Joint Venture Performance Revisited: Japanese Foreign Subsidiaries Worldwide (1)

Abstract * Our evidence from the analysis of performance data on 27,974 foreign subsidiaries challenges conventional notions about joint venture survival rates and financial performance. * This evidence suggests the need for future research to explore why joint ventures survive as well as they do, why wholly-owned subsidiaries have exit rates comparable to joint ventures, and why joint ventures had a level of financial performance at least equal to wholly-owned subsidiaries. Key Results * We find joint ventures to have survival rates and perceived financial performance levels comparable to wholly-owned subsidiaries. Further, majority-owned joint ventures had a 50 percent higher survival rate than co- and minority-owned joint ventures. ********** The joint venture literature is rich in its analyses of joint venture performance along the dimensions of financial performance, survival and exit rates, and changes in ownership structure (Beamish 1985, Chowdhury 1992, Franko 1971, Kogut 1988). Work on the latter two has been subsumed in theory building studies of joint venture stability (Yan 1998, Yan/Zeng 1999, Das/Teng 2000), that synthesize research on, and highlight the prominence of, the topic of joint venture performance. These studies, however, establish the importance of the phenomenon by designating joint ventures as poorly performing, vulnerable and fragile forms of cross-border cooperation. This designation of joint ventures as a poorly performing entry mode is not isolated to these reviews. Indeed, much of the theoretical and empirical work on joint ventures begins from the premise that poor performance in international joint ventures is the rule not the exception (Kogut 1988, Park/ Russo 1996, Park/Ungson 1997, Hennart/Kim/Zeng 1998, Hambrick et al. 2001). We contend, however, that the prevailing view that joint ventures perform poorly requires greater empirical clarification. As Yan and Zeng (1999) and Hennart et al. (1998) have suggested, this clarification can come from a comparison of joint venture performance to the performance of other entry modes. We undertake such a comparison to provide a complement to the strictly theoretical studies of the micro- and macro-level issues involved in entry mode and joint venture performance as captured in the work of Yah (1998), Yan and Zeng (1999) and Das and Teng (2000). By making such a comparison, we try to establish a baseline from which future research on joint ventures, entry mode and performance can be developed. This baseline can be used to guide future research questions, particularly with respect to how researchers approach the issue of joint venture and entry mode performance. Research has focused on instability as a defining feature of joint ventures. Yet, if as we do find, two partner international joint ventures perform no worse than wholly-owned subsidiaries, more appropriate questions might be to investigate why international joint ventures perform as well as they do, or why wholly-owned subsidiaries have exit rates and financial performance levels equal to, but not better than, international joint ventures. We develop this evidence in an analysis of nearly 28,000 Japanese subsidiaries established across the world. This analysis looks at two aspects of performance--perceived financial performance and subsidiary survival rates--to establish baseline levels of comparative performance across different types of joint ventures and other entry modes such as wholly-owned subsidiaries, acquisitions and plant expansions. After establishing this baseline, we provide a multivariate test of these two aspects of performance to try to identify areas previous research might have overlooked when examining joint venture performance. Joint Venture Performance Joint Venture Performance Revisited Research on joint venture performance enjoys a long tradition. Franko (1971) pioneered research on joint venture performance building it from the perspective that joint ventures can exhibit instability in ownership structure, in which ownership positions can change, or one partner can acquire sole control of a joint venture. …