Venture Formation Research Articles

International strategic alliance relationships within the foreign investment decision process

PurposeThe purpose of this study is to develop and test a theoretical model of international strategic alliance (ISA) relationship development underpinned by the foreign investment decision process.Design/methodology/approachThe conceptual model demonstrates an ISA investment decision process consisting of three ex ante formation aspects – parent firm top management's general attitude towards alliances, scope of parent's cooperation analysis for the focal alliance, and interfirm collaborative history – and two key ex post relational outcomes – parent's willingness to invest in the alliance business and satisfaction with the relationship. The theoretical propositions were tested among a sample of 94 ISAs using structural equation modelling.FindingsThe results show that top management attitude towards alliances is negatively associated with scope of cooperation analysis, but only where collaborative history exists. Scope of cooperation analysis, in turn, positively influences willingness to invest. And together these factors exert a positive influence on relationship satisfaction.Originality/valueThe ISA literature has devoted significant attention to partner characteristics important in venture formation, as well as to post‐formation partnership management issues. However, there is a dearth of empirical research explaining the role of venture formation aspects in influencing ISA relationship development and success. The study adds to the limited empirical research work on the role of venture formation aspects in influencing ISA relationship development and success. It provides new and detailed insights for business practitioners and academic researchers concerning the behavioural, decision process underlying ISA partnership progression.

Research Joint Ventures as a Tool of Strategic Trade Policy

This paper combines the analysis of the R&D cooperation with the strategic trade policy theory. By introducing endogenous formation of research joint venture, we investigate when the research joint venture works as a tool of strategic trade policy, and provide its welfare implications. If R&D cooperation by forming a research joint venture is made only in the home country and not in the foreign country, the home country benefits but foreign country hurts in terms of national welfare. This is a robust result in the sense that it hoThis paper combines the analysis of the R&D cooperation with the strategic trade policy theory. By introducing endogenous formation of research joint venture, we investigate when the research joint venture works as a tool of strategic trade policy, and provide its welfare implications. If R&D cooperation by forming a research joint venture is made only in the home country and not in the foreign country, the home country benefits but foreign country hurts in terms of national welfare. This is a robust result in the sense that it holds regardless of market structure. We also find that given a research joint venture is formed in each country (i.e., two research joint ventures in the world), both the home and the foreign countries may hurt depending on market structure, which implies a ‘prisoner’s dilemma’ result.

Research Joint Ventures as a Tool of Strategic Trade Policy

This paper combines the analysis of the R&D cooperation with the strategic trade policy theory. By introducing endogenous formation of research joint venture, we investigate when the research joint venture works as a tool of strategic trade policy, and provide its welfare implications. If R&D cooperation by forming a research joint venture is made only in the home country and not in the foreign country, the home country benefits but foreign country hurts in terms of national welfare. This is a robust result in the sense that it holds regardless of market structure. We also find that given a research joint venture is formed in each country (i.e., two research joint ventures in the world), both the home and the foreign countries may hurt depending on market structure, which implies a ‘prisoner’s dilemma’ result.

The Evolution of Cooperation in Patent Races:Theory and Experimental Evidence

In a dynamic patent race model we analyze the formation and breakup of joint ventures in relation to: (a) the relative as well as absolute position of the firms in the race; (b) the degree of competition in the ex post market. Fudenberg et al. (1983) studied the main features of a patent race when firms compete in R&D, showing that firms in the same position compete fiercely, dissipating the rent from innovation. By contrast, we show that if firms can cooperate or compete in R&D, and if they start in the same position, they cooperate at the outset but break their agreement in the last stage if they will be serious competitors in the downstream market, while, if they can collude in the ex post market, they cooperate from the outset and they innovate jointly. When the firms are lagged by one step, cooperation does not take place, except in the case the value of the race is negative and the cost saving due to cooperation is large. However, cooperation never occurs if the leader is more than one step ahead. Finally, when the firms cooperate in R&D they proceed to the discovery at low speed. We test these conclusions via experiments on the incentive to cooperate during the course of a race. The results of a sample of 86 races support our theoretical conclusions, although the experimental findings are less clear-cut than the theoretical ones.

The Decline and Fall of Joint Ventures: How JVs Became Unpopular and Why That Could Change

The peak year for joint venture formation was 1995, which saw almost 5,700 new ventures. Since then, however, JV activity has gone into a sharp decline, with 2004 setting a new 10-year low of just over 700 new deals, and many executives have completely dismissed joint ventures as a vehicle for growth. But is this the right conclusion? Perhaps for some companies. But for most, the answer may be to use the lessons from past failures to improve their ability to negotiate and manage joint ventures. This article offers five main pieces of advice: • Don't rely too much on experience from negotiating acquisitions. JVs require a more balanced, less competitive negotiating style that can help set the tone for a good relationship. • Don't allow the contract to dominate the relationship. If JV agreements are crafted more with the aim of building trust and achieving a shared understanding than designing explicit provisions for all contingencies, the parties will have stronger incentives to seek business solutions instead of legal remedies. • Weigh carefully the value of commitment versus the value of flexibility. Although the ability to exit a bad deal clearly has option value, there may be greater value from the stability achieved by locking oneself into a relationship. • Resist the urge for certainty in termination clauses. A “process-oriented” approach will typically be more fair, resulting in smoother negotiations and a better working relationship, than an “outcome-oriented” approach. • Recognize when a JV has outlived its useful life, and do something about it before value is destroyed.

Entrepreneurship and university-based technology transfer

The success of business incubators and technology parks in university settings is often determined by how well technology is transferred from the labs to their startup firms. University technology transfer offices (UTTOs) function as “technology intermediaries” in fulfilling this role. Yet, entrepreneurship theory and research on the role of the UTTO in business incubation and new venture formation is sparse. To move the research along, we use grounded theory to build a framework to address two questions: (a) Which UTTOs' structures and licensing strategies are most conducive to new venture formation; and (b) how are the various UTTOs' structures and licensing strategies correlated with each other. Our findings reveal a complex set of relationships between UTTO structure and strategies, new venture formation, and business incubation. Based on interviews with 128 UTTO directors, we show that whereas for-profit UTTO structures are positively related to new venture formation, traditional university and nonprofit UTTO structures are more likely to correlate with the presence of university-based business incubators. Licensing-for-equity strategy is positively related to new venture formation while sponsored research licensing strategy is negatively related. Interestingly, the licensing-for-cash strategy, the most prevalent transfer strategy, is least correlated to new venture formation. A content analysis of UTTO mission statements also revealed an overemphasis on royalty income and an underemphasis on entrepreneurship. The paper concludes with a discussion that outlines some of the implications and limitations of our model.

The Rationale for International Equity Joint Ventures

This study examines the rationale for the formation of international equity joint ventures (IJVs) from the perspectives of the transactions cost and resource based theories. The study adopts a multi-method personal interview and self-administered questionnaire approach to examine the rationale for the decision to form an IJV in the parent firms. The study also examines the extent and methods of analysis when deciding to form a JV. Key Results. The findings show that aspects of both the transaction cost and resource base views influence the decision to form a JV. In this respect the transaction cost and resource base perspectives on JV formation should be regarded as complementary views rather than substitute views.

Valuation effect of international joint ventures: does experience matter?

This article investigates the relationship between accumulation of different types of experience (managerial and geographical) by companies involved in international joint ventures and shareholder value creation. From an event study methodology, cumulated abnormal returns (CARs), used as a proxy of shareholder value creation, are estimated for a sample of 67 French partners that announced the formation of joint ventures in China during a period ranging from January 1994 to December 2002. The results show that the valuation effect of experience has to be distinguished according to the type (managerial or geographical) of experience analyzed: French companies entering into joint ventures in China create more value as they accumulate alliance experience (experience in setting up and managing Sino-French Joint ventures) or international experience, whereas there is no evidence that these companies create more or less value as they accumulate Asian experience.

Synergy, learning and the changing industrial structure

In a set-up of two local firms and one foreign firm, we construct a model to capture the dynamics of local industrial structure induced by formation and breakdown of cross-border joint ventures (JVs). There is a synergic gain to the JV, and the partners learn from each other. Firms play a repeated game. We characterize the resulting industrial configurations under different scenarios as defined by the extent of cost saving. In particular, we show that when cost saving is moderate, an alliance formed between two firms in the first period, breaks up and a new alliance is formed in the second period, but again it breaks up; thereafter the market becomes an oligopoly of all three firms.

Future technology, incomplete information and international joint venture

In this paper we describe a scenario where joint venture (JV) formation between a domestic firm and a foreign firm is absolutely motivated by the future expected gain. We show that incomplete information about the host-country policy and foreign technology along with the threat of entry can create an option value for setting a JV in the current period when the foreign firm is expected to invent a new technology in the future.

Joint venture investments and the market value of the firm

The impact of Joint Venture announcements on the market value of UK listed companies is examined. Based on a sample of 158 announcements of either joint venture formation or joint venture activities, significant positive market-adjusted abnormal returns of 0.5% on the announcement date are observed. Cross-sectional analysis reveals that abnormal returns are significantly lower when undertaken by large companies, or where the project is located in Asia. On the other hand, market-adjusted returns are found to be significantly higher when the project is large compared to the size of the company undertaking the investment, and where the project is either domestic or located within the European Union.

Airwave Sounds Plc

The Case Study section of the International Journal of Entrepreneurship and Innovation serves two purposes. First, the case studies presented are concerned with problematical issues that are pertinent to students of entrepreneurship. Thus they constitute appropriate teaching and learning vehicles on a variety of postgraduate and undergraduate programmes. Each case study is accompanied by a set of guidelines for the use of tutors. Second, it is envisaged that those engaged in entrepreneurial activities will find the cases both interesting and useful. This issue's Case Study concerns the formation of a university spin-out venture and invites exploration of business planning, growth strategies and entrepreneurial development in such companies.

Opportunity recognition and product innovation in entrepreneurial hi-tech start-ups: a new perspective and supporting case study

As a key early stage in the formation of an entrepreneurial venture, there has been much recent interest in opportunity recognition as a field of academic study. Although early theorists proposed a holistic approach to the study of venture creation, much of the literature has been dominated by studies focussed on one or two components in isolation. Much of this historical research has an exclusive focus on the role of the entrepreneur or on knowledge within the firm. Such an exclusive focus can be misleading as it fails to consider the nature and dynamics of the inter-relationships taking place in high-tech firms. This paper seeks to synthesise the available literature into a more complete and integrative model of opportunity recognition in high-tech start-ups. We propose opportunity recognition to be a complex, interactive process involving three main components, the founding entrepreneur, the knowledge and experience of the firm and technology. A case study is used to demonstrate the nature of the component interactions. It is argued that more widespread use of the qualitative research can reveal new insights into the complex and interactive process of opportunity recognition in the high-tech start-up.

Online Music Joint Ventures: Taken for a Song

In 2001 the five major record companies, controlling more than 80 percent of prerecorded music sales in the United States, announced the formation of two joint ventures to distribute music over the Internet. The Department of Justice opened an antitrust investigation into these ventures even before the ventures began their operations. Two and one-half years later the Department announced that it had closed the investigation because its theoretical concerns ultimately were not supported by the evidence. The Department's investigation, however, focused on the ventures' licensing practices rather than on their formation. This paper focuses on the formation of the online music joint ventures. The paper begins with a description of the business and legal environment in which the joint ventures were formed and traces developments in both since the ventures' formation. Included in this description is the effort by the industry to suppress widespread copyright infringement and the entry of a number of new companies into the online music market. The paper's antitrust analysis examines the predicted anticompetitive effects of the formation of the ventures and, drawing on the Supreme Court's decision in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. and the history of performing rights organizations, argues that the efficiency justifications for the online music joint ventures were quite modest. The paper concludes that the formation of the ventures was anticompetitive, without regard to the ventures' licensing practices, and that the appropriate remedy would have been either to unwind the two ventures or divest the record companies' ownership of them. Although the online music industry did not develop as might have been predicted when the ventures were formed, we owe these positive developments to the inability of the music industry to control the widespread infringement of their copyrights. Had the record industry's campaign been successful, the competitive structure in the online music market would likely have been quite different and the proposed antitrust remedies would have been necessary to bring competition to the market for online music.

An Entrepreneurial System View of New Venture Creation

This paper reports the results of a two‐phase study that explores new venture creation within the context of an entrepreneurial system. First, a genealogy of high‐technology companies is presented depicting a high spin‐off rate resulting from the presence of seven incubator organizations. Second, semantic structure analysis (Spradley 1980) based on semi‐structured interviews with founders is used to develop a taxonomy. This taxonomy depicts the relationship among components in one entrepreneurial system, Boulder County, Colorado, that encourages, supports, and enhances regional entrepreneurial activity. Findings indicate that incubator organizations, spin‐offs, informal and formal networks, the physical infrastructure, and the culture of the region are related uniquely and interact to form a system conducive for dense high‐technology entrepreneurial activity. Additionally, greater rates of new venture formation were found following critical moments in the life of incubator organizations.

Elucidating Elusive Ensembles:: The Strategic Value of Informal Internet Networks

For many years, sociologists have conceptualized and debated the value of ‘social capital’: the resources embedded in an individual’s social network. More recently, the notions of network organizations and strategic alliances have become important forms of entrepreneurial venture. An important and often overlooked form of alliance on the Internet is what we call the ‘elusive ensemble’. These associations of individuals and organizations are typically undocumented, difficult to identify by third parties, and even pass unrecognized by their constituent members. They consist of informal Internet networks that are extremely valuable because of the strategic social capital embedded in them. Drawing on Social Network Theory, this paper outlines a methodology for viewing and valuing informal Internet networks, and in doing so offers guidance on improving the strategic efficacy of these elusive ensembles.

Joint Venture Investments and the Market Value of the Firm

This paper examines the impact of Joint Venture announcements on the market value of UK listed companies. Based on a sample of 158 announcements of either joint venture formation or joint venture activities, we observe significant positive market-adjusted abnormal returns of 0.5% on the announcement date. Cross-sectional analysis reveals that abnormal returns are significantly lower when undertaken by large companies, or where the project is located in Asia. On the other hand, market-adjusted returns are found to be significantly higher when the project is large compared to the size of the company undertaking the investment, and where the project is either domestic or located within the European Union.

Determinants of capital structure

Capital structure has attracted intense debate and scholarly attention in the financial management arena over the past four decades. However, in the context of sub‐Saharan Africa capital structure has received a scant attention. This paper attempts to rectify this position by considering the firm specific factors influencing the capital structure of international joint venture formation based on a sample of 41 firms in Ghana with partners from Western Europe, North America and Asia. The results indicate that size of joint venture, type of joint venture industry and ownership level of joint venture partner have a positive bearing on the capital structure of joint ventures in Ghana.

International joint ventures: an integrated framework

This paper will review the literature in the field of international joint ventures (IJVs) and attempt to integrate the literature in one framework. Previous studies have focused on a limited number of issues in IJVs. This study will focus on the most important issues in the formation and performance of IJVs, namely, motives for venture formation, partner selection criteria, trust and commitment, knowledge, learning, bargaining power, and control. After a review of the literature, the author will present an integrated framework, followed by future research directions in the field of IJVs.

Asymmetric capacity costs and joint venture buy-outs

In this paper, we build a simple theory of joint venture buy-outs based on asymmetric access to capital, synergy, and an increased market size. If the market size is small then the outcome involves joint venture formation. If, however, the market size becomes sufficiently large then a buy-out always occurs.