1
The influence of cultural distance and
geographical proximity on the survival of IJVs
in newly industrialized economies
Master thesis, Msc. International Business and Management Rijksuniversiteit Groningen, Faculty of Business and Economics
10th of July, 2013
Tim ter Haar Student number: 2044331 Handellaan 165 8031 EK Zwolle The Netherlands Tel.: +31 629495401 e-mail: timterhaar@hotmail.com Supervisor / University S.R. Gubbi 2nd Supervisor / University
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The influence of cultural distance and
geographical proximity on the survival of IJVs
in newly industrialized economies
Evidence from China
ABSTRACT
This research studied the extent to which Cultural Distance (CD) and Geographical proximity (GP) are related to the survival/performance of International Joint Ventures (IJVs). Prior
research suggest that IJVs have been set up according to the following motivations; Knowledge acquisition, Transaction cost reduction or Strategic Behavior. This study answers
the question on how these motivations relate to CD and GP and their influence on IJV performance/survival. A logistic regression and event history analysis of 86 observations
provided insights on how CD and GP relate to longevity of IJVs in newly industrialized economies. The outcomes show that cultural differences are still a big hurdle for companies when it comes to setting up JV’s in newly industrialized economies whilst GP didn’t show a
significant relationship at all. The findings are in line with previous studies on IJV performance and contribute to further research on one of the most relevant topics in
International Business nowadays.
3
Introduction
International joint ventures (IJVs), where partner firms from different countries contribute resources and create a new entity, is one of the most popular and significant alliance types. The main reason, as Hennart and Reddy (1997) point out, is mutual access on complementary assets available to parent firms through the IJV. Multinational enterprises (MNEs) trying to enter a new market are exposed to uncertainties due to the lack of information on the host market. On the other hand, establishing IJVs decreases the uncertainties that MNEs will face by sharing market information with local firms (Si & Bruton, 1999).
Learning opportunities on foreign technology and advanced knowledge sufficiently motivate the local firms to cooperate with foreign firms (Hitt et al., 2000). MNEs transferring
knowledge to their IJV, provide the IJV with a variety of performance-enhancing resources and capabilities such as sophisticated technology, manufacturing skills, managerial and marketing expertise, global support, and so on (Luo, 2002; Yan and Gray, 1994). These resources and capabilities are typically most scarce, proprietary, and inimitable in developing economies/newly industrialized economies (Yan and Gray, 1994). Local companies in developing countries often lack these assets and skills, and governments in developing countries often require MNEs interested in entering local markets to establish IJVs for the purposes of embracing and absorbing firm specific advantages of MNEs (Beamish, 1993; Meyer, 2004).
International Joint Ventures are often recognized as useful platforms which allow both foreign and local firms, to share firm-specific knowledge within the entity. However, much of the literature on the performance of alliances including IJVs reports that their success rate stands only at 50% or so (e.g., Bamford, Ernst, & Gubini, 2004; Fang & Zhou, 2010; Hennart & Zeng 2002; Kogut, 1988; Yan, 1998). This can be critical for partners in newly industrialized economies since there is a general consensus that IJVs are a means to acquire technology and sophisticated know-how by serving as a bridge between the parents for knowledge exchange (Hitt et al., 2000; Kogut, 1988). There are a lot of influences (determinants) on the
performance of such an alliance. These influences can be, trust between partners, goal congruency, change in governmental regulations, unforeseen costs, etc. (Bamford, Ernst & Gubini, 2004)
When looking at newly industrialized economies, IJVs are particularly challenging because the turbulent political, institutional and economic conditions increase the likelihood of collaboration hazards (Meschi and Wassmer, 2013). Often, enforcement of restrictive local regulations on foreign direct investment, greater risks of government expropriation, or more government corruption increase the bargaining power of local IJV partners (in newly
industrialized economies) and the likelihood of negative IJV outcomes such as termination before goal achievement, sell-off to the local partner, or buy out by a third party (Hennart et al. 1998; Makino et al., 2007; Meschi and Riccio, 2008; Valdés-Llaneza & García-Canal, 2006).
4 2001). Geographical proximity can facilitate transfer of knowledge in terms of tacit and codified knowledge and alleviate the costs of transfer involved (Boschma, 2005; Gallaud and Torre, 2005). Thus, cultural differences (CD) and geographical proximity GP) do play a vital role in transferring knowledge including (extra) costs involved in such an alliance
(Kengelbach et al., 2010), transferring valid knowledge (Boschma, 2005; Gallaud and Torre 2005) and strategic behavior which in the end leads to the success of an IJV (Kogut, 1988). The internationalization/globalization of MNE’s has gained momentum over the last decades since the world economy is becoming increasingly integrated with continued declines in government-imposed barriers and continued advances in technology (Lu & Beamish, 2001). Hence, facile use of low-cost communication technology and transportation means that the ability to discover and take advantage of business opportunities in multiple countries is not the preserve of large, mature corporations (Oviatt & McDoughall, 2007).
In a globalized world, where borders, distance and language have become less detrimental, do CD and GP still influence performance of alliances in newly industrialized economies? This is the research agenda of this paper which is organized in three sections. In the first section I will further elaborate on the theoretical background and how this results in my hypotheses. The second section concerns the research methodology and third section will present the results and discussion of this research.
Theory and Hypotheses
According to seminal work of Kogut (1988), there are three main motivations for IJVs to be set up; knowledge acquisition, transaction costs and strategic behavior (Si & Bruton, 2005). The following section will elaborate on how these motivations relate to CD and GP between partners from industrialized economies and newly industrialized economies
Cultural distance
In IJVs, the foreign partner provides the IJV with upstream resources such as brands, investment and production technology (Connolly, 1984; Pan, 1996; Tsang, 2005). The local partner provides downstream resources such as access to local markets and distribution channels, personnel (Inkpen & Beamish, 1997; Kale & Anand, 2001), knowledge of local regulations and preferential access to the government (Kale & Anand, 2001). Cultural distance may impediment the transfer of these resources which might result in a lower
performance/survival of an IJV. In line with previous research (Barkema & Vermeulen 1997; Hennart & Zeng, 2002; Li, Lam, & Qian, 2001; Li, 1995), CD is determined by Hofstede’s (1980) national cultural dimensions. These dimensions include Power Distance, Uncertainty Avoidance, Masculinity, Individualism and Long-term orientation (Hofstede, 1980, 1991). As stated by Barkema & Vermeulen (1997) differences in uncertainty avoidance and long-term orientation (Hofstede, 1980, 1991), in particular, cause problems. These differences have a negative impact on IJV survival and decrease the likelihood that firms enter a foreign
5 perceive and adapt to opportunities and threats in their environment (Schneider 1991;
Schneider and De Meyer 1991). In this line of reasoning I propose that;
Hypothesis 1: Higher cultural distance between foreign partner and local partner, lower the performance/survival of the IJV.
A second motivation to start up an IJV generates from the knowledge based view which is a natural extension from the resource-based view (Kogut 1988). According to institutional theory, resource based view and other strategic management literature, the setting of an IJV in an emerging market could impact the motivations for an alliance (Steven & Bruton, 2005). As Inkpen (2000) argues, ‘the essence of the firm is its ability to create, transfer, assemble, integrate and exploit knowledge assets, a process that has come to be known as knowledge management’. Knowledge based resources are therefore at heart of competitive advantage and firm success (Lyles & Salk, 1996; Teece, 1998).Because IJV success is closely associated with learning and knowledge acquisition, both foreign and local parents are urged to create a favorable environment conducive to knowledge acquisition (Norman, 2004). For IJVs, access to local knowledge improves JV performance (Beamish & Banks, 1987; Inkpen & Crossan, 1995; Lyles & Salk, 1996; Makino & Delios, 1996), and in the long run, learning enhances a firm’s competitive advantage (Inkpen & Dinur, 1998). Previous research has been
contradicting, although CD may contribute to more creative discussions and innovativeness among partners in an IJV (Brown, Rugman and Verbeke, 1989; Earley & Mosakowski, 2000), Lucas (2006) argues that cultural differences may create bottlenecks that either impede or eliminate the potential for successful knowledge transfer and will negatively influence the performance of an alliance, hence IJV. Furthermore, Sirmon and Lane (2004) argue that differences in national culture can disrupt collaboration and learning between alliance partners that will negatively influence the success of an alliance. Certain industries however, are more prone to knowledge acquisition. Product innovativeness and process innovativeness are both criteria in such technology-intensive industries (Arundel & Kabla, 1997). Industries such as Machinery, Metal, and Chemicals are more prone to knowledge acquisition than for example Textile or Transport (Arundel & Kabla, 1997). Therefore, the negative relationship between cultural distance and IJV performance proposed in hypothesis 1 is strengthened when IJV belongs to a technology-intensive industry. This leads to the following hypothesis;
Hypothesis 2: Greater involvement of technology in IJV collaboration, lower the IJV
performance/survival in IJVs with high cultural distance between foreign and local partner
6 and in the end, influence the survival/performance of the IJV (Tjemkes et al. 2012). These extra costs may arise during adverse situations between partners in an IJV. When faced with an adverse situation (e.g., low economic performance, poor relationship quality), managers from partners in an IJV must understand how CD influences their partners' responses to adversity so they can reduce the likelihood of their alliances' failure (Tjemkes et al. 2012). Extra costs due to adverse situations leading to IJV failure is likely to have less impact on IJVs with a foreign partner which is larger in size simply because larger IJVs are able to deal with these extra costs. This is in line with previous research by Lu & Xu (2006) who founded evidence that foreign parent size has a positive influence on IJV growth and survival.
Therefore I propose that;
Hypothesis 3; Smaller the size (in terms of total assets) of foreign partner in IJV, lower the IJV performance/survival in IJVs with high cultural distance between foreign and local partner
Geographical proximity
Western firms with a strategic motivation establish IJVs to help overcome constraints, either internal or external, that prevents it from expanding internationally (Contractor and Lorange, 1988). Geographical proximity can result in unforeseen costs in communication, coordination or control and in end, influences the performance of the IJV. When geographical proximity is high, transactions costs are expected to be high as well, transferring expatriates, machinery or knowledge could raise extra costs. Besides, transferring knowhow could also become more problematic due to time differences, or because of the fact that some information cannot be shared through electronic ways of communication (Gallaud and Torre, 2005). Harrison (1996) found evidence that when partners are geographically closer, they have more face-to-face contact which benefits knowledge acquisition as well as it contributes to trust between alliance partners and in the end to IJV performance. On the other hand, the larger the
geographical proximity, the harder it is for an IJV to survive (Ghemawat, 2001). In this line of reasoning I propose that;
Hypothesis 4: Larger the Geographical Proximity between foreign and local partners in an IJV, lower the performance/survival of the IJV
7 that neither organizational proximity nor social proximity is required for inter-organizational learning. In principle, effective knowledge transfer does not presume close trust-based or arm’s-length interactions between firms. Geographical proximity may be all that is required, because it enables agents to “monitor each other constantly, closely, and almost without effort or cost” (Bonte, 2008; Malmberg & Maskell, 2002). Because of the fact that certain industries are more prone to knowledge acquisition (see Cultural Distance), the impact of GP will be larger than in industries which are less prone to technology/knowledge acquisition. In this line of reasoning I propose that;
Hypothesis 5; Greater involvement of technology in IJV collaboration, lower the IJV performance/survival in IJVs which are geographically more dispersed
Transactions between firms in neighboring countries perform better than cross-border transactions with a firm in a far-a-way country (negative neighboring country effect). One possible explanation is that the acquirer does not benefit as much from a cross-border transaction that is close by, since he can serve this market from its home country. To
illustrate, firms can often reduce their costs by internationalizing their production of a given product (Buckley and Casson, 1985). This is typically due to the fact that labor costs may be lower outside the firm's home country base. However, there are costs associated with a firm setting up a separate business unit across national borders, such as increased costs of
communications, coordination, and control (Buckely and Casson, 1976) due to a larger distance. Additionally, international transactions have high levels of uncertainty due to the unknown nature of the local business environment (Teece, 1986). Extra costs due to GP is likely to have less impact on IJVs with a foreign partner which is larger in size (See Cultural Distance). Therefore I propose that;
8 Conceptual Model
This conceptual model describes the relationship between Cultural Distance and Geographical proximity on the performance/survival of an IJV. Expected is that CD and GP both relate to the motivations described by Kogut (1988) which directly influences the
performance/survival of an IJV (Kogut 1988). More detailed information on the research setting of this study is provided in the next section. This conceptual model helps to understand how my hypotheses support my research question;
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Methodology
Data and sample
This research takes China as research setting because of the following reasons; China, as a growing economic power, has attracted world attention in recent years. In 2003, China replaced the US as the foreign direct investment destination (UNCTAD 2003). By the end of June 2008, about 480 of the top 500 multinational corporations had set up branches in China (Yao 2008). Lie et al. (2011) pointed out that the number of IJV’s in China grew rapidly after the change in governmental regulations in 1979 which made it possible for foreign companies to enter China. The number of IJV’s dominated the number of wholly foreign owned
enterprises (WFOE’s) between 1985 and 1999. Over the last 10 years, the number of IJV’s decreased compared to WFOE’s where cultural distance remained the same. The extensive use of IJV’s as a vehicle for FDI (foreign direct investment) and the wide variation of success are therefore the most important factors in taking China as research setting. Whilst this study aims to answer on what influence CD and GP have on the performance/survival of IJVs in newly industrialized economies, local partners are positioned in China. Foreign partners are positioned in industrialized economies; Austria, Australia, Belgium, Canada, Switzerland, Czech Republic, Germany, Denmark, Spain, Finland, France, Great Britain, Italy, the Netherlands, Norway, Sweden and the United States.
I’ve tested my hypotheses on a sample consisting of IJV’s which have been set up between 2004 and 2010. Prior literature (Barkema & Vermeulen, 1997; Dhanaraj & Beamish, 2004; Li, 1995; Hennart et al., 1998) on JV survival uses a timeframe between 4 and 6 years. I utilized two sources of data to derive a sample of IJV’s set up in China between 2004 and 2010. The first source is Zephyr, this database provided a sample of 4363 JV’s in China. The observations had to meet two criteria; the acquirer company has to be from industrialized economy and ‘deal-type’ has to be Joint-Venture (equity and non-equity). As an alternate measure to scan up on IJV activity at the end of the timeframe (2010) via Google/business magazines/academic articles etc., the second source (Orbis) provided detailed information on how many ‘foreign subsidiaries’ were listed in China by the end of 2012. This list consists of 22.320 companies.
Combining both databases resulted in a list of 580 observations from industrialized economies which were still listed in China as ‘foreign subsidiary’. Out of these 580 observations, 209 IJVs were still active in China (as subsidiary of foreign partner), the status of 285
observations was unknown and will therefore be left out the analyses. The remaining 86 observations consist of IJVs which have been set up and dissolved between 2004 and 2012. Via Google/Business magazines/academic articles/Annual reports, specific duration of these IJVs have been found and used in further analyses.
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Variables and measures
Dependent variable
The dependent variable in this research is IJV performance measured in survival (Barkema & Vermeulen, 1997; Dhanaraj & Beamish, 2004; Li, 1995; Hennart et al., 1998). Empirical evidence suggests that IJV survival correlates positively with financial and satisfaction measures of performance (Geringer and Hebert, 1991). Survival is determined by the time between the IJV has been set up and the status of the IJV at the end of the timespan. The observation had to meet two requirements; 1) time in years had to be available 2) information about the status had to be available at the end of the timeframe (IJV is still active ‘yes’ or ‘no’). In other words, the dependent variable is dichotomous/binary. The binary dependent variable, IJV activity, takes the value of '1' if an IJV exited during a particular year and 'O' otherwise.Exit occurs when a firm no longer exists as foreign subsidiary of the same foreign parent(s). Foreign firms can exit through: (1) bankruptcy and liquidation; (2) closure; (3) divestiture (e.g., acquisition by local or foreign partner) (Li, 1995). The variable is in the analyses expressed as ‘IJV activity at end timespan’.
Independent variables
Cultural distance
Cultural distance is defined according to Hofstede’s five dimensions. These dimensions are used to identify the cultural distance between countries. Hofstede (2001) defines national culture as deeply set values that are common to the members of a nation. Individualism is the first dimension in Hofstede’s study and reflects the concerns of individuals with their own well-being versus the well-being of others. Individualism bears directly on issues of internal integration and influences relationships with personnel, such as the organization's choice of control forms, reward system (Hofstede, 2001). Power distance is the second dimension and is based on people’s perception of inequality. It can be defined as the extent to which less
powerful members of institutions and organizations within a country expect and accept that power is distributed unequally (Lu, 2006). Uncertainty avoidance is the third dimension and is described as the reluctance to deal with ambiguity and is directly related to the willingness to embrace change risk, or the reduction of chance factors (Hofstede, 2001). It is related to the need for stability and conflict reduction (Lu, 2006). Masculinity is the fourth dimension and is the willingness to promote societal values. In masculine cultures, there is a preference for assertiveness. Priority is given to results and rewards are based on ambition and
11 This is based on the Kogut and Singh (1988) index including the dimensions of Hofstede (2001), whereby the cultural distance (CD x y) between country x and y is calculated as the average of the differences of Hofstede’s (2001) country scores adjusted by the variance (vi) of the corresponding dimension:
Kogut & Sing index: CD x y = Σ {(I x – I y)² / V i)}/5 Euclidean index: CD x y = Σ {(I x – I y)² / V i)}
Where CD stands for Cultural Distance, Σ the sum of, I x represents the domestic country and I y represents the foreign country and V i represents the variance.
By calculating the variance for these dimensions separately, I was able to compute Cultural distance between the industrialized economies and China (see Appendix B for more detailed information). In the analyses, Cultural Distance is expressed as ‘Cultural Distance’.
Geographical proximity
Geographical proximity has been determined in absolute kilometers. Determining the actual kilometers between IJV partners will be an insufficient manner because of the fact that partners change their location over time. Geographical proximity in this research will
therefore been calculated in absolute kilometers between countries. For this reason, caution is advised in interpreting the results. In line with previous research I use distance calculation applications (e.g. MagQuest, DistanceCalculator) based on GIS (Geographic Information System) coordinates (Ganesan et al. 2005; Ghemawat 2001) to determine the distance in kilometer. Geographical proximity is expressed as ‘Geographical proximity’.
Explanatory variables
Knowledge acquisition
According to prior research, knowledge acquisition is hard to determine. Therefore, in this research, I will link the ‘need for knowledge’ to industry type. This research will therefore focus on technology-intensive industries.Product innovativeness and process innovativeness are both criteria in such technology-intensive industries (Arundel & Kabla, 1997). Industries such as Machinery, Metal, and Chemicals are more prone to knowledge acquisition than for example Banks or Transport (Arundel & Kabla, 1997). Therefore industries will have a higher demand for knowledge than others. Zephyr provided information about industry type of the IJV (partners). In total, 19 different industries have been specified. IJV’s within the
12 Besides ‘type of industry’, knowledge acquisition can also be linked to specific dimensions of Hofstede. Power distance and Uncertainty avoidance relate to how people/companies
accept/distribute new information during and after the establishment of the IJV. This calculation provides additional support to prove the relationship of culture on
performance/survival of an IJV (See Appendix D). Both dimensions have been imported as the difference in scores between countries (scaled by Hofstede).
Acquirer foreign experience
Foreign experience has been determined by the number of foreign subsidiaries of the acquirer company at the end of 2010 (if available). As Zeng et al. (2013) argue the importance of FDI experience in IJV performance, (FDI) experience of the foreign (acquirer company) partner relates to and facilitates knowledge acquisition between partners in an IJV. Foreign
experience of the acquirer company may contribute to the idea that foreign experience
benefits knowledge acquisition. Foreign experience is measured by ’Number of Subsidiaries’.
Acquirer company size
Acquirer company/foreign IJV partner size has been determined by the amount of total assets (in Euro) at the end of the 2010 (if available). Company size is expressed in ‘Total Assets’
Time
IJV duration is expressed as time in years. This is the number of years between the IJV has been set up and when it has been dissolved (before the end of observation period). In the event-history analysis (Cox Proportional Hazard), time will indicate whether the IJV will dissolve earlier regarding other explanatory variables.
Modeling procedures
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Results
Descriptive statistics
Table 1
Table 1 presents the correlation matrix and descriptive statistics for the majority of the variables included in this research (excluded ‘type of industry’). This correlation matrix suggests that’ Cultural Distance, Number of Subsidiaries and Difference in Uncertainty
Avoidance’ are correlated to the ‘IJV activity at end of timespan’, in other words, if the IJV
survived. On the other hand, ‘Geographical proximity, Total Assets and Difference in Power
distance’ don’t appear to interact with ‘IJV activity at end timespan’. Obviously, ‘Total Assets and Number of Subsidiaries’ are highly correlated; the larger the acquirer company (Total Assets) the higher the number of subsidiaries the acquirer company has.
Correlation coefficients 1 2 3 4 5 6 7 1) IJV activity at end timespan 2) Cultural Distance -,104* 3)Geographical proximity ,072 -,127** 4) Number of Subsidiaries -,190** -.088* ,016 5) Total Assets ,037 -,051 ,039 ,691** 6) Difference UA -,104* -,683** ,403** ,034 ,065 7) Difference PD -,041 ,457** -,044 -,006 -,011 -,704**
14 Logistic regression results
Table 2
Logistic regression results
B S.E. Wald df Sig. Exp.(B)
Cultural Distance ,411 ,185 4,909 1 ,027 1,508 Geographical Proximity ,000 ,000 ,277 1 ,599 1,000 Acquirer type of industry ,002 ,028 ,066 1 ,937 1,002 Number of Subsidiaries -.002 ,011 11,890 1 ,001 ,998 Total Assets ,000 ,000 7,907 1 ,005 1,000
Table 2 presents the results of the logistic regression (LR) analysis. The results show the (non-linear) effects of multiple explanatory (control) variables on the dependent variable (IJV activity at end timespan). Cultural distance is the only variable which shows a significant relationship to the IJV activity at end timespan (Exp.(B) = 1,508). Geographical proximity doesn’t show any relationship with IJV activity at end timespan (Exp.(B) = 1,000). This suggests that IJV survival is not being influence by geographical proximity between IJV partners. Surprisingly, foreign partner size (total assets) doesn’t show any relation (Exp.(B) = 1,000) with IJV survival. However, there might be a small relation between IJV survival and knowledge acquisition (Acquirer type of industry (Exp.(B) = 1,002) and Number of
subsidiaries (Exp.(B) =,998). In order to find a more detailed answer on the hypotheses; a Cox Proportional Hazard model (see Table 3) will include ‘time’ in the analysis.
Cox Proportional Hazard analysis
15 Kogut, 1989; Park and Russo, 1996). The Cox Proportional Hazard (CPH) analysis provides a better answer when it comes to determining survival ratio.
Table 3
Results Cox Regression
B SE Wald Df Sig. Exp(B)
Cultural Distance -,069 ,298 ,054 1 ,816 ,933 Geographical Proximity ,000 ,000 ,970 1 ,325 1,000 Acquirer type of industry ,041 ,037 1,232 1 ,267 1,041 Number of Subsidiaries ,002 ,001 1,379 1 ,240 1,002 Total Assets ,000 ,000 ,412 1 ,521 1,000
Table 3 presents the results out of the Cox proportional hazard analysis (Cox and Oakes, 1984). This analysis shows that only ‘CD’ and ‘Acquirer type of industry’ have a significant impact on the longevity of the IJV (Exp.(B) = 0.933 and Exp.(B) = 1.041). The results of the LR analysis are confirmed by CPH analysis which shows that ‘GP’ and ‘Size’ (in terms of total assets) are not influencing the number of years between IJV set up and termination (Exp.(B) = 1.000). ‘Number of subsidiaries’, shows a slight influence (Exp.(B)= 1.002) but this is not significant enough and therefore will be left out in answering the hypotheses.
Conclusion
16 IJV survival since no evidence is found in both the LR and CPH analyses. Hypotheses 4, 5 and 6 have been rejected, which is in line with globalization theory which suggest the world is becoming more and more integrated.
Discussion
This paper contributes to already existing knowledge on IJV performance in newly
industrialized economies in economics nowadays. This study began by the combination of different developments over the last decades. Since the 1980’s the world has become more interrelated as ever. By several developments in communication and transportation it is becoming easier to go abroad. In this globalized world, companies and especially
multinationals, tend to create presence in different countries in order to have a sustainable and stable turnover. So over the last years, countries/economies have become dependent which is not always benefiting. When in 2008, the financial crisis started in the USA, Europe soon followed as well as the rest of the world. However, some economies didn’t suffer that much from the financial crisis. From this interest, this study provides better insights on how cultural differences and geographical proximity still play a role in nowadays economics. As there are several ways for companies to create a larger market share in companies abroad, IJV’s (International Joint Ventures) have mostly been used as a vehicle to expand companies’ business. All together this leads to the following research question; what influence do cultural
distance and geographical proximity have on performance of IJVs in newly industrialized economies?
My theoretical perspective suggests that both variables (CD and GP) will show a direct (negative) effect on the survival of IJV’s in newly industrialized economies. However, my results have two main implications which contribute to the already existing literature. First of all, I found strong evidence that CD is still having a negative influence on the survival of IJVs in newly industrialized economies. As expected, cultural differences are still a large hurdle for companies setting up IJVs. Especially in this research where China scores extremely high on Long-term orientation (1 of 5 dimensions by Hofstede), this might explain why CD still is one of the biggest determinants when it comes to IJV performance/survival. Another confirming factor is that the bigger the CD, the sooner the IJV will be dissolved. In line with Barkema & Vermeulen (1997), uncertainty avoidance (See Appendix D) is negatively influencing survival of IJVs which might explain the negative effect of knowledge acquisition in IJVs in
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Limitations
Due to time constrictions, there are several limitations which need to be taken into
consideration. The results only take the sample IJVs into account from which nearly 70% is from 4 out of 19 industries. This may limit the generalizability of my findings. Second, this study uses a time frame of 6 years, 2004 until 2010 and is based on observations from 2012. This might not include IJV failures in 2013 and in the near future. Third, the sample size is relatively small compared to previous studies which base their results on 1000 observations or even more. The LR and CPH analysis which have been performed only include 86
observations. Due to time constrictions only 5 variables have been put to the test. This research only focused on IJVs located in China, therefore caution is advised in interpreting and generalizing the results for other newly industrialized economies.
Future research
Future research is needed to deal with the limitations of this research. Having access to
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23
APPENDIXES
Appendix A
This table contains a screenshot of the summary of the data (used in multiple correlation analysis) which consists of acquirer companies which are active in China and listed as
‘foreign subsidiary’. The value 2 represents ‘No information Available’ which means that this IJV has been dissolved since this company isn’t listed as foreign subsidiary (alternate measure instead of checking google, business magazines, academic articles, which is very time
24 Appendix B
This screenshot presents the scores of Cultural Distance and Geographical proximity. This data has been exported to SPSS. The formula of Hofstede has been changed. Using the original formula creates problems in SPSS because actual CD has to be divided by the number of dimensions. I decided not to do this because of the fact that it’s easier for SPSS to use larger numbers. The actual Cultural Distance remains the same.
25 Appendix C
This cross-tab contains information on how the acquirer type of industry relates to the IJV activity and end timespan. The columns represent classified numbers of industries;
1) Metals & Metal products 2) Textiles 3) Machinery 4) Chemicals 5) Primary sector 6) Wholesale 7) Other services 8) Banks 9) Insurance
10) Hotels & Restaurants 11) Transport
12) Public administration 13) Publishing & Printing 14) Gas, Water & Electricity 15) Food beverage
16) Education, Health 17) Wood, Cork 18) Construction
19) Post & Telecommunication
26 Appendix D
Multiple regression results on Uncertainty Avoidance and Power Distance
B Std. Error Beta T Sig.
Difference Uncertainty avoidance ,05 ,02 1,50 2,554 ,11 Difference Power Distance ,004 ,003 0,65 1,103 ,271
This regression analysis shows the results when 2 dimensions of Hofstede have been regressed against the dependent variable; IJV activity at end timespan. However, this test suggest that differences in Uncertainty Avoidance does show a significant relationship with the IJV activity at end timespan (Sig.0.011 = <0.05). This proves that differences in
