TIL

TILBURG UNIVERSITY DEPARTMENT OF ORGANISATION & STRATEGY

01 JUNE 2012

THE IMPACT OF

STRATEGIC INTENT ON

IJV EFFECTIVENESS (Shanghai Volkswagen (SVW) Case

Author: 133497 JEAN-CLAUDE NZUNGU

PREPARED FOR: ELENA GOLOVKO

JEAN-MALIK DUMAS

W A R A N D E L A A N 2 ,

5 0 3 7 A B T I L B U R G

Msc International Management

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ACKNOWLEDGEMENT

I would like to express my warm gratitude to all who have contributed whether directly or

indirectly during the entire process of my study life.

Particularly, I owe my sincere gratitude to MS Elena Golovko, my principal Thesis Supervisor

who has supported me throughout my thesis with her patience and professional knowledge whilst

allowing me the room to work on my own way. I attribute the level of my master degree to her

encouragement and effort, without her this study would not have been completed in a good

manner.

I gratefully thank Mr Jean-Malik Dumas for his constructive comments on this thesis. I am

thankful, that in the midst of all his activity, his accepted to be a member of the reading

committee.

To my friends, family, and my old partner for your love; caring; compassion; moral support you

have constantly showed me every single day.

To my five year old son, Justice, who always wants to play with me but often I could not have

enough time because I was busy studying, now I promise we will have the time of our life.

Finally, my inexpressible debt is to my dearest Mum and Dad, for your unconditional love and

support that you have always showed me before and after your life. I owe you a lot.

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ABSTRACT

In recent years, globalisation of trade in the international business environment and the rapid

technological changes have persuaded more firms to enter into some inter organizational joint

agreements. With a business environment that requires continuous innovations and strategic

focus, more organizations have realized that self-sufficiency is becoming increasingly costly and

difficult to achieve. However, these partnerships are frequently prone to failure. This is because

firms sometimes rush into alliance without understanding the nature and the extent to which such

investment is required to attain the synergy benefits. Two frequently reported problem areas in

joint venturing are unrealistic corporate expectations and inadequate planning. As such, the

general assumption of this study was that ventures management should weight strategic

considerations underlying the alliance, and the potential problems linked to it.

Based on resource based view theory (RBV), the strategic intents of partnering firms in IJV can

be described as resources seeking driver. However, these firms face double puzzles of being able

to obtain valuable resources through partnership without losing control of one’s own resources.

Therefore, partnering firms’ overall resources deployment strategy should first be addressed. It is

suggested that Equity Joint Ventures will be preferred if primary resources of one of the partners

are property-based, and other partner’s primary resources are knowledge-based.

The evaluation of partnership potential and feasibility are the next step which can be determined

by their respective drivers when both partners can check their absolute scores and differences.

This was obvious visible because the empirical study confirms this assumption. The comparison

between theoretical assumption and empirical case study has enabled this study to gain

significant insight to understand IJV effectiveness. The advice learned from SVW case study, is

that it does not matter whether there are some considerable differences regarding cultures,

economic, or management strategies. This is because these kinds of issues can be walked out.

What matter most in IJV partnership is the cooperation motivated by realistic, opportunity

seeking strategic intent. What can be deduced from the findings is that the effectiveness of

International Equity Joint Venture is a result of multiple factors. These are overall resources

deployment strategy of partnering firm, strategic fit, and organizational fit.

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Table of Contents CHAPTER 01: INTRODUCTION ............................................................................................................... 5

1.1. Introduction .................................................................................................................. 5

1.2. Background of the Study ................................................................................................. 5

1.3. Objective of this thesis ..................................................................................................... 6

1.4. Research methodology and data collection ...................................................................... 8

1.5. Outline of the Study ......................................................................................................... 9

CHAPTER 02: LITERATURE REVIEW ............................................................................................ 10

2.1. Introduction .................................................................................................................... 10

2.1.1. Definition of (International) Joint Ventures ............................................................... 10

2.2. Motivations of the firm that form IJV............................................................................ 10

Table 1: Categorization of past research on joint venture goals ........................................... 12

2.2.1. Review the term “motive of IJV formation” ............................................................... 14

2.3. Strategic intent of sponsoring firms partner in IJV ........................................................ 15

2.3.1. Definition of strategic intent ....................................................................................... 15

2.3.2. Strategic intents of firm forming IJV .......................................................................... 16

2.3.2.1. Resource based rationale.......................................................................................... 16

2.4. Assessing overall resources deployment strategy of sponsoring firms ......................... 17

2.5. Partners selection ........................................................................................................... 24

2.6. IJV Effectiveness ........................................................................................................... 28

2.7. Summary ........................................................................................................................ 28 CHAPTER 03: RESEARCH METHODOLOGY ..................................................................................... 31

3.1. Introduction .................................................................................................................... 31

3.2. Research strategy ........................................................................................................... 31

3.2.1. Case study approach ................................................................................................... 32

Table 3: strengths and weaknesses of qualitative case study ............................................... 34

3.2.2. Case selection.............................................................................................................. 34

3.2.3. Secondary data collection ........................................................................................... 35

3.3. Method of data analysis ................................................................................................. 36

3.4. Summary ........................................................................................................................ 36 CHAPTER 04: DISCUSSION .................................................................................................................... 37

4.1. Introduction .................................................................................................................... 37

4.2. Brief outlook of Chinese automobile industry ............................................................... 37

Year 2010 was another hallmark year for China auto industry after the short setback in 2008 due to global financial crisis ....................................................................................... 38

4.2.1. Brief background of Shanghai Automobile Industry Corporation (SAIC) ................. 38

4.2.2. Brief background of Volkswagen AG (VW) .............................................................. 40

4.3. Shanghai Volkswagen (SVW) Case .............................................................................. 40

4.4. Critical assessment ......................................................................................................... 42

Exhibit 1: Assessing strategic fit of SAIC and VW Joint venture (SVW) ........................... 42

Exhibit 2: Assessing organizational fit of SAIC and VW Joint venture (SVW) ................. 44 CHAPTER 05: CONCLUSION.................................................................................................................. 47

5.1. Introduction .................................................................................................................... 47

5.2. Conclusion ..................................................................................................................... 47

5.3. Implications and limitations ........................................................................................... 48 6. APPENDIX .................................................................................................................................................. 50

6.1: Passenger Vehicle sales by top manufacture 2002 vs. 2010.......................................... 50

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6.2: Top five Auto market & sales In the World .................................................................. 51 7. REFERENCES ........................................................................................................................................ 52

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Chapter 01: INTRODUCTION

1.1. Introduction

This chapter provides a broad but concise introduction, and the background of the problem to be

addressed so that the reader can have an overview of the topic. The chapter also gives the

objectives of the research, the research questions as well as the way this study is designed.

1.2. Background of the Study

Firms need various resources to compete with each other. These resources can be acquired,

developed internally, or obtained via cooperative relationship through alliances (Bierly III,

Gallagher, 2007). Likewise, the dramatic growth of international joint ventures (IJVs) between

firms is changing international business. Inter-firm collaboration is a crucial component to attain

international competitive advantage (Nielsen 2002). Above of all it is vital to understand why

firms in general want to expand abroad. Foley (2004) explains that there are a number of

motivations (traditional and beyond the traditional motivations) for going global. The traditional

motivations are (1) access markets beyond their home base; (2) avoid changing domestic

conditions and (3) improve a company’s competitive position by lowering their costs. Beyond

traditional motivation, the goal of global trade is to expand the scope of your company so that the

tools and resources available to fight your competition give your company an unbeatable edge.

An edge that renews and transforms itself faster than competition can keep up. This is indeed one

reason among many why firms may be involved in forming an alliance.

Firms have different alternative market entry strategies to choose according to their various

underlying motivations: whether it is going alone or forming an alliance with other firms.

According to Hajidimitriou and Georgiou (2002), the ultimate motivation of firms which

participate in partnership is to create value that neither firm would have been able to achieve

alone for itself. An international strategic alliance, which has attracted attention in the literature,

is the formation of international joint ventures (IJV). This entry mode offers a lot of benefits:

reach oversea market, economies of scale, reduce risks, learn new technologies, and particularly,

facilitate effective resource-sharing (Bleeke and Ernst, 1993)., Despite these apparent benefits

however, an IJVs often has some managerial difficulties to implement the cooperative

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relationships, and this handicap achievement of the expected collective goals (Park and Ungson,

2001). Indeed, the estimates rates of unsatisfactory IJV performance have ranged from 37% to

over 70% (Killing 1983; Beamish 1985; Harrigan 1986; Kogut 1988; Geringer and Hebert 1991;

Parkhe 1993). According to Hatfield and Pearce (1994), two frequently reported problem areas

in joint venturing are (1) unrealistic corporate expectations and (2) inadequate planning. This

argument is well explained by Madhok and Tallman (1998) in the following quote:” firms enter

into collaborative relationships because these are expected to yield superior value relative to

alternate organizational forms in certain situations, offering potentially synergistic combinations

of complementary resources and capabilities, yet such relationships are frequently prone to

failure because the partner firms tend not to recognize ex ante the nature and extent of

transaction-specific investment that is required in the collaborative relationship to attain these

synergies…”. Accordingly, Deng (2004) argues that international business literature identifies

strategic intent as key motivations for firms to invest abroad, which is designed to fulfil strategic

goals for the purpose of maximum overall performance. In addition, strategic intent perspective

concerns whether a firm: (1) has an ambitious strategic objective; (2) makes that strategic

objective the first priority; (3) makes rational choices; (4) has a decision-making role for its top

management team (Rui and Yip 2008).

1.3. Objective of this thesis

To seek long-term development and sustain competitive advantages, MNEs often utilize overseas

direct investments such as a joint venture in order capture wider market and achieve better

performance. However, it is an acknowledge fact that such investments are frequently prone to

failure because partner firms sometimes rush into alliance without understanding the nature and

the degree to which such investment is required in order to attain their respective strategic

objectives. Also, the fact that partnering firms might possess various reasons to form IJV can

further complicate the matter. In fact, some scholars have even described IJV as cooperative and

competitive weapons. One may wonder whether the characteristics traits of IJV might be at heart

of the problem because managers are getting tough time to manage them successfully. In other

words, only limited studies have identified success factors that contribute to their effectiveness.

In this sense, it is vital to address the issue of strategic intent among sponsoring firms first

because IJV literature considers strategic intent as central in analysing IJV success. Therefore,

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this study intends to fill in the analytical gap by investigating the factors that influence IJV

effectiveness.

The objective of this study is to discover and investigate a theoretical framework, which presents

key factors or critical success factor that explain the effectiveness of IJV. This thesis will

examine various factors and motives that influence local and foreign firms to form IJV. In this

study, a case study illustration will be adopted to explain the phenomenon of the present study

Despite the fact that all these variables have been extensively discussed in prior research by

others scholars somehow in a fragmented way, this study still attracts my attention in the sense

that each school of thought provides different motivations regarding the effectiveness of IJV.

There is an obvious gap in the literature with respect to the theory considered. A unifying theory

is still largely absent (Parkhe, 1993). To this end, a need exist to further investigated the factors

that might influence IJVs effectiveness. It is in that perspective, therefore, that such

considerations have motivated the central research question as the following:

How do strategic intents of partnering firms influence the effectiveness of international joint

ventures (IJVs)?

The research questions act like a guiding tool for a researcher in the duration of a research. A

researcher devises the research questions from objectives of the research and; therefore, in the

end, it helps the researcher in meeting its aims and objectives of the research. The guiding

research questions of this study are defined below:

1. What are the motivations of firms that form international joint venture?

2. What resources do partnering firms in IJV contribute?

3. How do partnering firms develop their cooperation as internal and/or external conditions

change?

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1.4. Research methodology and data collection

Given the fact that IJV literature underlines the causes of failure as inadequate planning, and

high corporate expectation, it makes sense assume that better preparation might enhance IJV

chance of success. This is to say that when ventures management makes a reliable estimation of

the real strategic considerations underlying the alliance and the potential problems linked to it,

IJV chance of success may be significantly increased (Douma 1997). To this end, this study

assumes that partnering firms have carefully chosen the IJV as foreign market entry mode.

Moreover, this study will be limited only on the decision of a single firm on how to enter a

foreign market in an environment of imperfect competition with clear defined strategic behaviour

which is to be successful during the exercise of collaboration, considered to be at least five years.

To this end, discussions in this study will be limited on IJV level, although parental level will be

involved somehow. Moreover, as the main topic concerns the international expansion, this study

will mainly discuss the international EJV and not other forms of EJV such as domestic/local EJV

or non-equity joint ventures.

Gulati (1998) mentions research obstacles caused by logistical challenges of collecting the rich

data necessary to assess IJV performance in greater detail. In the same way, given the scope of

this study particularly in term of time and financial limitations, it was unfeasible to conduct

comprehensive interviews to collect primary data regarding qualitative factors discussed in this

literature that may explain IJV effectiveness. As such, a review of the recent theoretical and

empirical literatures on international strategic alliances will be scanned and considered. Further,

given the high number of variables potentially influencing IJV success, this study cannot cover

all of the variables simultaneously. Particularly, this study aims to investigate the influence of

strategic intents of partnering firms on international joint venture effectiveness.

To this end, to investigate the impacts of these qualitative factors on IJV success, this study is

mainly based on secondary data because all data and information are secondary sources. The

secondary data used in this study are gathered from a wide range of well known published

articles, journals, annual reports, press information, company’s websites and others numerous

information. Furthermore, interviews with CEOs have been conducted by journalists and

presented through various means. Given all the above mentioned circumstances, the research

strategy of this study can be characterized as explorative, which allow a case study approach.

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Hence, the research design of this study focus on theory development rather than testing already

existing developed hypotheses. Data for this case study are obtained from various sources:

articles, company’s websites, printed materials, etc. The case study focuses specifically on

Shanghai Volkswagen Automotive Company Ltd (SVW), an international equity joint venture

formed between Chinese based Shanghai Automotive Industry Corporation (SAIC)) and German

Volkswagen A.G( VW). This case tries to provide significant insight concerning the ultimate

success of IJV. More details regarding the methodology of this research will be provided in

chapter three.

1.5. Outline of the Study

To have a better insight into the overall structure of this study and for the facilitation of the

readers to have a clear understanding, the structure is as follows:

Chapter 01: has provided broad but concise introduction, and the background of the problem

indication to be addressed for the readers. The chapter also gave the objectives of the research;

the research questions, research design, and research methodology. Chapter 02: provides clear

highlights of the theories that are applicable and quite close to the related subject, on the other

hand, it also provides the explanation, discussion and crucial thinking for providing the

involvement in the same area. Chapter 03: opens up with the discussion of the research

methodology, philosophy of the research and the approach of this thesis. At the end, it defined

the collection of data, and the empirical construction. Chapter 04: presents discussion, outcomes

and interpretation of the result. Chapter 05: offers the research question results and results

shortened in the form of a conclusion to the study along with the recommendations, suggestions

and future areas for research in the same context.

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CHAPTER 02: LITERATURE REVIEW

2.1. Introduction

This chapter provides clear highlights strategic intent of the sponsoring firm’s partner and

theories that are applicable and quite close to the related subject; on the other hand it also

provides the explanation, discussion and crucial thinking for providing the involvement in the

same area.

2.1.1. Definition of (International) Joint Ventures

It is paramount to understand of what is meant by term “International Joint Venture” before

going into detail of this research. Literature on collaborative venture does not, however, share a

convergence view on this definition. To this end, this study will have as well its own bias in the

sense that each study has its own aspect to explain. That is why the following definition was

purposely considered with eye on the effectiveness of IJV. Yan (1998) defines joint ventures as

legally and economically independent organizational entities that collectively invest (equity)

capital and other resources to pursue certain strategic objectives. If one of the partners is located

at least outside the country of operation, the organization is understood to be an International

Equity Joint Ventures (IJV). The above mentioned definition reveals two main components:

“resources” and “strategic objectives”. These components shall be treated in the following

section as a building block on how to evaluate IJV effectiveness. Before that evaluation,

however, it is necessary first to focus on reasons for establishing an IJV. This will be explained

in the next section.

2.2. Motivations of the firm that form IJV

Scholars have studied why joint ventures (JV) exist, and this has been assessed in term of a

variety of theoretical perspectives. For example, Teece (1983) argues that the attractiveness of

JVs is a function of both the revenue enhancing and cost-reducing opportunities they provide the

multinational enterprise (MNE). Equally, Harrigan (1985) explains three benefits arising from

IJV creation as (1) internal benefits: JVs are often formed to generate internal strength. Internal

benefits include cost and risk sharing, obtaining scare resources, obtaining financing, obtaining

information, obtaining managerial know-how, and retaining innovative employees. (2)

Competitive benefits: JVs are a powerful tool for creation of competitive strengths via vertical

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integration or consolidation of firms. Competitive benefits include the influence over industry

structure, pre-empting competitors, response to globalisation, and creation of effective

competitors. (3) Strategic benefits: JVs assist companies in implementing change in their

strategic position. Strategic benefits include creation and exploitation of synergies, technology

transfer, and diversification.

Also, Kogut (1988) discusses as well three reasons for JVs existence in terms of three

approaches :( a) Transaction approach: JVs are formed to minimize the cost of production for a

firm. When the production costs of internalising exceed the cost of externally sourcing, then

formation of JV is a viable option. (b) Strategic behaviour approach: this approach states that

JVs are formed as a response to external environmental pressures. Kogut (1988) states that firms

choosing to maximize their profits by improving their competitive position opt for a joint

venture. (c) Organizational learning approach: JVs allow firms to acquire knowledge or know-

how from another firm.

Likewise, Hennart (1988) suggests that JVs have been seen as achieving four main objectives

necessary but not sufficient conditions for their existence: (1) advantage of economies of scale,

and risk diversification, (2) increase global environment, (3) pooling complementary bits of

knowledge, (4) Allaying xenophobic reactions when entering a foreign market (reducing political

risk). Since these objectives are necessary, but, not sufficient conditions, what would be then the

lacking conditions behind the attractiveness of IJVs formation? The answer of this question is

given by Faulkner and De Rond (2000) who observed that much of the empirical research

conducted within transaction cost framework has pointed out that IJVs are used to bypass the

inefficiencies of intermediate markets with respect to providing raw materials and components,

tacit knowledge, loan capital, and distribution systems. Also, IJV literature mentions other

factors such as first time expansion in foreign markets and culture difference may particularly

explain why many firms choose to joint ventures instead of taking other type of governance

structures available in market (Hennart 1988).

For more detail see table 1. In Table 01 below the first column shows some of prior research on

IJV motivation already done by scholars while the second column explains possible ambitious

strategic objectives in the form of proposed categories (clusters) that firm intend to fulfil. The

third column shows the main motivation behind IJV formation of the current study.

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Table 1: Categorization of past research on joint venture goals

Some of prior research on IJV motivation This study

Articles Joint venture goals in the

form of clusters

The main motive of IJV

formation

Harrigan (1985, 1987)

Internal benefits, Competitive

benefits, Strategic benefits

Contractor and Lorange (1988) Technology transfer, Risk

reduction, Market power,

Efficiency, Manage competition

Kogut( 1988) Transaction approach, Strategic

behaviour approach,

Organizational learning

approach

Resources seeking driver

of parent firms

Hennart (1988,1991) Taking advantage of economies

of scale and diversifying risk,

Overcoming entry barriers into

new markets, Pooling

complementary bits of

knowledge, Reducing political

risk

Koh &Venkatraman (1991) Economic scale, Access to

complementary assets, Cost or

risk sharing, Shaping the scope

and basis of competition

Lorange, Roos, and Bronn

(1992)

To defend, To catch up, To

remain, or To restructure.

Bleeke and Ernst (1993) Cash, Scale, Skills, Access, or

their combinations

Faulkner and De Rond (2000) Providing raw materials and

components, Tacit knowledge,

Loan capital, and Distribution

systems

Nielsen (2002) Risk/ cost sharing, Transfer of

knowledge related capabilities,

Shaping competition, Access to

market, Facilitate

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internationalisation, Strategic

linkages, Gaining legitimacy

Todeva & Knoke( 2005)

Organizational, Economic,

Strategic, Political

Resources seeking driver

of parent firms

Hennart & Zeng (2005) Learning with alliance partners’

Si & Bruton (2005) Knowledge acquisition,

Transaction costs savings, and

Strategic behaviour

Beamish, (2009) Create new products and

services; Enter new and foreign

markets, or Potential both.

It is clear from the above discussions that firms have several goals in order to fulfil their own

strategic objectives through IJV. Hence, it is evident that the motivation behind IJV formation is

multidimensional construct. However, the fundamental issue here is a general and easy way of

understanding of these multiple goals among scholars and practitioners. Scholars have tried to

classify IJV partnering goals, in the form of clusters or categories to tackle this problem.

For instance, Beamish (2009) concludes that firms enter into a joint venture agreements to create

new products and services, enter new and foreign markets, or potential both. Correspondingly,

Bleeke and Ernst (1993) explain that generic needs of firms seeking alliance are cash, scale,

skills, access, or their combinations. Putting both arguments together, it is clear that when firms

search for partnership, they try to address internal organizational problem, they might also

consider economic benefits, engage in strategic positioning, or political manoeuvring with

governments and competitors (Todeva et al., (2005). If scholars can classify joint venture goals

into broad categories, then it is obvious that these goals are somehow interconnected in order to

be classified.

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Ideally, whether these goals are financial benefit (profit maximization), access to resources and

capabilities, or strategic behaviour, there is convergence view among scholars that alliances

provide opportunities for participants firm to tap into the resources (knowledge, technology,

skills, low labour, material costs) of their immediate partners in a portfolio of inter-firm

agreements. This is indeed consistent with Hennart (1988), who concludes that JVs can be

explained as a device to bypass inefficient markets for intermediate inputs. Tying both arguments

with RBV logic, it is suggested that the success of IJV depends upon the capacity of each partner

to contribute resource and capabilities. Hence, based on the above mentioned IJV motives, there

is no doubt that these studies have much contributed to IJV literature, however, what is lacking

is a convergence view among scholars and practitioners to give a clear cut answer regarding the

motive of IJV formation. To this end, the next section redefines and explains the term motive of

IJV formation.

2.2.1. Review the term “motive of IJV formation”

Studies of IJV motivations constitute a critical area of IJV research (Kogut, 1988; Hennart,

1991; Glaister and Buckley, 1996). However, the examination of IJV literature suggests that IJV

studies lack understanding of the term motive. This is because some studies interpreted the term

motive of parent firms to form IJV as ‘reasons’, ‘benefits’, facilities, or even ‘partner status’. As

such, these multiple interpretations in different studies are often subjective among scholars.

Therefore, the lack of definition is a critical oversight and significant limitations in IJV research

effort (Sharma 2008). Grounded in resource based view theory (RBV), Sharma (2008) defines

the motive of IJV choice as: “Organizational drive to access and utilize the resources of its

partners and IJV environment to target specific opportunities in international markets. It

compels a firm to achieve the most valuable resource portfolio for an IJV to target specific

market opportunities”. The present definition explains that an ‘IJV motive’ should be viewed as

resource seeking drive’ of IJV parent firms. Sharma (2008) warns, however, that this definition

of IJV motive should be considered in conjunction a number of features. (1) An IJV motive is an

unobservable drive that cannot be seen. Its existence can only be inferred from the actions of a

firm in terms of its choice of a governance structure. (2) An IJV motive is a multidimensional

construct. The drive relates to a wide range of property-based, knowledge-based or complex

resources that an IJV parent firm may require in operating successfully in the international

markets (Sharma 2008).

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The question is how literature on collaborative ventures defines resources? According to

Wernerfelt (1984:172) resources are those (tangible and intangible) assets which are tied to the

firm. Hence, what firm has in term of resources would determine what it can accomplish (Das

and Teng 2000). It is obvious that the firm will be motivated to collaborate with other firms in

case it is unable to generate resources necessary on its own to accomplish their strategic

objectives. For instance, when firm partner develop jointly new capabilities, the main motive

might be learning with IJV partners. Equally, many joint ventures occur as options to expand in

the future and are interim mechanism by which firms both buffer and explore uncertainty (Kogut

1991). Likewise, the above arguments are consistent with Todeva and Knoke, (2005) who

observe that when two or more autonomous organizations decide to form an alliance for an

emerging joint purpose, a decision to cooperate is not a responsive action, but rather it is

fundamentally strategic intent, which aims at improving the future circumstances for each firm

and their partnership as a whole. The next section defines and explains the strategic intents of the

firm that form IJV.

2.3. Strategic intent of sponsoring firms partner in IJV

2.3.1. Definition of strategic intent

Strategic intent was first introduced by Hamel and Prahalad (1989) to describe the dramatic post-

war ascent of some Japanese companies like Canon and Komatsu. These companies pursued

long-term strategic objectives which were to become global leaders. According to Hamel &

Prahalad (1989), strategic intent captures the essence of winning, inspiring people and utilizing

intent to direct allocation of resources (Hamel & Prahalad 1989). For instance, decades ago,

Coca-Cola Company’s strategic intent was that Coke should be within the reach of every human

being on the planet. Actually Coca-Cola Company has made enormous progress by developing a

vision of the future. In short, strategic intent perspective concerns whether a firm: (1) has an

ambitious strategic objective; (2) makes that strategic objective the first priority; (3) makes

rational choices; (4) has a decision making role for its top managers or management team (Rui

and Yip 2008). The next section explains the strategic intent of firms wishing to fulfil their

objectives through IJV.

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2.3.2. Strategic intents of firm forming IJV

According to Reuer, (1998), the strategic intent of many firms using IJVs is to fill some gap in

the firm’s capabilities or business portfolio. This is to say that firms use IJVs to shore up the

organization’s skills by seeking a partner with complementary resources. This argument is

consistent with Sharma (2008), who concludes that the motivation behind IJV creation should be

seen as resources seeking driver. It is obvious from the discussions regarding the existence of

JVs that one main objective pushing firm to form partnership with other firms is to accumulate

resources. In doing so, sponsoring firms partner intend to make full use of the capacity of each

party to maximize the beneficial economic effects of their activities. Now the focus of the next

sections is to explain this objective in the form of theory: Resource based view of the firm

(RBV).

2.3.2.1. Resource based rationale

The resource-based view theory explains that inter firm partnerships as a means of accessing and

combining resources across firm boundaries (Eisenhardt and Schoonhoven, 1996). This is to say

that alliances are cooperative relationships driven by logic of strategic resource needs and social

resource opportunities. The most fundamental irony of alliances is that firms must have resources

to get resources (Eisenhardt and Schoonhoven, 1996). Similarly, Barney, (1991) explains that

the main motivation behind IJV formation is the combination of complementary resources of

their sponsoring firm to create a sustainable competitive advantage at the individual firm level.

This is to say that the fundamental principle of RBV theory is that the basis for a competitive

advantage of a firm lies in accumulating valuable resources and capabilities at the firm's disposal

(Wernerfelt 1984: 172; Rumelt, 1984). Further the RBV perspective suggests that differences in

firms’ performance are related to the variances in firms’ resources as strategic resources are

heterogeneously distributed across companies, and these differences are stable overtime (Barney

1991). This perspective stresses on resources of the company whether are tangible (e.g.,

Financial assets, technology) or intangible (such as brand name, customer loyalty, reputation,

research and development capabilities, managerial skills) is an vital and main aspect while

pursuing a unique strategic position .

Accordingly, Das and Teng (2000) argue that the rationale behind alliance formation is the value

creation potential of firm resources that are pooled together.

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Similarly, IJV allowed firms to create new resources package that can generate additional rents

otherwise unavailable to either partner. It has been shown that firms tend to form alliances with

other firms capable of providing critical resources. In other words, in order to form alliances

such as IJV, firms must have adequate resources to attract potential partners. Hence, firms that

possess more resources are capable of procuring and utilizing external knowledge and resources

through alliances. This argument is consistent with Barney (1991), and Das and Teng (2000),

who suggest that the parameters of a firm’s competitive strategy are critically influenced by its

accumulated resources. Moreover, Resource-based theory suggests that firms earn returns

because they possess sustainable competitive advantages that come from tangible and intangible

resources. It is obvious that the main objective of RBV theory is to exploit and develop the

organization’s resources to gain a sustainable competitive advantage. This is to say that IJV in

this context is viewed as a collection of capabilities, and competences which are from the parent

firm partners with the latter expect to leverage new actives resources from IJV. Hence IJVs are

strategies to not only to exploit but also to explore a firm’s existing pool of resources and

capabilities (Eisenhardt & Schoonhoven, 1996).

These arguments bring two fundamental questions: which criteria will be used by sponsoring

firm partners to select appropriate partners who might possess these resources? / How can

partner fit be assessed? (2) What characterize firm resources sustainable competitive advantage?

/ How resources deployment strategy of sponsoring firm partners in IJV can be assessed? These

two questions will be answered differently in subsequent sections. The first question will be

developed in the next section and the second afterward.

2.4. Assessing overall resources deployment strategy of sponsoring firms

Various theories in the field of strategic alliances have been developed to address the motives

behind organizational decisions to enter into joint ventures, among them competitive strategy of

a firm, resource dependency, and transaction cost economics. Each theory views the motive of

forming alliances from different perspectives. However, all of the above theories argue that the

ultimate goal of strategic alliances particularly joint ventures is to create value and enhance the

competitive positions of the involved firms’ partner. For an alliance to be successful, both

partners must realize benefits from the new arrangement. In recent years, globalisation of trade in

the international business environment and the rapid technological changes have persuaded more

18

firms to enter into some sort of inter-organizational joint agreements. With a business

environment that requires continuous innovations and strategic focus, more organizations have

realized that self-sufficiency is becoming increasingly costly and difficult to achieve. Several

empirical studies have concluded that firms tend to expand their operations by working with

other firms even when the financial return of such joint ventures is minimal. Therefore, it is

necessary to realize that economical gains alone are not reason to form strategic alliances or joint

ventures. However, it is suggested by scholars that these firms look for sustained competitive

advantage in the future in order to accomplish their strategic intents.

According to Barney (1991), firm resources that hold the potential for sustained competitive

advantage must have four attributes: valuable, rare, Inimitable, and non-substitutable. This is to

say that in resource based view of the firm theory, the strategy of the firm dependent on firms’

resources. To measure these attributes, Barney (1991) introduces the influential VRIN

framework, and later changes it to VRIO framework (Barney 1995, 1997).

According to (Choi and Lee, 1997, Glaister, 2004) there is a growing view that an

organization’s lasting competitive advantage may be its ability to learn, accumulate, and diffuse

knowledge throughout the organization. Here, the question is how can the organizations gain the

ability to learn, accumulate, and diffuse competitive advantage? RBV theory provides the

answer to this question by recognizing three mechanisms for acquiring resources and

capabilities: (1) whether by Markets: buying resources or hiring people with desired knowledge

from other organizations) (2) or Hierarchies: internally creating them; (3) or by

interorganizational relationships through combinations of complementary resources and/or

capabilities. The third mechanism to acquire resources and capabilities is here again the subject

of the study’ attention since firms face constraints of limited resources in term of capital

(available funds), then it makes sense that these firms may turn to inter organization relationship

such as IJVs in order to collaborate through combinations of complementary resources and/or

capabilities. In the same context, Madhok and Tallman (1998) point out that the decision to form

an alliance implies three considerations: First, the firm does not possess the entire bundle of

resources and capabilities needed to create the desired competency and cannot develop them

internally in an acceptable time at an acceptable cost. If the firm cannot develop the required

competencies in a timely and cost-effective manner, it must look beyond its boundaries for them.

19

Second, single market transactions do not make available the necessary degree of organizational

integration to facilitate organizational learning of embedded knowledge. Markets cannot transmit

such knowledge effectively, as markets are effective only in transmitting knowledge that can be

fully described in an explicit manner, as in licensing a patent (Kogut, 1988). Third, acquiring

and fully integrating another firm that possesses the requisite skills is not feasible. Fully

internalising resources is an expensive and uncertain process that may degrade or destroy the

desired organizationally embedded competencies (Chi, 1994).

Taking into consideration the above arguments regarding resource rationale perspective; it

makes sense that these resources and capabilities allow firms partner to exploit opportunities to

expand their markets abroad. Consequently these resources become the reason for a firm to join a

venture as firms complement each other in terms of resources each firm may lack. Similarly,

literature underlines that both costs and benefits of cooperation in a way that cooperative

specialization allows firms to pool their competencies with those of their partner and in what

they do best (Hennart & Zeng, 2005). Likewise, Penrose (1959) argues that firm’s performance

does not depend only on holding the resources but also on making better use of them. This

argument is consistent with the concept of absorptive capacity, which is the organization ability

to (1) understand new external knowledge, (2) assimilate it, and (3) apply it to commercial ends

(Cohen and Levinthal, 1990: 128). Thus, a firm’s capacity to technologically innovate by

combining various capabilities depends on its accumulated knowledge. Hence, its internal and

external learning capabilities, as well as its opportunity set. This is to say that firms will seek

knowledge complementary to its own, especially when that enables and/or facilitates the

absorption of other knowledge (Shenkar and Li, 1999).

Similarly, firms that want to form partnership in the form of IJVs are motivated with same

intuition highlighted above, and this is done according to their different needs or motives. For

instance when IJV is formed in emerging market, foreign and local partners often have different

expectations and interests. With the local partner, goal is often to access to technology while the

foreign firm’s goal is to enter the local market (Hennart and Zeng 2005). Then, it is clear that

these partners need each other in order to survive because they will be better off to form a

partnership than by doing it alone. This is indeed two different goals but to accomplish these

goals firms’ partners need to work together and share resources. This action of sharing,

20

exchanging knowledge or skills from different parent firms is the acquisition of knowledge,

technology, other skills and expertise which form all together a firm’ resources. As it has been

explained before in this study, IJVs represent a valuable mechanism to access and acquire new

technologies and tacit knowledge from foreign firms (Szulanski, 1996), and the successful

transfer of knowledge can be a vital resource to enhance IJV performance (Park, Giroud, Mirza,

and Whitelock, 2008).

However, the exchange of these valuable resources between firms partners might exposes them

to opportunism, since firm partners are not only interested in accessing or acquiring valuable

resources from alliance but also in protecting their own valuable resources. Hence, partnering

firms face double puzzles of being able to obtain valuable resources from another party without

losing control of one’s own resources (Das and Teng, 2000). Scholars have studied how different

resource types influence the choice of alliance structures. In the previous section, it has been

revealed that resources can be classified into tangible or intangible category. In addition, firm

resources that hold the potential for sustained competitive advantage must have attributes such as

valuable, rare, inimitable, and non-substitutable. In addition, resources can be grouped into three

categories, namely physical resources, human resources and organizational resources. Physical

resources include tangible assets such as land, plant, equipment, finished and semi-finished

goods, as well as intangible assets such as brand name, copyright and patent. Human resources

include the education, training, experience, relationships, skills, and intelligence of individual

staff in a firm. Finally, organizational resources include corporate culture, organizational

structure, rules, procedures, management information systems, as well as a firm's relationships

with external institutions (Barney 1991, and Tsang 1999). Based on the concept of imperfectly

imitable, Miller & Shamsie, (1996) suggest that all resources may be classified into two broad

categories: property-based resources and knowledge-based resources. Property-based resources

are legal properties owned by firms such as financial capital, physical resources, and human

resources. Hence, property-based resources cannot be easily obtained, because they are legally

protected through property rights in the form of patents, contracts, copyrights, trademarks (Miller

& Shamsie, 1996). This means that no one can have an access or use them without the

permission of the owner. Knowledge-based resources category, on the other hand, refers to a

firm’s intangible know-how and skills such as organizational resources (culture), learning

capability, technological and managerial resources. It is obvious from these characterizations that

21

knowledge-based resources are not easily imitable since others cannot easily copy or imitate

them in the sense that they are vague and ambiguous (Das and Teng, 2000). However, once

others (firm partner) get adequate access to knowledge-based resources, it is difficult to keep

inside these resources within the firm for a long period. As a result, alliance partners will be

always concerned with losing their knowledge-based resources through an alliance (Hamel,

1991).

Correspondingly, IJV literature explains that the reason of joint ventures existence is to gain core

skills that would be difficult for firms to obtain on their own. To this end, knowledge acquisition

will be considered the main driving force for firms to form this partnership. According to

Buckley, Glaister, Klijn, and Tan (2009), knowledge acquisition can be defined as the transfer of

knowledge resources between firms with the aim of acquiring knowledge in order to learn.

Furthermore, literatures on IJV emphasize that learning; knowledge acquisition and adaptation

are important rationales for the creation of IJVs, contributing significantly to IJV performance

(Hamel 1991; Kogut and zander 1992; Lyles and Salk 1996).

Likewise, knowledge acquired from firm partner can be explicit or tacit, and might take root into

the IJV organization via socialization, internalisation, and by combining different types of

explicit knowledge to create new knowledge that is useful in the IJV context (Nonaka 1994;

Nonaka and Takeuchi 1995, Lyles and Salk, 1996). It is crucial, however, to note that there is

the difference between knowledge accession and knowledge acquisition. Knowledge accession

describes organizational action between firms to access each other’s knowledge stock. Thus, the

focus of knowledge accession does not rest on learning. On the other hand, the aim of acquiring

knowledge is to learn from partner firms (Buckley, et al. 2009). It is clear that partnering firms

in IJV will be driven with the same ambition which is to acquire these resources and capabilities

(whether are property-based or knowledge-based) in the form of socialization, internalisation, or

combining different types of explicit knowledge from partner firms to create new knowledge that

is beneficial to every party involved in collaboration. That is both sponsoring firms and IJV

itself.

However, each party involved in collaboration will be eager not lose control of their own

resources, and they are likely to protect their own valuable resources in the sense that these

resources belong to each firm and are a source of competitive advantage to these firms.

22

Prospective partnering firms in IJV should first carefully study the overall resources deployment

strategy of each partner before choosing which governance structure is appropriate to them, It is

suggested by scholars that IJV will be preferred, if primary resources of one of the partners are

property-based and its other partner’s primary resources are knowledge-based.

Scholars claim that the effect of partner firm relatedness may explain resources deployment

strategy. According to Wang and Zajac, (2007), partner relatedness describes the similarity

between partnership resources and the partner firm’s internal resources. This is to say that similar

firm partners often have similar resources as businesses in the same industry tend to have similar

assets and operations (Wang and Zajac, 2007). Note however, that after partnership formation,

relatedness may change as the partner firm adjusts its business portfolio, exiting their existing

markets or entering new markets (Ramanujam and Varadarajan, 1989).

For more details, the following table 02 shows and explains the resource types and a firm’s

structural preferences. For simplicity, this study assumes that only two partners firm form

alliance: that is partner firm A and partner firm B. In addition, this study has already mentioned

in the beginning of this chapter that the main motivation behind alliances formation is resources

seeking driver for parent firm’s partner. To this end, this study has also mentioned that resources

can be classified into two broad categories such as property-based and knowledge-based

resources. This is to say that the extent of interaction between these two prospective partners in

the alliance relationship, thus a partner ability to deploy resources whether are property-based

and/ or knowledge-based resources will determine the firm’s structural preferences, thus the

firm’s ability to access integral resources through this alliance. In addition, resources play a key

role in determining partner fit. This is because partner fit can be conceptualised as the extent to

which compatibility is achieved between the IJV partners with respect to (1) their strategic

objectives, (2) contribution of critical resources, (3) agreement upon the venture’s operation, and

(4) the structure of the partners’ relative bargaining power and control(Yan & Duan, 2003).

Hence the following proposition can be constructed:

Proposition 1: Partners overall resources deployment strategy determines a firm’s structural

preference and contribute to attain partner fit level.

23

Table2: Resource types and a firm’s structural preferences

Partner firm B

(Foreign parent firm)

Partner Firm A

(Host parent firm)

Property-Based Resources

(Explicit)

Knowledge-Based Resources

(Tacit)

Property-Based Resources

(Explicit)

Unilateral Contract-Based

Alliances is preferred if both

partner firms’ primary

resources are property-based. I.e. when partner firm access

each other’s knowledge stock.

E.g.: KLM and Northwest

Airlines

Equity Joint Ventures is

preferred if primary

resources of one of the

partners are property-based

and its other partner’s

primary resources are

knowledge-based. i.e. when

both parties are willing to

share freely information with

each other

E.g.: ToysRUs and

McDonalds Japan joint

venture.

Knowledge-Based Resources

(Tacit)

Minority Equity Alliances is

preferable when primary

resources of one of the partners

are knowledge-based, and its

other partner’s primary

resources are property-based.

e.g.: Pharmaceutical firm takes

an equity position in the smaller

firm, such as a biotechnology

firm.

NB: Partner firms carry out their

cooperative activities separately

without forming a new entity.

Bilateral Contract-Based

Alliances is preferable if both

partners firms’ primary

resources are knowledge-

based.

e.g.: joint R&D projects,

joint marketing and promotion

projects

Adapted from Das & Teng (2000)

24

Firm partners' resources also affect alliance governance structure after alliance formation in IJV;

each parent firm invests resources with the intention of getting as much as possible in return for

the investment. A certain level of governance is needed to protect and exploit the resources a

parent has committed to the IJV. Literature on IJV research suggests that critical resources

enable the parent firm possessing them to gain control over the IJV. In other words, parent

control is determined by who brings what and how much to the IJV. While transaction cost

economics and agency theories mentions the necessity of IJV governance, the resource-based

view (RBV) focuses on parent firms' ability to exercise governance. It is suggested that the

relative resources contribution of parents is a critical variable in determining patterns of control

in IJV. For instance, equity share is viewed as input to the bargaining process for control, rather

than as an outcome. This argument is compatible with the complex nature of IJV governance, as

various resources and capabilities imply various methods of control.

2.5. Partners selection

Any collaboration begins with analysing, and selecting appropriate partner, and this action will

have a direct effect on potential alliance benefits (Holmberg, and Cummings 2009). However,

finding a right partner is not an easy task. IJV research has comprehensively contributed on how

these hybrid organizational forms might search the right partners. For instance, Geringer (1991)

suggests that managers seeking complementary partners must determine the task related

complementarities as a basis for partner selection. This is because; prospective partners should

be able to provide organization with task related skills and resources that fill a capability gap that

exists in the organization (Geringer 1991). Given the status of IJV as legally and economically

independent organization, it is therefore, paramount to develop a basic understanding of how

prospective firms partner select each other in order to fulfil their underlying objectives. Because,

partnering firms have to work together as one collective entity in order to reach a successful

relationship. Similarly, Lorange and Roos (1992. p30) suggest that to reach a strategic win-win

match between partners, IJV related goals and the strategic intents of the parent organizations

should be fit. Now the question that arises: what does “fit “mean here?

25

According to Saxton (1997), fit can be defined; the degree to which organizations can get along

and realize anticipated synergies critical to a transaction’s success. Harrigan (1988) defines “fit”

as both complementary (i.e. Different and valuable resources or capabilities contributed by

partners to the alliance) or compatibility (i.e. Attributes of each partner in the alliance which can

affect communication, coordination, and control) among partnering firms. It is necessary to note

however, that partner fit does not mean equality of partners by definition, because it is possible

for firms with different objectives or organization cultures, to cooperate successfully (Douma,

1997). In addition, the fact that IJV is made with at least two economically independent partners,

might further complicate collaboration in the sense that these partners might have overlapping

goals or objectives. In the same intuition, Beamish (1985) argue that avoidance conflicts and

prospects of increasing mutual benefits are essential instruments to enhance IJV success. This is

to say that the extent to which partners match with each others in an effective and efficient

manner (in other words “fit”) determine the success of any alliance (Douma, Bilderbeek,

Idenburg and Looise, 2000). This argument is consistent with Parkhe (1993) who conclude that

from a process perspective, the mid-range linkage between partner selection and IJV success

may lie in inter partner fit. In brief, fit in this context can be understood as the situation in which

the alignments between partnering firms in alliance promote a successful cooperation.

Based on the above arguments, it is obvious that partner fit is a critical success factor for IJV

success. However, partner fit is a rich and complex concept, and scholars have identified many

types of fit. For instance Luo (1998) classify partner fit into strategic, organizational and

financial fit. Strategic fit influences the operational skills and resources needed for the joint

venture’s competitive success, organizational fit affects the efficiency and effectiveness of inter-

firm cooperation, and financial fit impacts the optimisation of capital structure and cash flow.

Also, Bronder & Pritzl (1992) categorize partner fit into fundamental fit characterized by the

complementary of visible and extrinsic assets or resources; Strategic fit characterized by the

harmony, shared or coherent goals and strategic posture; cultural fit, characterized by the

compatibility among the partners in terms of culture, technology, communication and

coordination. Likewise, Douma, et al. (2000) develop a generic fit framework in which they

explain that alliance success requires a good fit in five areas. That is a strategic fit, organizational

fit, cultural fit, operational fit, and human fit.

26

It is obvious from above review that partner fit in IJV is concerned with the issue of collective

alignment among partnering firms. Although every type of fit is crucial for a good cooperation,

IJV does not need necessary to reach all these types of fit nor pursue them in sequence, but what

is essential is to reach a right balance between partners so that a win-win situation is created. In

addition, discussing all aspects of fit in detail does not fit the scope of this study. Given, the

content aspects of this study which is to explain IJV success in term of realization of strategic

goals or objectives of its partnering firms; it makes sense focus only on strategic, and

organizational fit and how to manage the dynamic fit since a good fit may deteriorate overtime,

while an insufficient fit at the start of the alliance can be improved (Douma, et, al. 2000).

Strategic fit is reached when partnering firms’ activities and expertise complement in a way that

increases value potential of the alliance. Hence a win-win situation from which both partners

benefit is an ideal assumption (Bronder & Pritzl, 1992). For instance if parent firm is focused

on the world market, and the other only concerned with the development of products for the

domestic market, it is obvious that their strategic goals are in conflict. Hence it is vital that

partnering firms in IJV achieve and develop a strategic fit during the period of collaboration.

Here, the question is how partnering firms in IJV should assess a good strategic fit? Douma et al.

(2000) outline six drivers for strategic fit. First, IJV partners should share strategic vision on the

future of the alliance. Second, IJV partners and corporate strategies should be compatible (i.e.

Compatibility of strategies within alliance strategies versus corporate strategies of sponsoring

firms). Third, the IJV should have strategic importance to both partners. Four, Partners in IJV

should be mutually dependent for achieving their objectives. Five, the joint activities in IJV

should add value for clients and partners. Six, IJV should be accepted by the market (buyers,

competitors, and government). The critical issue of joint ventures where partners have the same

potential is the status of respect for each other. IJV is likely to be successful if the parent firms

share common goals and joint activities that have complementary long-term objectives. Thus, a

good strategic fit between partners in IJV will determine the potential of the alliance.

Organizational fit is concerned on how different organizations (partnering firms in IJV) are

integrated, in other words, the efficiency and effectiveness of inter firm cooperation. Likewise,

Douma (1997) explains in the following quote: “There is organizational fit when the

organizational differences do not hinder the functioning of the alliance, the partners have a

27

shared vision on the alliance design, and the intended alliance design enables them to realize

their objectives”. This is because too often the causes of disbelieve may be problems in

communication on a personal as well as at the organizational level. The differences of interests

of staff associated with the national and cultural differences, lack of cohesion of the company.

Often the local staff of international joint venture partners does not trust the foreign and hide the

information. These conflicts often arise from the use of human resources policies and new

technologies, finding out who is responsible for what, what resources are used, to what time

etc… To tackle this challenge, IJV research explains how partnering firms can assess a good

organizational fit. According to Douma et al. (2000), there are six drivers that might explain

organizational fit. First, organizational differences should be addressed in such way that

effective cooperation is made possible. Second, alliance design should provide a strategic and

organizational flexibility. Third, alliance design complexity should be reduced. Four, alliance

design should enable effective management control for both partners. Five, alliance design

should overcome potential strategic conflicts. Six, alliance design should enable partners to

achieve their strategic objectives.

All in all, partner fit can be conceptualised, the extent to which compatibility is achieved

between the IJV partners with respect to (1) their strategic objectives, (2) contribution of critical

resources, (3) agreement upon the venture’s operation, and (4) the structure of the partners’

relative bargaining power and control (Yan & Duan, 2003). Moreover, partner fit can be

characterized not only by their complementary balance but, mutual benefits, harmony, and

interdependency (Douma, et al. 2000). Taken all together the above arguments regarding partner

selection, it makes sense formulate the following proposition:

Proposition 2: Both Strategic and Organization fit determine partner fit

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2.6. IJV Effectiveness

In this study, IJV effectiveness is conceptualised as a legally independent organization jointly

owned by two or more companies when they expect that the potential value derived from the

alliance to be greater than the value derived from any alternative organizational arrangement

(Canal, Valdés-Llaneza, Ariño, 2003). Likewise, there is a wide divergence among scholars

whether effectiveness should be viewed as IJV status (death versus existing IJV), effectiveness

as long or short duration, or effectiveness as synergy gained during venture. Given the problem

indication of this study, and the way this study is designed, the present study defined IJV

effectiveness as the extent to which partner’s goals for the alliance are fulfilled.

2.7. Summary

All in all, this chapter has developed the motivation behind IJV formation through RBV

approach. It is suggested that resources seeking driver is the main motivation of firms that form

IJV (IJV parent firms). Note however, that not all resources are wanted by firms. The RBV

theory stresses the importance of potential resources of the firm that possess sustained

competitive advantage. These are value, valuable, rare, Inimitable, and non-substitutable. Based

on the concept of imperfectly imitable, all resources may be classified into two broad categories

namely property-based resources and knowledge-based resources. These categories determine

the firm’s structural preferences. Thus, that is firm’s ability to access integral resources through

partnership. Given the fact that these resources are the source of competitive advantage of every

firm, partnering firms face double puzzles of being able to obtain valuable resources through

partnership without losing control of one’s own resources. Partnering firms’ overall resources

deployment strategy should first be addressed to balance this issue. It is suggested that Equity

Joint Ventures will be preferred if primary resources of one of the partners are property-based

and other partner’s primary resources are knowledge-based. In addition, Partners’ contribution of

critical resources to the venture enhances compatibility between IJV partners, thus partner fit.

Therefore, the following proposition was created: Proposition 1: Partners overall resources

deployment strategy determines both partner fit and firm’s structural preference. Next, IJV

partnership demands a different approach to fit. Among many fit that exist, the present study has

emphasized on strategic traits and organizational traits which in turn determine strategic fit and

organization fit of IJV respectively.

29

These types of fit were specifically chosen according to both problem indication and

phenomenon being studied in this thesis. According to the dynamic fit model of Douma et al.

(2000), alliance potential and feasibility can be assessed. This can be done by focusing on six

drivers of strategic and organizational fit respectively where partnering firms can evaluate their

absolute scores and their differences. Hence, strategic fit determines IJV potential, while

organizational fit determines IJV feasibility. Based on both arguments, the following proposition

was created:

Proposition 2: Both Strategic and Organization fit determine partner fit.

Grounded in RBV, the motivation behind IJV formation is the accumulation of resources for

sponsoring firm partners. Besides that, partners overall resources deployment strategy determine

firm’s structural preference and contribute to attain partner fit level as well. Moreover, strategic,

and organizational fit determine partner fit. Consequently, the effectiveness of IJV can be

explained by three factors, partners overall resources deployment strategy, strategic, and

organizational fit.

30

This theoretical framework can be illustrated by means of the following diagram

Next chapter determines what research methods to employ to best answer the research problem

through the proposed framework

31

CHAPTER 03: RESEARCH METHODOLOGY

3.1. Introduction

This chapter opens up with discussions of the research methodology adopted in this research, and

strategy followed throughout the entire study. Above all, it will be explained why the case study

approach is the most appropriate research strategy to answer the central research question of this

study. Second, research design, which consists of case selection, data collection will be

explained. Finally, the method of data analysis as well as the empirical construction of this

research will be clarified.

3.2. Research strategy

Literatures on social science distinguish two primary approaches to conduct research

methodologies. These are quantitative research and qualitative research. According to Taylor &

Bogdan (1984) quantitative research explains the causes of changes in social facts, particularly

through objective measurement and quantitative analysis. Alternatively the purpose of qualitative

research is to understand the social phenomenon from the actors’ perspective through

participation in life of those actors. Brief, quantitative research tries to quantify data and

generalize results from a sample to the population of interest, whereas qualitative research tries

to understand the reasons or motives. Based on these arguments, quantitative research is less

attractive in this study given the definition of IJV as legally economically independent

organization founded at least by two parent firms’ partners to pursue certain strategic objectives.

Because it is possible that one partner may achieve its objective while the other partner does not

fill the same way. Hence, the organizational aspect such as IJV effectiveness might seem

difficult to operationalize into quantitatively measurable variables. To this end, a qualitative

research method was instead chosen in this study. Hence, the research strategy of this study can

be characterized as explorative. A case study approach has been chosen to make this research

persuasive, Hence, the research design of this study focus on theory development rather than

testing already existing developed hypotheses. The next section explains case study approach.

32

3.2.1. Case study approach

According to Eisenhardt (1989), case study is a research strategy which focuses to understand

the dynamics present within single settings. Likewise, Yin (1991) describes a case study as an

investigation of contemporary, empirical phenomenon within its real life context, when the limits

between a phenomenon and its context are not obvious, and multiple sources of evidence are

used. In the same vein, Merriam-Webster’s dictionary (2009) describes a case study as an

intensive analysis of person or community stressing developmental factors in relation to the

environment. Based on the above mentioned definitions, it is obvious that case study is a

research strategy which provides more detail information in term of depth, and richness. Further,

case study help to explain the dynamics present or developmental factors, in the sense that it

evolves in time and interrelated events, that occur at such a time, such a place and that constitute

the case when seen as a whole. Furthermore, case studies focus on relation to the environment

that is the context. Hence, the drawing of boundaries for the individual unit of study decides

what gets to count as case and what becomes context to the case (Flyvbjerg 2011).

Correspondingly, in this study IJV effectiveness, is the phenomenon to be studied and

international equity joint ventures (IJV) are the cases.

According to Benbasat, Goldstein, and Mead (1987), case study is considered to be viable for

three reasons: (1) when it is necessary to study the phenomenon in its natural setting; (2) the

researcher can ask "how" and "why" questions to understand the nature and complexity of the

processes taking place; (3) research is being conducted in an area where few, and previous

studies have been undertaken. Similarly, case study method was chosen as the main research

strategy due to the following considerations. First, case study is better suited research strategy to

explain the aspect of this study in the sense that it focuses on understanding the dynamics present

within single settings. This is because the case study places primary value on complete

understandings, and how people understand, experience and operate within milieus that are

particularly dynamic, and social in their foundation and structure. This is consistent with this

study due to the dynamic nature of IJV, and potentially many interrelated variables which might

explain IJV effectiveness. As it has been mentioned in previous chapters, this study aims to

investigate in depth the effects of partnering firms’ strategic intent, partner fit and partners’

overall resources deployment strategy on IJV effectiveness. Case study is particularly better

suited for this purpose as it allows more freedom, greater flexibility and intensive analysis during

33

the inquiry. This is because the case study allows researchers to start from a broad topic, and

they can narrow down the topic as the research progress. Hence, case study is more suitable on

theory building rather than theory testing. Second, the case study method is in line with this

study in the sense that the central research question investigates how do strategic intents of

partnering firms influence IJV the effectiveness. Thus, the central research question of this study

is phased in order to understand the dynamic nature of IJVs and factors that contribute to their

effectiveness. Finally, case study is better suited to explain the phenomenon of this study in the

sense that IJV literature does not share a convergence view on antecedent variables, which might

explain, the ultimate success and failure. In other words, only few and fragmented studies have

so far cantered of IJV effectiveness. This is clear visible with a failure rate of IJV fixed between

30% and 70%. There is indeed a need further investigate the factors that enhance IJV

effectiveness.

It is necessary to note, however, that a case study approach has some concerns. Case studies

might be considered weak because they are typically limited to a single organization and it is

difficult to generalize findings. Usually it is difficult to find similar cases with identical data that

can be analysed statistically (Benbasat et al., 1987). Hence, case studies are hard to generalize in

the conventional sense. Another concern about case study is that the complexity examined is

difficult to represent simply in the sense that there is often a problem of representation. This is

because researcher working from case data can lose their sense of proportion when they confront

vivid, voluminous data. The lack of quantitative measure such as regression results or

observations across multiple studies may make difficult to assess, which are the most significant

relationships, and which simply are idiosyncratic to a particular case (Eisenhardt 1989). For

more detail about pros and cons see table 3.

34

Table 3: strengths and weaknesses of qualitative case study

3.2.2. Case selection

Case study method can provide rich information and depth analysis of factors that enhance

organizational performance. Thus, case study method can identify organizational behaviours

across corporations, and these behaviours can have substantial effects on their ultimate success

and failure. To this end, this study investigates two firms that engage in International joint

venture. Two multinational automobile corporations are chosen as the basis for discussion.

Shanghai Automotive Industry Corporation (SAIC) and German Volkswagen A.G (VW) are

selected as the case sites. This is because these two corporations form a 50%-50% international

joint venture called Shanghai Volkswagen Automotive Company Ltd (SVW). The case selection

is based on the above character of case study method. For the matter of simplicity only two

partners that form IJV were chosen in this study. There are also number of reasons for choosing

automobile industry, and China as industry of operation and host country respectively. First,

automobile industry competitive structure is based on the structure of the linkage network; this is

because no single firms have explicit cooperative corporate strategy but rather a dense of

network of alliances that has been established (Garcia-Pont 2006). Hence this will signal the

strategic intent among partnering firms involved in the alliance. Second, given that China is now

the first-largest automobile market in the world followed by U.S., Japan and Germany, it makes

sense consider that every car manufacture firm will want to focus on this emerging market.

Strengths

Source of ideas about to study

behaviour

Opportunity for innovation

Method to study rare

phenomena

Method to challenge theoretical

assumptions

Weaknesses

Hard to draw definite cause-effect

conclusions

Hard to generalize from a single case

Possible biases in data collection and

interpretation in sense that a single

person gathers and analyses the

information

35

Volkswagen group was among first foreign firms to make the move into China market. Another

reason to choose china as host country is that many joint ventures have been created in china

from the years 1980, and this has led many scholars to study IJV in that particular emerging

market. As such, reason may facilitate this study to access information pertaining to this study,

and which may help to uncover various factors that explain IJV effectiveness.

3.2.3. Secondary data collection

This study is mainly based on secondary research in which all the data and information are

coming from second hand sources. Secondary research is conducted through a number of

sources, including libraries and the Internet. The Internet can be considerable tool in obtaining

relevant information, leading to search for articles in journals and newspapers from database.

Also, the data have been gathered through various sources out of which some are online while

some are on paper. The main conclusive data are the result of a thorough analysis of the material

found online. The research involved analysing the news postings on the web over a phase of

years. The approach employed is reading the abstract or body of each publication. This research

is effective in acquiring information. It is the method of choice when quantitative measurement

is not required. The research encompasses the publications, articles and similar studies accessible

on the internet. The research began with a broad analysis of the existing literature keeping in

view the approach taken in earlier studies. The findings and conclusions are based on the

secondary data.

According to Yin (1994), the unique strength of case study research allows researchers to use

various kinds of methods to collect data. Likewise, data for this case study are obtained from a

wide range of well known published annual reports, press information, company’s websites and

from information previously compiled by other researchers. Furthermore, some interviews with

Chef Executive Officers (CEO) have been conducted by journalists and presented through

various means. This case study focuses specifically on Shanghai Volkswagen Automotive

Company Ltd (SVW), a fifty- fifty international equity joint venture formed between Chinese

based Shanghai Automotive Industry Corporation (SAIC)) and German Volkswagen A.G( VW).

This case tries to provide significant insight of factors that enhance IJV success.

It is worth to point out, however, that the only use of secondary data incurs some concerns.

Some data might not be reflecting to the present study. In order to reduce such problems this

36

study selects carefully the recent data, which reflect the present research. To avoid reliability

concern, the collection of data will be mainly filtered with eye on the objectivity and source of

the material in question. This is to say that data will be reached through well known tools such as

corporation’s annual report or official websites such as WTO, the websites of each main

Automobile Corporations involved in this report.

3.3. Method of data analysis

According to Eisenhardt (1989), analysing data is the basis of building theory from case studies.

Similarly, this study relies on secondary sources which are available literature of already

conducted research by other academic researchers from top articles and journals in the field of

boundaries of the firm. As such, data used in this study are assumed to be valid and reliable.

Next, analysing results for a case study tend to be more opinion based than statistical methods.

Hence, the idea is to gather data into a good form and construct a narrative around it. Hence, the

analysis of this case study remains purely descriptive. The next section gives a summary of the

research philosophy subscribed to this study.

3.4. Summary

This chapter provided an overall description and explanation of research methodology adopted in

this research, and strategy followed throughout the entire study. At the end, it defined the data

collection methods as well as the empirical construction. Specifically, several reasons have

been given in detail for choosing qualitative research, and pure secondary data as the source of

information. This is because organizational aspect such as IJV effectiveness seems difficult to

operationalize into quantitatively measurable variables. Further, research obstacles caused by

logistical challenges to conduct comprehensive interviews to collect primary data pertaining

qualitative factors discussed in the literature review have forced the researcher to consider only

data and information that came from second hand sources. This collection was completed by

adding data from two multinational automobile corporations. The data was analysed by simple

descriptive technique. The next chapter explains and discusses the case of Shanghai Volkswagen

Automotive Company Ltd (SVW).

37

CHAPTER 04: DISCUSSION

4.1. Introduction

In the previous chapters, the focus was rather on theoretical issue, in the present chapter practical

experience shall be provided. This chapter begins with a short description of the Chinese

automobile industry. Next, Shanghai Volkswagen (SVW), the most successful joint venture in

China auto market, was selected as case. The backgrounds of Shanghai Automobile Industry

Corporation (SAIC) and Volkswagen AG (VW) are briefly reviewed in order to have a better

insight of the case. Further management strategies which, have been adopted by SVW are briefly

analysed. Finally, a critical assessment pertaining both theoretical and empirical issues will be

highlighted.

4.2. Brief outlook of Chinese automobile industry

After entrance at World Trade Organization (WTO) in 2001, the Chinese automobile industry

has a rapid development. Since 2009, China has become the largest country in automobile

producing and marketing globally. In 2011, the production and sales volume of Chinese

automobile were separately 18.4189 million and 18.5051 million (new cars), and the growth

rates were 0.84% and 2.45% respectively. The rapid increase of the production and sales volume

of Chinese automobiles push the rapid development of the automobile distribution industry1. For

more detail see below figures.

1 http://www.bharatbook.com/market-research-reports/automobiles-market-research-report/report-of-chinese-

automobile-distribution-industry-2012.html

38

Year 2010 was another hallmark year for China auto industry after the short setback

in 2008 due to global financial crisis

Note: PV= Passenger vehicle

Source: CAAM auto market press release

4.2.1. Brief background of Shanghai Automobile Industry Corporation (SAIC)

Before the joint venture with VW, SAIC was a typical state-owned enterprise (SOE) which was

under control of Shanghai Municipal Government (Lee, Chen, and Fujimoto, 1996). In 1980, it

has grown to be the largest passenger car producer in China with an annual output of 5,000 units

(Lee, et al., 1996; Li and Yeung, 1999). The SAIC's corporate culture resulted from its specific

context of politics and economy. Hence, the performance in SOEs was poor compared to their

European and American counterparts. Many employees in SAIC were not motivated and did not

try their best in their jobs, because it seemed that SOEs would never be shut down with support

from the government, even they were bearing massive deficits. Consequently, competitive

39

consciousness was weak in SAIC, as the result of the lack of the competitive system in Chinese

auto market.

2Currently, SAIC is now the largest listed vehicle-making Corporation on the Chinese A-share

stock market. In 2011, SAIC restructured its assets and went public in its entirety with a total

capital stock of 11 billion shares after acquiring the equity and assets related to independent

automotive components business, trade in services and new energy vehicle businesses by way of

issuing shares to Shanghai Automotive Industry Corporation (Group) and Shanghai Automotive

Industry Company. In 2011, SAIC sold over 4 million vehicles, thus keeping its leadership on

the domestic automotive market, and ranked among the Fortune Global 500 for the seventh time

on the strength of a consolidated sales income of 54.257 billion US Dollars for the previous year,

taking the 151st place there and rising by 72 places over 2010.

2 http://www.saicmotor.com/english/gsgk/gsjj/index.shtml

40

4.2.2. Brief background of Volkswagen AG (VW)

VW is one of the most famous automobile manufacturers in the world. It was founded in 1937

Wolfsburg in German. Before the joint venture with SAIC, VW had manufactured and marketed

around the globe a number of successful car models such as Passat, Jetta, Golf, Polo and

Santana. The production volume of VW Group had reached 2,147,706, and the number of the

work force was 238,353, in which foreign group companies were also included (Volkswagen AG

et al., 2003). The corporate culture of VW can be attributed to four dimensions, which are

pursuing top performance, leading by examples, active involvement and stressing responsibility.

Furthermore, VW’s sources of competitiveness to survive the increasingly competitive market

can be described as quality, innovation, production efficiency and cost saving. Therefore, 3VW

encourages employees to deliver top performance to advance the success. In addition, prominent

leadership and constructive and cooperative relationships between management and employees

are assumed as a fundamental element for achieving any success. VW values employees' targeted

and continual development and both of them are considered as an indivisible part of

organizational development. In 2011, the Group increased the number of vehicles delivered to

customers to 8.265 million (2010: 7.203 million), which equates to 12.3 percent of the global

passenger car market.

4.3. Shanghai Volkswagen (SVW) Case

In 1985, after six years of intense negotiations, Shanghai Volkswagen Automotive Company

Ltd (SVW) was founded as an international equity joint venture between Chinese based

Shanghai Automotive Industry Corporation (SAIC) and German Volkswagen (VW). In China,

this company was the first international joint venture in the passenger vehicle manufacturing

business. Based on the mutual agreement, the aims of SVW include the employment of the latest

VW technologies to manufacture passenger cars and engines, and modern managerial skills in

SVW to build Shanghai into an automotive centre in China and to contribute to the development

of China's automotive industry (Liu, 1992, p. 231). From the beginning of establishing the joint

venture, both sides realized that the increase in the rate of local content could help them to reach

3

http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2012/04/SR_2011.bin.html/binarystorag

eitem/file/A_VWAG_NHB_2011_e_web_1.pdf

41

their goals of a large share of the Chinese market for Volkswagen, and building an

internationally competitive automotive industry for the local partner (Wang, 1996).

However, right after the start enormous challenges had to be faced because the previous local

firm, Shanghai Auto Factory, had a limited production capacity. The same poor situation applied

as well to most of the local suppliers. Given that Chinese market was highly attractive,

Volkswagen agreed to provide resources in terms of technological know-how and information

systems. But as this upgrading process was time-consuming for instance some materials and

components had to be imported. But in turn this had a negative influence on a couple of key

factors. Imports of the needed quantity were not in line with the local content constraints or at

least not for a long time. In addition to that import duties had to be paid and often long waiting

times were inevitable. The Chinese employees were not willing to bear responsibility; also a lack

of commitment were visible. In order to make the internal environment more advantageous, a

pay program depending on output, quality and education was implemented. As a result, the

production became more efficient (Isabella 2008). Furthermore, goal conflicts between partners

were obvious in product development. The German partner (VW) preferred a gradual approach

in upgrading existing models (Santana cars) whereas the Chinese partner (SAIC) wished to

develop new products for both the Chinese and global markets. The German approach was

adopted. Shanghai Volkswagen jointly developed the second generation of the Santana (Santana

2000) along with colleagues in Volkswagen in Germany and Brazil during 1992-1993(Buckley,

Clegg and Tan, 2004).

Although there were extensive cultural discrepancies in both national and corporate level, SVW

has achieved remarkable success in the last 25 year, which is beyond the VW and SAIC's

expectation. Both partners have realized their objectives which is for, SAIC to become the

largest and most advanced factory in the automotive industry in China, while VW has captured

the large share of the Chinese market. It is obvious that China is now of the global automobile

market. In less than 30 years, annual output of cars grew from only 5,000 units in 1985 to 18

million in 2010. For more detail, see above graph regarding overall China auto industry.

42

4.4. Critical assessment

The above mentioned case study provides an excellent example of how firms manage the critical

part of their partnership, and overcome both economic and cultural discrepancies in national and

as well as corporate level. But the fundamental issue in this case or point of departure is what are

the strategic intents of both partners SAIC and VW in SVW joint venture? The answer is that

both partners wanted to growth. Particularly, SAIC want to become the largest and most

advanced factory in the automotive industry in China while VW want to capture the large share

of the Chinese market. Put it differently, both parent firm partners want access to resources. As it

has been explained in the second chapter, resources can be grouped in two large categories

namely knowledge based resources, and property based resources. Accordingly, the Chinese

partner wants to access knowledge based resources namely technological know-how,

information systems, while the German partner wants to access the property based resources in

term of high attractive Chinese market share, cheaper raw material, and cheaper labour force.

Given that the rule of partner overall resources deployment strategy was fulfilled, both parties

were willing to share freely information with each other because the primary resources of one of

the partners are property-based while the other partner’s primary resources are knowledge-based.

Hence, International Equity Joint Ventures was a justified government structure.

Next, as it has been discussed in chapter two, IJV partnership demand a different approach to fit.

Among many type of fit that exist, the present study has emphasized on strategic traits and

organizational traits which in turn determine strategic fit and organization fit of IJV respectively.

These types of fit were specifically chosen according to both problem indication and

phenomenon being studied in this thesis. According to the dynamic fit model of Douma et al.

(2000), alliance potential and feasibility can be assessed. This can be done by focusing on six

drivers of strategic and organizational fit respectively where partnering firms can evaluate their

absolute scores and their differences. These procedures are shown in detail in the following

exhibits: exhibit1 assesses the alliance potential in term of its six drivers brief, the strategic fit,

whereas exhibit 2 assesses alliance feasibility in term of its six drivers determining the

organizational fit.

Exhibit 1: Assessing strategic fit of SAIC and VW Joint venture (SVW)

43

Source: adapted from Douma et al. (2000)

Driver Assessing SAIC and VW Joint venture (SVW) Strategic fit

SAIC /VW

Shared strategic vision The foundation for joint vision was SVW to become

the largest and most advanced factory in the

automotive industry in China.

Medium/

medium

Importance of the

alliance

Volkswagen contributed the access to resources in

terms of technological know-how, reporting or

information systems in exchange of opening up the

highly attractive Chinese market.

Good/ good

Dependency of the

partners

The large share of the Chinese market for Volkswagen

in exchange of building an internationally competitive

automotive industry for the local partner(SAIC)

Good/ good

Compatibility strategies Competitive consciousness was weak in SAIC as it

was a typical state-owned enterprise (SOE). Whereas

the corporate culture of VW encourages employees to

deliver top performance to advance the success.

Although there were extensive cultural discrepancies

in both national and corporate level, SVW still has

achieved remarkable success in the past 25 year, which

is beyond the VW and SAIC's wildest expectation.

Limited/

Good

Add value Direct employment opportunities provided by these

firms are estimated at around 50,000. SVW with its

suppliers has contributed a considerable share to the

total industrial output of Shanghai, and a large amount

of tax to the Shanghai municipal government. Also

because modern car manufacturing utilizes many

plastic components, the demand created by SVW has

promoted the growth of the plastics industry.

Good/

Medium

Market acceptance Government implements the policy that each taxi in

the city had to be a VW Santana.

Good/ Good

44

Exhibit 2: Assessing organizational fit of SAIC and VW Joint venture (SVW)

Driver Assessing SAIC and VW Joint venture (SVW) Organizational

fit:

SAIC /VW

Differences addressed The Chinese employees were not willing to bear

responsibility, which might be related to a relatively

high degree of risk-aversion. Apart from this cultural

dimension there was also a lack of commitment. In

order to make this key factor of the internal

environment more advantageous a pay program

depending on output, quality and education was

implemented. As a result, the production became

more efficient.

Limited /

medium

Alliance flexibility The factory provided by the Chinese partner where

the model “Santana” was supposed to be produced

was in a miserable condition. The same poor situation

applied to most of the local suppliers, as well. To

tackle this challenge, the plans for the localization

process were introduced, and both the Shanghai

municipal government and German Volkswagen set

up their task forces for supporting and coordinating

production localization of SVW. In 1988, the Chinese

central government approved a localization tax levied

on the sales of cars made by SVW (28,000 Yuan per

car) to alleviate its capital shortage.

Medium/ Good

Alliance complexity Imports of the needed quantity were not in line with

the local content constraints or at least not for a long

time. In addition to that import duties had to be paid

and oftentimes long waiting times were inevitable. To

tackle this challenge VW introduced retired experts to

work in the potential supplier plants and encouraged

related foreign companies to invest in them as well.

These efforts resulted in an impressive increase in the

rate of local content.

Limited/

medium

Effective

management control

There has been a rumour that German Volkswagen

intended to purchase more shares towards the

acquisition of Shanghai Volkswagen and FAW

Volkswagen, another joint venture by German

Volkswagen in northeast China.

However, such rumours have been refuted by officials

from the German Volkswagen, rather the officials

Limited/ Good

45

Source: adapted from Douma et al. (2000)

To sum up, this case study has provided deeper insight how effectiveness of international joint

venture can be achieved. Even if both partners do have economic and cultural discrepancies in

both national and corporate level. SVW still has achieved remarkable success in the past 25

years, which is beyond the VW and SAIC's expectation. This is a result of both partners who

work hard to achieve the fruit of synergy. However, it is worth to note that the negotiations

phase took six years before the birth of SVW joint venture. Hence, both partners took enough

time to judge available options in drafting IJV contract. This is consistent with the fundamental

hypothesis of this study regarding IJV chance of success. Ventures management should weight

strategic considerations underlying the alliance, and the potential problems linked to it. This is to

say that when the strategic considerations underlying the alliance outweigh possible potential

problems linked to, IJV chance of success may be significantly improved. Accordingly the

have stressed over the need to secure market shares

and achieve customer satisfaction.

The company has adopted and implemented the use

of operational ideas and successful experiences from

German Volkswagen (Jonathan & Yong 2005) and

has integrated the after purchase services with the

sales network, aimed at the establishment of a

comprehensive and high-efficiency sales-service

network (Mark, 2006).

Strategic conflicts Goal conflicts between partners were obvious in

product development. The German partner (VW)

preferred a gradual approach in upgrading existing

models (Santana cars) while the Chinese partner

(SAIC) wished to develop new products for both the

Chinese and global markets. The German approach

was adopted. Shanghai Volkswagen jointly developed

the second generation of the Santana (Santana 2000)

along with colleagues in Volkswagen in Germany and

Brazil during 1992-1993(Buckley, Clegg and Tan,

2004).

Medium/

limited

Realization of

objectives

SAIC became the largest and most advanced factory

in the automotive industry in China while VW has

captured the large share of the Chinese market

Good/ Good

46

building blocks of SVW joint ventures success story depend on a good relationship with Chinese

government; adaptation of local and changing environment; developing and managing Chinese

component suppliers; motivating employees, extensive training; tackling cultural and language

problems; committing in employee learning and development. Now that, all qualitative factors

concerning the present study have been addressed, it makes sense go back to hypotheses. The

strategic intent of the firm that forms IJV is to accumulate resources. However, accessing these

resources might be decided by evaluation of partnership potential and feasibility which can be

determined by their respective drivers when both partners can check their absolute scores and

differences. As such the effectiveness of IJV is a result of both strategic fit, and organizational

fit.

47

CHAPTER 05: CONCLUSION

5.1. Introduction

This chapter presents the final conclusion to answer the problem statement. This conclusion

summarizes factors and motives that influence firm to form IJV and how these factors affect the

success of IJV. Afterward, the theoretical implication of this study will be addressed and finally

limitations will be given.

5.2. Conclusion

This thesis was conducted because the researcher wants to investigate the impact of strategic

intents of partnering firms on IJV effectiveness. This is because MNEs often utilize overseas

direct investments such as a joint venture in order capture wider market and achieve better

performance in order to seek long-term development and sustain competitive advantages.

However, it is nowadays an acknowledge fact that such investments are frequently prone to

failure because partner firms sometimes rush into alliance without understanding the nature and

the extent to which such investment is required in order to attain their respective strategic

objectives. Two frequently reported problem areas in joint venturing are unrealistic corporate

expectations and inadequate planning. As such, the general assumption of this study was that

ventures management should weight strategic considerations underlying the alliance, and the

potential problems linked to it. This means that when the strategic considerations underlying the

alliance outweigh possible potential problems linked to, IJV chance of success may be

significantly improved.

The aim of this study was to answer the following problem statement: How do strategic intend of

partnering firms influence IJV effectiveness? The purpose of this study was to identify and

analyse a theoretical framework, which presents critical success factor that explain the

effectiveness of IJV. Based on resource based view of the firm theory (RBV), the strategic

intents of partnering firm that form IJV can be described as resources seeking driver. Ideally,

firms that have resources with potential sustained competitive advantage must have attributes

such as valuable, rare, inimitable, and non-substitutable. Based on the concept of imperfectly

imitable, all resources may be classified into two broad categories namely property-based

48

resources and knowledge-based resources. These categories determine the firm’s structural

preferences. Thus, firm’s ability to access integral resources through partnership. Given the fact

that these resources are the source of competitive advantage of every individual firm, partnering

firms face double puzzles of being able to obtain valuable resources through partnership without

losing control of one’s own resources. Partnering firms’ overall resources deployment strategy

should first be addressed to balance this issue. It is suggested that, Equity Joint Ventures will be

preferred if primary resources of one of the partners are property-based, and other partner’s

primary resources are knowledge-based. Hence, both parties are willing to share freely

information with each other. The evaluation of partnership potential and feasibility can be

determined by their respective drivers when both partners can check their absolute scores and

differences. This was clear visible because the empirical study confirms this assumption. The

comparison between theoretical assumption and empirical case study has enabled this study to

gain significant insight to understand IJV effectiveness.

On the basis of the preceding arguments, what can be deduced from the findings is that the

effectiveness of International Equity Joint Venture is a result of multiple factors. These are

partnering firm overall resources deployment strategy, strategic fit, and organizational fit.

5.3. Implications and limitations

The present study is grounded in RBV perspective. This theory emphasizes that alliances such as

IJV are cooperative relationships driven by logic of strategic resource needs, and social resource

opportunities. However, there are so many challenges to overcome in order to access and

exchange these resources. The present study has outlined step by step in the form of the

theoretical framework how this procedure should be followed. Although not all variables have

been included which might explain IJV effective (such as trust, commitment), this study still has

contributed to the research community a theoretical framework, which presents a critical success

factor that explain the effectiveness of IJV.

Regarding managerial implications, this study can help managers and practitioners to make

better decisions. In addition to the theoretical framework, empirical case study has been provided

in order to get deeper insight of practical matters. The advice learned from SVW case study, is

that some considerable differences concerning cultures, economic, or management strategies can

be always evidenced between different MNEs. This is because these kinds of issues can be

49

walked out. What matter most in IJV partnership is the cooperation motivated by realistic,

opportunity seeking strategic intend.

The present study has the following limitations: first, research obstacles caused by logistical

challenges (time and financial limitations) to conduct comprehensive interviews to collect

primary data pertaining qualitative factors discussed in the literature review have forced the

researcher to consider only data and information that came from second hand sources. This was

also the case for collecting data for the empirical case study. To this end, the present conclusion

of this study may be hard to generalize from a single case. Also, there are possible biases in data

collection and interpretation in the sense that a single person gathers and analyses the

information. It would be appealing, however, to carry the same research employing a quantitative

research method reflecting on both primary and secondary data. As such further research should

try to study IJV effectiveness with large data pertaining both subjective and objective measures.

In addition, there are disagreements in IJV literature whether the effectiveness of MNE differs

from one of SME (Small and Medium Enterprise). Future research may be attractive in this area

because this study has focused solely on large MNE (Multinational Enterprise) that form joint

venture. Also, future research should investigate whether alliances aspects in developed

countries differ from no developed one, particularly it should be intriguing to know the strategic

intents of local alliances in no developed countries.

Another limitation involved in this study is that assessing IJV effectiveness does not make

unanimity among scholars. This means that there is little consensus in the literature as how to

measure the success of international strategic alliances. This is because IJVs are made with two

or more organizations (parents firm) that may have different goals. For instance, one of the

parents firm may have diversification as a motive to form a venture, another parent firms may

have a motive to acquire knowledge. Ask both parents firms if the formation IJV was a success

may lead to different outcomes accordingly. This is to say that a success of IJV is difficult to

characterize, at least amongst partners in equity venture.

50

6. Appendix

6.1: Passenger Vehicle sales by top manufacture 2002 vs. 2010

Source: Global insight; CAAM auto market press release; Booz & Company analysis

51

6.2: Top five Auto market & sales In the World

Source: China PV Database; Booz & Company analysis

52

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