The Impact of Business Investment on Capability Exploitation and Organizational Control in International Strategic Alliances

Abstract

The purpose of this paper is to address how a firm that adopts various organizational controls can moderate the relationship between business investment and capability exploitation. In this study, the primary effect of a firm's business investment is examined on both how it can successfully exploit organizational capabilities across each of the dimensions of management, marketing and technology-specific capabilities, and how the improvement to organizational control, particularly business targeting and formalization, plays a pivotal and moderating role across all organizational capabilities, depending ultimately on the effects of business investment to organizational capabilities and performance. Survey data from 267 Sino-foreign firms suggest that business investment is a significant predictor of an organization's effectiveness through the utilization of firm-specific resources and capabilities. A framework is constructed based on the organizational change concept where a firm's business investment can increase its control efficiency through the exploitation of firm-specific capabilities and thus create subsequent organizational developments. The results of this study shed light on how international strategic alliances (ISA) operating in an environment like China are able to improve their business investments in both capital and non-capital resources. Organizational capability in terms of management-, marketing- and technology-specific capabilities in this study is as a distinctive construct and the result of this study suggests that the establishment of business targets can positively moderate the relationship between a firm's business investment and organizational capabilities. The importance of business investment to the exploitation of organizational capabilities in today's ISAs creates successful investment strategies and development opportunities. The findings have significant implications for investment strategies of ISAs and for the improvement of their investment effectiveness in an emerging market such as China. This study breaks new ground by combining resource-based theory and financial economics theory to show that investment exerts potent influences on the exploitation of organizational capabilities. The assessment of the multiplicity of the forms of organizational capabilities draws attention to the capability dimensions that enable ISAs to adapt to changing market conditions.