What Determines Innovative Performance of International Joint Ventures? Assessing the Effects of Foreign Managerial Control

Kyuho Jin,Jeonghwan Lee,Chulhyung Park

doi:10.3390/su12218770

Abstract

International joint ventures (IJVs) have long been considered a vibrant venue for innovation, one source of sustainable competitive advantage. Nonetheless, there is a paucity of research that seeks to understand what determines their innovative performance. We draw attention to and examine the control structure of IJVs as a determinant of innovation. Using the complementary lenses of local embeddedness, the liability of outsidership, and open innovation, we argue that foreign managerial control reduces IJV innovation and that equity ownership balance between foreign and local parent firms and affiliation of IJVs with local market business groups weaken this negative relationship. Using panel data of 48 IJVs in Korea during the periods between 2000 and 2016, we find empirical support for these arguments. This study contributes to the literature by extending our understanding of how to design IJVs for enhancing innovative output and consequently improving their sustainability.

Highlights

International joint ventures (IJVs) refer to organizations that are newly created and jointly managed by two or more parent firms headquartered in different countries in the quest for common goals, such as synergy and complementarity, that cannot be accomplished by each alone
In view of the relational disadvantage foreign parent firms suffer in the local market [15,16,22], we argue that managerial control by foreign parent firms will hurt IJV innovation and that equity ownership balance will alleviate this effect since local parent firms, under balanced ownership, get to have incentives to assist the troubled foreign partners using their embedded relations in the local market
Drawing on the conceptions of local embeddedness [123], the liability of outsidership [16], and open innovation [19], we argued that foreign managerial control suppresses the ability of IJVs to access the local networks for innovation—a local innovation platform—resulting in a lowered innovation output of IJVs

Summary

Introduction

International joint ventures (IJVs) refer to organizations that are newly created and jointly managed by two or more parent firms headquartered in different countries in the quest for common goals, such as synergy and complementarity, that cannot be accomplished by each alone. The fact that all the parent firms involved ought to inject initial capital, resources, and capabilities into the new organization for achieving the common goals forges not just a mutual destiny, but a collaboration imperative. This collaboration imperative induces the parent firms to exert coordinative efforts when organizing their IJVs’ business activities to pool, share, and combine resources and capabilities, such as knowledge and technologies, offered by the parent firms. It is not easy to effectively organize the activities of pooling, sharing, and combining different knowledge in IJVs due in large part to their shared management and control over decision-making between local and foreign parent firms [11,12,13]. We seek to fill this void by linking IJV control structure [12,13] to three interrelated theoretical conceptions that arguably determine the efficacy of the innovation process of IJVs: local embeddedness [15,16,17], the liability of outsidership [16], and open innovation [18,19]

Methods

Results

Conclusion