm in a subsequent joint venture setting. An enhanced absorptive capacity allows the focal firm to acquire and apply the partner's knowledge to a larger extent (Mursitama, 2011). In turn, this has a positive impact on innovation and developing processes (Chiva, Ghauri & Alegre, 2014). As acquisition experience increases the firm's absorptive capacity (Chao, 2018; Jain & Kashiramka, 2018; Popli & Sinha, 2014), firms can extract more knowledge gains from their subsequent joint venture partner(s) and better exploit this knowledge with respect to their innovation processes when they have engaged in acquisitions prior to the establishment of the joint venture. In line with the above and the previous section on cultural differences, my second hypothesis is as follows:
Hypothesis 2: A firm's level of acquisition experience positively moderates the relationship between its degree of engagement in joint ventures and its level of organizational learning.
3. METHODOLOGY
Data and Sample
14
The research methodology is based on a positivist point of view using deductive reasoning when analyzing the results. Followingly, cross-sectional, archival data was collected to test the hypotheses using a single-method approach. Only one industry was included to avoid differences in data caused by industry differences. In the industry under study, most companies engage in joint ventures to co-develop new technologies and innovations as a response to technological changes. Thus, the creation of knowledge is central in these joint ventures (Lin, 2017). Besides, technology learning is an important reason for firms to engage in alliances in the chemical industry (Kim & Inkpen, 2005). The interfirm knowledge that is being created may be absorbed and exploited by the focal firm to contribute to innovation, hereby positively impacting the focal firm's patenting frequency in the years that follow after the start of the joint venture.
The Bureau van Dijk's Orbis (henceforth Orbis) database was used to identify companies that operate in the above mentioned industry. Additionally, the Bureau van Dijk's Zephyr
(henceforth Zephyr) database was used to identify the concerning companies' acquisition and joint venture data. Followingly, the Orbis database was consulted once more to explore the firms' patenting data, which is used as a measure for organizational learning.
Measures
Dependent Variable
15
Independent Variables
Joint Ventures. Joint ventures is treated as a continuous variable. The variable is equal to the amount of joint ventures that the focal firm engaged in in the corresponding year. Joint ventures that started during the years 2010-2013 were included in the dataset.
Acquisition Experience. Acquisition experience is treated as a continuous variable and is operationalized as the number of completed acquisitions by the focal firm. Next to full takeovers, increases in equity stake by more than 50% were included in the dataset. In order to find the influence of acquisition experience on the relationship between a firm's
engagement in joint ventures and organizational learning (second hypothesis), the focal firm's engagement in acquisitions for the years 2009-2012 is observed. Thus, this variable is lagged one year. If a firm engaged in an acquisition in 2010 and 2011, then the acquisition
experience for the year 2011 is '1', and the acquisition experience for the year 2012 is '2'. For 2010, acquisition experience is '0'.
Control Variables
Firm Size and Firm Age. Firm size is operationalized as the firm's total number of employees and firm age is operationalized as the year of foundation of the concerning firm. Larger and more mature firms may have developed a larger absorptive capacity (Imbriani, Pittiglio, Reganati & Sica, 2014). This would allow those firms to learn more from their respective partners and thus experience a better firm performance, irrespective of acquisition experience. Firm size and firm age are collected for the years 2010-2013.
Industry Relatedness. If the joint venture partners operate in the same industry, the focal firm is likely to adopt more of the partner firm's knowledge as it is easier to recognize, assimilate and exploit (Lin, 2017). If the joint venture partners operated in the same industry, this variable received a '1'. If not, it received a '0'. This variable is collected for the years 2010-2013. If a joint venture includes two or more partners, the '1s' are added and divided by the number of partners.
Cultural Differences. Large national cultural differences may lead to interaction problems within inter-firm relationships and may negatively impact the exchange of knowledge
16
were deducted from each other for each dimension. Followingly, the absolute value of the resulting numbers were added to reach a final cultural distance score. The cultural difference variable is collected for the years 2010-2013. In case of multiple joint venture partners, the composite scores are added and divided by the number of partners.
Joint Venture Experience. Joint venture experience is treated as a continuous variable and is operationalized as the number of joint ventures that the focal firm has engaged in prior to the focal one. Thus, this variable only applies to firms that have engaged in multiple joint ventures during 2009-2013. Firms that have engaged in joint ventures pior to the ones under study may be better able to absorb the partner's knowledge due to experience. As examined by Kumar (2010), firms with greater joint venture experience are more competent in
appropriating resources.
This variable is observed over the 2009-2012 time period, and relates to the following year. For example, if a firm has engaged in a joint venture in 2009 and 2010, then this variable receives a '0' for the year 2009, a '1' for the year 2010, and a '2' for the year 2011. If a firm engaged in two joint ventures in, for instance, the year 2011, then this variable receives a '1' for the year 2011, as the firm may apply experiences from one joint venture in the other as they mature simultaneously.
Number of Partners in the Joint Venture. A larger number of partners may hamper the exchange and acquisition of knowledge as it entails greater coordination issues (Phene & Tallman, 2012). The number of joint venture partners is treated as a continuous variable. This variable is collected for the years 2010-2013.
Statistical Method
17
First, in stata, firm and year fixed effects were included using 'xtset'. Then, the negative binomial regressions were conducted using the 'xtnbreg' function and ending the stata command with 'fe'.
.
4. FINDINGS Table 1
Summary Statistics
Summary Statistics and Correlations
Table 1 shows that the mean number of joint ventures is 0.22, with a minimum of 0 and a maximum of 2 joint ventures per year. A joint venture occurred in 95 out of the total 452 observations, and 29 firms did not engage in any joint ventures during the observed four years. Regarding the firms that did engage in at least one joint venture, acquisition experience ranges between 0 and 8, with an average of 2.28. Next, the average number of issued patents, which is the main dependent variable under study, rougly equals 162 with a standard
deviation of 337.
Interestingly, table 2 shows a correlation coefficient between patenting frequency and the engagement in joint ventures of r = 0.05, which does not show a preliminary indication of a postive relationship between the engagement in joint ventures and organizational learning. Additionally, acquisition experience and joint ventures do show to correlate strongly.
However, similar to the control variables 'industry relatedness', 'cultural differences', 'number of joint venture partners' and 'joint venture experience', this is due to the fact that the
acquistion experience variable has only received a value when a joint venture was established in the same year by the focal firm. By only including those observations in which a joint venture occurred, the correlation coefficient between acquisition experience and joint ventures
18
drops to r = 0.18. Lastly, concerning the correlations between the control variables and patenting frequency while only including those observations in which at least one joint venture took place, industry relatedness has a correlation coefficient of r = 0.09, cultural differences shows r = 0.03, number of joint venture partners shows r = 0.02 and joint venture experience shows r = 0.02.
A VIF-analysis showed a large VIF-value for the variable 'joint ventures', namely 9.52, which is around the threshold of 10, implying a legitimate concern for multicollinearity
(Wooldridge, 2009). To resolve this issue, joint venture experience, cultural differences, numer of joint venture partners and industry relatedness were not included in the negative binomial regressions, as this would have lead to a distorted estimation of the influence of joint ventures on organizational learning.
Table 2 Correlations
Regression Results
Table 3 shows the coefficient estimates (p-values in parentheses) for the fixed effects negative binomial regression analyses. Regarding the remaining control variables, Model I shows that both firm age and firm size significantly positively influence patenting frequency. As firm age was operationalized as the firm's year of foundation, the negative direction makes sense, as a 'lower' year in which the firm was founded implies a more mature organization. Additionally, model I shows a nonsignificant relationship between joint ventures and patenting frequency (p = 0.849). Hence, the first hypothesis is not supported by the data.
Model II shows a nonsignificant direct relationship between acquisition experience and patenting frequency (p = 0.390). Lastly, model III does not provide support for hypothesis 2, as the interaction term, in which the joint venture and acquisition experience variables are
INDUSTRY 0.0626 0.8309 0.4962 0.0546 -0.0865 0.3656 0.6321 0.7189 1.0000 JVPARTNERS 0.0382 0.8975 0.4235 0.0715 -0.1134 0.3349 0.6227 1.0000 CULT_DIFF 0.0409 0.6916 0.5141 0.0461 -0.0360 0.3070 1.0000 JV_EXP 0.0091 0.4447 0.5108 0.0511 -0.0363 1.0000 FIRMSIZE 0.1825 -0.1092 0.0337 -0.3773 1.0000 FIRMINCEPT~N -0.1656 0.0557 0.0657 1.0000 ACQUI_EXP 0.0557 0.5296 1.0000 JOINTVENTURE 0.0498 1.0000 PATENTS 1.0000 PATENTS JOINTV~E ACQUI_~P FIRMIN~N FIRMSIZE JV_EXP CULT_D~F JVPART~S INDUSTRY
19
multiplied with each other, does not show a significant relationship with patenting frequency (p = 0.219).
Robustness Checks
To further test the validity of my findings, I also calculated the patenting frequency using a 3- and 4-year time lag, and I only observed the patents for that corresponding year, rather than over a three-year time period. The results remained rather similar, with joint ventures showing a p-value of 0.737 in the 3-year time lag model and a p-value of 0.286. in the 4-year time lag model. The moderating impact of acquisition experience remained insignificant, with a p-value for the interaction variable of 0.312 and a p-p-value of 0.207 for the 3- and 4-year time lag, respectively.
20
Table 3
Fixed Effects Regression Results (dependent variable: patenting frequency)
Note: Negative binomial regression with time- and firm-fixed effects. The p-values are listed in brackets below the estimated coefficients. The total number of observations is 452.
5. DISCUSSION Theoretical Implications
Drawing on the literature on external sourcing strategies, cultural distance and organizational learing, this study advances research on organizational learning and crossover effects between alliances (including joint ventures) and acquisitions. It uncovers the impact of prior
experience and learning effects by shedding light on the significance of prior acquisition experience before engaging in subsequent joint ventures. I found that there is no significant moderating impact of prior acquisition experience on the relationship between a firm's degree of engagement in joint ventures and its level of organizational learning. In fact, no baseline relationship between joint ventures and organizational learning was found in the empirical examination. Thus, the results reveal that learning from joint ventures does not necessarily take place. This latter finding contrasts the findings of several other studies (Dhanaraj, Lyles, Steensma & Tihanyi, 2004; Huang, 2010; Lin, 2017). Dhanaraj et al. (2004) found the transfer of tacit knowledge to occur in both young and mature international joint ventures. This
21
measured using a three-item scale, consisting of marketing know-how, managerial techniques and knowledge about foreign cultures and tastes with respect to tacit knowledge transfer. Implicit knowledge transfer was measured using a three-item scale consisting of written knowledge in the area of technology and management and the transfer of procedural manuals. The discrepancy in results may be caused by the way of measuring knowledge transfer. In my observations, knowledge transfer and organizational learning may have occurred, while it did not lead to a patent being issued. Additionally, Huang (2010) used a seven-point measurement scale to measure the parent firm's knowledge acquisition from the international joint venture, and a seven-point Likert scale to measure knowledge integration by the parent firm. Again, differences in empirical results may be caused by the way of measuring organizational learning, as observing patents is a more indirect way of measurement and may not have fully captured the focal firm's organizational learning. Lastly, Lin (2017) found an inverse U-shaped relationship between the number of joint venture investments and knowledge creation. Thus, before the optimal level of joint venture investments, an additional joint venture would increase knowledge creation. As the number of joint ventures in this study's sample was relatively low, with a range of 0-2, a positive impact on organizational learning ought to be expected. Although, Lin (2017) also found a significant positive moderation effect of joint venture experience on the relationship between joint venture investments and knowledge creation. Namely, prior relevant experience allows the firm to draw conclusions regarding the effectiveness of its investment and management processes, and to assess its practices that ought to facilitate interorganizational coordination. This reasoning may partly explain why organizational learning was not observed, given that so few joint ventures took place in my observations, indicating low levels of experience.
One theoretical explanation for the missing relationship between joint ventures and organizational learning may be the ongoing coopetition that is taking place within joint
22
able to work together effectively, especially when the involved fims are culturally dissimilar, organizational unlearning may need to occur before organizational learning can take place. By observing greenfield joint ventures rather than acquisition joint ventures, organizatonial learning results may be different as the former are established from scratch and do not require any unlearning of systems and routines. Lastly, in the industry under study, a major part of the knowledge that the firms possess can be labeled as technological knowledge, which has 'a strong tacit dimension derived from internal firm-specific learning processes' (Kim & Inkpen p.4, 2005). This form of knowledge is often proprietary and more difficult to transfer, making organizational learning less occurrent. Prior ties with the partner firm may then stimulate knowledge transfer as a certain level of trust is established.
The main contribution of this paper is the inclusion of acquisition experience as a moderator on the above discussed relationship. In contrast to previous studies (Child & Yan; 2003; Popli & Sinha, 2014; Porrini, 2004), no crossover effect between acquisitions and alliances/joint ventures was found. Additionally, contrasting the findings by Hong & Lee (2015), experience with dealing with cultural differences appeared not to stimulate knowledge transfer and organizational learning in subsequent settings. Given that there was very little acquisition experience in the dataset, the prior experience may not have been sufficient to have had a significant impact on reducing cultural uncertainties, as well as on increasing absorptive capacity.
23
Moreover, as proposed by Porrini (2004), firms may inappropriately generalize their previous learning from another domain and misapply their knowledge and routines to a related, yet distinct domain. This would imply a nonsignificant or even negative moderating role of acquisition experience in the context of this study.
Practical Implications
Based on the theoretical implications, managers need to ensure that the organization is in possession of the needed competences to capture, integrate and exploit the partner firm's knowledge. Employees should be trained in dealing with organizational and national cultural distance to ensure efficient knowledge flows within the joint venture. It may be beneficial for the involved firms to take the necessary efforts to ascertain that a certain degree of trust is built, especially when a large amount of proprietary knowledge is involved. Moreover, managers should be cautious in applying knowledge and routines acquired from previous experience in the acquisition domain, as the results point to the fact that these are not directly applicable to joint ventures. In fact, organizations may even need to unlearn certain routines in order to effectively cooperate with another firm, especially in the case of cross-border acquisitions or alliances.
Limitations and Suggestions for Future Research
As with any study, this study does not come without limitations. All firms whose patenting, acquisition and joint venture data was observed operated in the chemicals, rubber, plastics and non-metallic products industry. For future research, it would be interesting to see whether the results will be similar in a different industry, perhaps one where knowledge is less
proprietary. Another limitation of this study is that patenting processes can be very slow, and therefore not all patents issued as a result of learning from the joint venture may have been included in the dataset. More importantly, it is not likely that all observed patents are the result of the observed joint ventures and acquisitions. To overcome this issue, future studies may follow the same approach as Dhanaraj et al. (2004), including conducting a case study to directly observe the knowledge transfers that occur in the joint venture, rather than looking at patent data.
Another interesting topic for future research would be the specific factors that facilitate or inhibit the organizational learning process, especially the role of trust. These factors could be sought within the focal or partner firm or within the joint venture. This would provide
24
A third limitation of this study is that the majority of control variables had to be removed due to multicollinearity. Future research may be conducted with a dataset containing more joint ventures and acquisitions to make the independent variables less sensitive to these kind of issues. Lastly, future research could focus on discovering whether an experience threshold exists. Then, when this threshold is reached, in terms of a firm's total number of alliances/joint ventures/acquisitions, organizational learning from the partner firm does start to occur as a result of accumulated experience with interorganizational learning. Lastly, this study could be replicated building a larger dataset over a longer time period, so that more joint ventures and acquisitions are included. This will severely enhance the validity of the findings.
6. CONCLUSION
This study advances research on crossover effects between different external sourcing
strategies, simultaneously shedding important light on organizational learning processes. This paper provides an empirical examination of the effect of a firm's engagement in joint ventures and its level of organizational learning. Moreover, it examines the moderating impact of acquisition experience on the above relationship, which is the main contribution of this paper. The empirical results indicate that joint ventures do not necessarily lead to organizational learning of the focal firm. Moreover, it was found that acquisition experience does not significantly moderate the above relationship.
This study encourages firms to ascertain that the necessary capabilities are in place to learn from the partner firm before engaging in an acquisition or alliance, and to actually exploit this knowledge after it is captured. Second, contrary to what was found in the literature,
experiences from acquisitions seem to have limited use in joint venture settings, as no moderation was found. Yet, this finding is limited to learning and does not cover influences on performance.
25
7. REFERENCES
Alexy, O., West, J., Klapper, H., & Reitzig, M. 2018. Surrendering control to gain advantage: Reconciling openness and the resource‐based view of the firm. Strategic Management Journal, 39 (6): 1704-1727.
Ahammad, M. F., Tarba, S. Y., Yipeng, L., & Glaister, K. W. 2016. Knowledge transfer and cross-border acquisition performance: The impact of cultural distance and employee retention. International Business Review, 25 (1): 66-75.
Argote, L., & Miron-Spektor, E. 2011. Organizational Learning: From Experience to Knowledge. Organization Science, 22 (5): 1123-1137.
Banker, R. D., Mashruwala, R., & Tripathy, A. 2014. Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy? Management Decision, 52 (5): 872-896.
Barkema, H. G., & Nadolska, A. 2003. How Internationalizing Firms Develop Their Absorptive Capacity Over Time: The Case Of Acquisitions. Academy of Management Proceedings, 1-6.
Barkema, H. G., & Nadolska, A. 2007. Learning to internationalise: the pace and success of foreign acquisitions. Journal of International Business Studies, 38 (7): 1170-1186.
Barney, J. 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17 (1): 99-120.
Barney, J. 2001. Is The Resource-Based 'View' a Useful Perspective for Strategic Management Research? Yes. Academy of Management Review, 26 (1): 41-56.
26
Bolaji Bello, O., & Adeoye, A. O. 2018. Organizational learning, organizational innovation and organizational performance: Empirical evidence among selected manufacturing
companies in Lagos metropolis, Nigeria. Journal of Economics & Management, 33 (3): 25-38.
Bos, B., & Faems, D., & Noseleit, F. 2017. Alliance Concentration in Multinational
Companies: Examining Alliance Portfolios, Firm Structure, and Firm Performance. Strategic Management Journal, 38 (11): 2298-2309.
Brunswicker, S., & Vanhaverbeke, W. 2015. Open Innovation in Small and Medium-Sized Enterprises (SMEs): External Knowledge Sourcing Strategies and Internal Organizational Facilitators. Journal of Small Business Management, 53 (4): 1241-1263.
Chang, S-C., & Tsai, M-T. The effect of prior alliance experience on acquisition performance. Applied Economics, 45 (6): 765-773.
Chao, Y-C. 2018. Organizational learning and acquirer performance: How do serial acquirers learn from acquisition experience? Asia Pacific Management Review, 23 (3): 161-168. Child, J., & Yan, Y. 2003. Predicting the Performance of International Joint Ventures: An Investigation in China. Journal of Management Studies, 40 (2): 283-320.
Chiva, R., Ghauri, P., & Alegre, J. 2014. Organizational Learning, Innovation and
Internationalization: A Complex System Model. British Journal of Management, 25 (4): 687-705.
27
Dhanaraj, C., Lyles, M. A., Steensma, H. K., & Tihanyi, L. 2004. Managing tacit and explicit knowledge transfer in lJVs: the role of relational embeddedness and the impact on
performance. Journal of International Business Studies, 35 (5): 428-442. Dikova, D., & Rao Sahib, P. 2013. Is cultural distance a bane or a boon for cross-border acquisition performance? Journal of World Business, 48 (1): 77-86.
Edmondson, A. C. 2002. The Local and Variegated Nature of Learning in Organizations: A Group-Level Perspective. Organization Science, 13 (2): 128-146.
Fang, Y., Jin, D., Sun, X., & Wang, H. 2015. New evidence on alliance experience and acquisition performance. Studies in Economics & Finance, 32 (1): 53-73.
Galavotti, I., Cerrato, D., & Depperu, D. 2017. Experience and Cross-Border Acquisitions: An Organizational Learning Perspective. European Management Review, 14 (2): 119-131. Geringer, J. M., & Herbert, L. 1991. Measuring Performance of International Joint Ventures. Journal of International Business Studies, 22 (2): 249-264.
Hagedoorn, J., & Duysters, G. 2002. External sources of innovative capabilities: The preferences for strategic alliance or mergers and acquisitions. Journal of Management Studies, 39 (2): 167-188.
Hayward, M. L. A. 2002. When Do Firms Learn From Their Acquisition Experience? Evidence From 1990-1995. Strategic Management Journal, 23 (1): 21-39.
Hoang, H., & Rothaermel, F. T. 2005. The Effect of General and Partner-specific alliance experience on joint R&D Project Performance. Academy of Management Journal, 48 (2): 332-345.
Holtgrave, M., & Onay, M. 2017. Success through Trust, Control, and Learning? Contrasting the Drivers of SME Performance between Different Modes of Foreign Market Entry.
28
Hong, S. J., & Lee, S-H. 2015. Reducing cultural uncertainty through experience gained in the domestic market. Journal of World Business, 50 (3): 428-438.
Huang, Y-T. 2010. Learning from cooperative inter-organizational relationships: the case of international joint venture. Journal of Business & Industrial Marketing, 25 (6): 454-467. Huber, G. P. 1991. Organizational learning: the Contributing Processes and the Literatures. Organization Science, 2 (1): 88-115.
Imbriani, C., Pittiglio, R., Reganati, F., & Sica, E. 2014. How Much do Technological Gap, Firm Size, and Regional Characteristics Matter for the Absorptive Capacity of Italian Enterprises? International Advances in Economic Research, 20 (1): 57-72.
Jain, S., & Kashiramka, S. 2018. Impact of Organizational Learning
and Absorptive Capacity on the Abnormal Returns of Acquirers: Evidence from Cross-Border Acquisitions by Indian Companies. Global Journal of Flexible Systems Management, 19 (4): 289-303.
Johanson, J., & Vahlne, J-E. 2009. The Uppsala internationalization process model revisited: From liability of Foreignness to Liability of Outsidership. Journal of International Business Studies, 40 (9): 1411-1431.
Kavusan, K., Noorderhaven, N. G., & Duysters, G. M. 2016. Knowledge acquisition and complementary specialization in alliances: The impact of technological overlap and alliance experience. Research Policy, 45 (10): 2153-2165.
Kim, C-S., & Inkpen, A. C. 2005. Cross-border R&D alliances, absorptive capacity and technology learning. Journal of International Management, 11 (3): 313-329.
Kohl, T., & Brouwer, A. E. 2014. The development of trade blocs in an era of globalization. Environment and Planning, 46 (7): 1535-1553.
29
Lane, P. J., Salk, J. E., & Lyles, M. A. 2001. Absorptive Capacity, Learning, and Performance in International Joint Ventures. Strategic Management Journal, 22 (12): 1139-1161.
Lavie, D. 2006. The Competitive Advantage of Interconnected Firms: an Extension of The Resource-Based View. Academy of Management Review, 31 (3): 638-658.
Lin, J-Y. 2017. Knowledge creation through joint venture investments: The contingent role of organizational slack. Journal of Engineering and Technology Management, 46: 1-25.
Liu, Y. 2013. Sustainable competitive advantage in turbulent business environments. International Journal of Production Research, 51 (10): 2821-2841.
Ly, A., Esperança, J., & Davcik, N. S. 2018. What drives foreign direct investment: The role of language, geographical distance, information flows and technological similarity. Journal of Business Research, 88: 111-122.
Makri, M., Hitt, M. A., & Lane, P. J. 2010. Complementary technologies, knowledge relatedness, and invention outcomes in high technology mergers and acquisitions. Strategic Management Journal, 31 (6): 602-628.
Mursitama, T. N. 2011. Searching for Potential and Realized Absorptive Capacity of the Firm: The Case of Japanese Joint Ventures in Indonesia. IUP Journal of Knowledge Management, 9 (4): 53-75.
Oumaya, S., & Gharbi, L. 2017. Individual and collective absorptive capacities of new external knowledge: The case of Tunisian small and medium-sized enterprises (SMEs). International Journal of Technology Management & Sustainable Development, 16 (3): 209-227.
30
Phene, A., & Tallman, S. 2012. Complexity, context and governance in biotechnology alliances. Journal of International Business Studies, 43 (1): 61-83.
Popli, M., Akbar, M., Kumar, V., & Gaur, A. 2016. Reconceptualizing cultural distance: The role of cultural experience reserve in cross-border acquisitions. Journal of World Business, 51 (3): 404-412.
Popli, M., & Sinha, A. 2014. Determinants of early movers in cross-border merger and acquisition wave in an emerging market: A study of Indian firms. Asia Pacific Journal of Management, 31 (4): 1075-1099.
Porrini, P. 2004. Alliance experience and value creation in high-tech and low-tech
acquisitions. The Journal of High Technology Management Research, 15 (2): 267-292. Pothukuchi, V., Choi, J., Park, S. H., Damanpour, F., & Chen, C. C. 2002. National and Organizational Culture Differences and International Joint Venture Performance. Journal of International Business Studies, 33 (2): 243-265.
Qian, W., Ying Chun, W., Yu Qi, H., & Qi, D. 2017. Cultural Distance and Chinese Cross-Border Merger and Acquisition Performance. Journal of Marketing Development & Competitiveness, 11 (4): 145-156.
Sampson, R. C. 2005. Experience Effects and Collaborative Returns in R&D Alliances. Strategic Management Journal, 26 (11): 1009-1031.
Schildt, H., Keil, T., & Maula, M. 2012. The temporal effects of relative and firm-level absorptive capacity on interorganizational learning. Strategic Management Journal, 33 (10): 1154-1173.
Shu, C., Lu Jin, J., & Zheng Zhou, K. 2017. A Contingent View of Partner Coopetition in International Joint Ventures. Journal of International Marketing, 25 (3): 42-60.
31
Tao, B., Zhanming, J., & Xiaoguang, Q. 2013. Chinese Firms' OFDI Entry Mode Choice and Survival of Foreign Subsidiaries: Contingency Effects of Economic and Cultural Distance. International Journal of China Marketing, 4 (1): 102-114.
Tihanyi, L., Griffith, D. A., & Russell, C. J. 2005. The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis. Journal of International Business Studies, 36 (3): 270-283.
Tsang, E. W. K. 2008. Transferring Knowledge to Acquisition Joint Ventures: An Organizational Unlearning Perspective. Management Learning, 39 (1): 5-20.
Tseng, C-H., & Chen, S-F. S. 2017. Do firms with more alliance experience outperform others with less? A three-level sigmoid model and the moderating effects of diversification. Canadian Journal of Administrative Sciences, 34 (3): 229-243.
Wooldridge, J. M. (2009). Introductory Econometrics: A modern approach. Canada: South-Western Cengage Learning.
Yu-Chieh, C. 2018. Organizational learning and acquirer performance: How do serial acquirers learn from acquisition experience? Asia Pacific Management Review, 23 (3): 161-168.
