Joint venture instability, learning and the relative bargaining power of the parent firms

Abstract

Foreign partner firms' (FPs') superior intangible assets such as technology and marketing and other management skill are an integral source of their bargaining power in their negotiations with potential joint venture partners (JPs) and government regulators in the host country. FPs which can exercise high levels of bargaining power enter the host country market with either a fully owned subsidiary (SUB) or an international joint venture (IJV) with larger ownership shares than otherwise. In this paper, we present such a bargaining power model. We then estimate the model using data for joint ventures in Japan for the post-World War II historical period. Our results are generally consistent with the model predictions. We then consider a dynamic context where JPs' learning from their own IJVs as well as the increasing R&D capacity of their industry will enhance JPs' bargaining power. Such learning by JPs, together with other factors, could undermine FPs' ownership of the IJV over time. Generally, changes over time in the positions, for example, of FPs' and JPs' intangible assets such as technology can significantly affect their relative bargaining power and hence affect their ownership shares in their IJVs. Our empirical results also confirm such learning effects on the part of the JP.