The impact of national and organizational cultural differences on international joint venture performance

The purpose of this study is to theoretically explore how national cultural differences, organizational cultural differences and trust between partners can influence IJV performance. Findings from previous studies have been mixed, and this study attempts to address the relationship and performance issues by theoretically advancing a model to explain the inconclusive results found to date. Based on previous research, the findings of this study are as follows. Firstly, in terms of the relationship between national cultural differences and IJV performance, differences in the national cultures of IJV partners adversely influence IJV performance. Secondly, in the case of the relationship between organizational culture and IJV performance, differences in organizational culture between IJV partners create organizational problems that adversely influence IJV performance. Thirdly, with regard to national versus organizational cultural differences and IJV performance, organizational cultural differences represent the visible differences between, as opposed to the latent effects of, cultural differences, and these may cause greater interaction problems between the IJV partners. Fourthly, in terms of partnership trust and IJV performance, partnership trust positively influences partner interaction and venture performance. Finally, in the case of national culture, partnership trust and IJV performance, it is argued that national and organizational cultural differences adversely influence processbased trust producing mechanisms, or partnership trust. It is also empirically established that partnership trust significantly influences IJV performance. Therefore, partnership trust mediates the relationship between cultural differences and IJV performance through a chain of interactive processes. Introduction Growth in global markets and technologies has resulted in a dramatic increase in the number of International Joint Ventures (IJVs) (Alter & Hage 1993; Geringer & Woodcock 1989; Harrigan 1988; Hergert & Morris 1988; Pothukuchi 1999), even though JVs are considered to be risky due to high failure rates (Blodgett 1992; Geringer & Hubert 1989; Harrigan 1985; Parkhe 1993c; Porter & Fuller 1986). An estimated 37% to 70% of IJVs are reported to suffer performances issues leading to very costly failures (Deloitte, Haskins & Sells International 1989; Fedor & Werther 1995; Harrigan 1985; Janger 1980). Fedor and Werther (1995:36) conclude that “an analysis of the partner’s culture before structuring the cooperative venture appears to be extremely uncommon, even though this failure may lead to costly and disruptive upheavals”. A common theme in the cross-cultural literature is that ventures between culturally similar partners are more likely to be successful than ventures https://ir.iba. edu.pk/businessreview/vol9/iss1/4 DOI: 10.54784/1990-6587.1227 Published by iRepository, March 2021 Business Review – Volume 9 Number 1 January – June 2014 48 between culturally dissimilar partners, and that partners should, therefore, try to avoid cultural dissimilarities (Fedor & Werther 1995; Harrigan 1985; 1988; Killing 1983; Lane & Beamish 1990; Pothukuchi 1999). Some studie found a positive relationship between national cultural differences and IJV performance (see Park & Ungson 1997), others found a negative relationship (e.g., Killing 1983; Harrigan 1985; Lane & Beamish 1990; Geringer & Herbert 1991), and still others found no relationship at all (e.g. Benito & Gripsrud 1992; Sharma & Johanson 1987; Terpstra & Yu 1988). In all, empirical findings have been mixed and inconclusive in terms of cultural differences and their role in IJV performance. These contradictory findings increase the need for further theoretical and empirical research, and this study attempts to clarify our understanding of these complex relationships. The purpose of this study is to theoretically examine how national cultural differences, organization cultural differences and trust between partners can influence IJV performance. More precisely, it attempts to develop a theoretical framework and empirical support for two aspects of IJVs performance: first, the influence of national and organizational culture differences on joint venture performance, and second, the influence of national and organizational cultural differences on partnership trust and, consequently, IJV performance. A focus on partnership trust suggests a process-oriented theoretical approach to this study. It has been argued (Lane & Beamish 1990; Pothukuchi 1999) that understanding the behavioural processes affecting inter-organizational relationships is central to successful performance. If organizational and national cultural differences affect performance through a mediating variable, then understanding the nature of this mediating variable is critical. This study differs from the previous research in two aspects. Firstly, of consistency in previous results may be attributed to inadequate theoretical and empirical development. Researchers have limited their focus to only selected dimensions of cultural difference and have tended to ignore other dimensions that may have significant influence. For instance, previous studies (e.g. Hennart & Larimo 1998) focused on the influence of national cultural differences and ignored the role of organizational cultural differences. Harrigan (1988:222) notes: “comments from interviewed managers lead me to suspect that cultural homogeneity among sponsors is more important to venture success than symmetry in their national origins”. Secondly, previous studies paid little attention to the behavioral processes involved in cross-cultural interactions, even though these processes are considered to be critical to joint venture performance (Lane & Beamish 1990; Parkhe 1991; Ring & Van De Ven 1994; Pothukuchi 1999). For example, studies on cross-cultural joint ventures have not considered how partnership trust influences venture performance. Lane and Beamish (1990:88) note: “We believe that the behavioral and cultural differences contributing to successful or unsuccessful cooperative ventures have not yet been fully explored or understood”. A study on how cultural differences affect joint venture performance is important because it has been extensively argued that cultural differences between joint venture partners elicit conflicting behaviors that may lead to joint venture failure (Alter & Hage 1993; Geringer & Herbert 1989; Harrigan 1985; Parkhe 1993c; Pothukuchi 1999). This study that attempts to create a theoretical construct, based on empirical data that explains how national cultural differences, organizational cultural differences and trust between partners can influence IJV performance. The present study proceeds in the following order. In the next section the theoretical and empirical literature on joint ventures will be summarized and the influence of national cultural differences, organizational cultural differences and partnership trust on the https://ir.iba. edu.pk/businessreview/vol9/iss1/4 DOI: 10.54784/1990-6587.1227 Published by iRepository, March 2021 Business Review – Volume 9 Number 1 January – June 2014 49 performance of international joint ventures will be discussed. The summary and main conclusions of the study will be presented in section three. Theory and Hypotheses Cultural differences and IJV performances Culture is defined as the transmitted patterns of values, ideas and other symbolic systems that shape behavior (Kroeber & Kluckhohn 1952), and IJV partners may vary based on national culture and/or organizational culture. In an empirical study of 40 countries, Hofstede (1980) found that a national culture varies along four dimensions: Power distance, Uncertainty avoidance, Individualism and Masculinity. Power distance refers to inequality among people in areas such as prestige, wealth and power, and countries differ in the value they attach to status in these areas. Uncertainty avoidance refers to the tolerance for uncertainty and ambiguity, and individualism, refers to the degree of focus on the individual, as opposed to the collective or group, prevailing in a given country. Figure 1: The framework for the present study National Culture Differences Partnership Trust IJV Performance Organization Culture Differences Masculinity represents the extent to which people in a country endorse goals typically ascribed to men such as competitiveness and assertiveness. Subsequent to Hofstede’s original study, work with Michael Bond resulted in the addition of a fifth dimension: Confucian Dynamism (Adler, 2002). This is the degree to which a culture focuses on traditional values and is prepared to put off meeting immediate needs to access other benefits at a later stage. It is sometimes described as long and short-term focus. In Hofstede’s model, national culture has been modeled on the five values described above. In further studies, organizational culture has been modeled on six organizational practices (Hofstede, Neuijen, Daval & Sanders 1990). In a study that spanned 10 organizations (20 organizational units) located in two countries (Denmark and Netherlands), the researchers surveyed cultural factors such as symbols, heroes, rituals and values. They concluded that organizational culture is represented by six core management practices that differentiate organizations in their management orientation. These orientations are: (1) Process versus Result Orientation; (2) Employees versus Job Orientation; (3) Parochial versus Professional Orientation; (4) Open versus Closed System Orientation; (5) Loose versus Tight Control Orientation; and (6) Normative versus Pragmatic Orientation. The first dimension process versus result orientation differentiates organizations based on their concern with means (process-oriented), versus concern with goals (result-oriented). The second dimension https://ir.iba. edu.pk/businessreview/vol9/iss1/4 DOI: 10.54784/1990-6587.1227 Publish