Host-country policies and MNE management control in IJVs: Evidence from China

Abstract

In international joint ventures (IJVs), partner firms exert three types of management control: output, process, and social. Since management control critically influences IJV success, it is essential to understand what factors drive the development of the control system. Prior studies have focused mainly on IJVs’ internal conditions, and have largely neglected external institutional influences on IJV control. In this study we explore how host-country policies affect MNE partners’ control over their IJVs. Using a sample of IJVs in China, we find that MNE partners tend to exercise less output and process control when minority equity restriction is present, greater process control when they receive government incentives, and less social control when they are required to partner with state-owned enterprises. In contrast, the results of a post hoc analysis show that local partners’ control activities are not significantly influenced by these policies. Our findings provide new insights into IJV management by demonstrating the impacts of regulatory institutions on partners’ control activities.