Strategic Motives for International Joint Venture Formation in Ghana (1)

Abstract * This paper considers the strategic motives for international joint venture formation based on a sample of 41 firms in Ghana with partners from Western Europe, North America and Asia. Key Results * The main strategic motives influencing foreign partners to collaborate are to overcome government-mandated barriers, risk and cost sharing and to facilitate international expansion. Factor analysis produces three underlying factors for strategic motives: market development and power, partner synergies and production efficiency. * The study finds that the relative importance of strategic motives vary most with the sector of JV activity, to a moderate extent with the ownership levels, and to a weak extent with the partnership type and nationality of the foreign partner. Introduction The last two decades have witnessed a growing emphasis on the use of joint ventures (JVs) as a dominant form of business organisation pursued both by firms from advanced industrial nations and firms from developing countries (Demirbag/Mirza 2000, Beamish/Delios 1997). Traditionally, JVs have been used as a means of tackling the problems of lack of capital and reducing foreign domination in sectors considered strategic by the host developing countries (Afriyie 1988). The analysis of the changes in the investment legislation in Ghana reveals progressive moves in favour of JV formation. For example, the Ghana investment legislation of 1973, 1976, 1981, 1985 and 1994 have consistently made it easier to form a JV, as against a wholly owned subsidiary (WOS), by requiring or placing lower equity capital requirements on prospective JV investors. Many developing countries continue to use JVs as a vehicle to gain local control over key economic sectors whilst utilising foreign capital to develop these sectors. However, many of the joint ventures formed in the past 20 years have become more 'strategic' in nature. Porter and Fuller (1986) and Glaister and Buckley (1996) highlight JVs as a strategic option in response to changing market conditions. Other studies such as Harrigan (1988), Osland (1994) and Dyer and Singh (1998) suggest that joint ventures are a primary means to obtain and sustain competitive advantage in the global marketplace. On the other side of the coin, Killing (1983, 1988) points out that JVs are inherently risky and unstable. The propensity of joint venture instability is corroborated in the studies of Lorange and Roos (1992) and Dussauge and Garrette (1995). A study in Nigeria, for example, reported that out of some fifty agricultural JVs set up in the mid-1980s, only about 10 were said to viable by 1990 (British Nigerian Chamber of Commerce 1992). Pitfalls associated with JVs include problems associated with sharing proprietary know-how. Many firms fear a "Trojan Horse" situation in which a partner might gain access to important technology and then exit the venture, setting itself up as a competitor. Makino and Beamish (1998) and Makino and Delios (1996) suggest the primary problems in managing JVs appear to stem from the disparate skills and objectives of the partners. Despite the difficulties associated with joint ventures, they remain popular and have grown unprecedentedly in both developed and developing countries (Deloitte, Haskins & Sells International 1989, Anderson 1990, Calantone/Zhao 2000). An analysis of FDI trends in Ghana by Boateng and Glaister (1999) provides further evidence to support JVs as the most prevalent means of making direct investments rather than investment through wholly owned subsidiaries. This is apparent from Table 1, which shows the region of origin and entry mode of the approved foreign direct investment projects in Ghana for the period 1990-1997. Table 1 indicates that out of the 1045 projects approved for the period, a total of 845 (80.9 percent) were JVs and 200 projects (19.1 percent) were wholly owned subsidiaries. …