Governing for Success: The Host Country Uncertainty and the Design of Foreign Parent Control in International Joint Ventures

Abstract

In this paper we develop a model of the international joint venture (IJV) control which deals with the level of uncertainty of the host country. The host country uncertainty is characterized by cultural, environmental, and competitive uncertainty. Following Geringer and Hebert (1989); Buckley et al. (2005), we conceptualized foreign parent control across three dimensions including mechanism, focus, and extent. Our empirical evidence is based on the survey of Finnish firms that established IJVs with local firms in the 1990s. The results show that foreign parent firms tend to exercise more formal, broad, and tight control over their IJVs when they perceived high cultural uncertainty and high competitive uncertainty in the host countries. On the other hand, they prefer formal, narrow, and loose control over their IJVs in cases of high environmental uncertainty. In addition, the firms that exercise broad, formal, and tight control in high uncertainty countries and narrow, social, and loose control in low uncertainty countries were more satisfied with their IJV performance. Finally, we conclude the paper by discussing the implications of our findings and directions for further research on IJVs.