Domestic alliance network to attract foreign partners: Evidence from international joint ventures in China

Abstract

Partner selection is a critical issue in building international joint ventures (IJVs). We argue that foreign firms are more likely to select local firms with unique network structural advantages within a local alliance network. We frame structural advantages as two network position traits: centrality and brokerage. Specifically, network centrality acts as a stronger network trait than brokerage in attracting foreign IJV partners. However, such a relationship may be moderated by foreign firms’ local experience and perceived capabilities. We contend that when foreign firms have a high level of local market experience and perceived capabilities, they may prefer a local broker over a centrally located local firm. Data on the domestic alliance network in China’s electronics and information technology (IT) industries largely support our hypotheses. We conclude that as foreign investors become strategic insiders, they may not only seek a local partner’s capability attributes, but also more critically pay attention to a local partner’s domestic network.