Design and governance of international joint venture innovation strategy: Evidence from China

Abstract

Using the exploitation-exploration framework to conceptualize international joint ventures (IJVs)’ innovation strategy, this study develops a contingent governance view to posit that the effectiveness of exploitative and explorative innovation strategies depends critically on the governance mechanisms between IJV partners. Based on empirical analyses of 187 IJVs in China, our results reveal that explorative innovation strategy generates a greater positive effect on IJV new product performance than exploitative innovation strategy. Furthermore, exploitative innovation strategy has a positive impact on IJV new product performance at high levels of contractual governance but has a negative effect at high levels of relational governance. In contrast, explorative innovation strategy contributes more to IJV new product performance at high levels of relational governance but shows a negative effect at high levels of contractual governance. This study offers important implications for IJVs to better design and manage their innovation strategies.