The most significant contribution of Vaidya’s (2006) research study is that the author provides for a theoretical framework in understanding IJVs, particularly with regard to the relationship between the motives for setting up the IJV and the actual formation of the IJV. In discussing the motives behind IJV formation, Vaidya (2006) divides the motives into three categories: Internal benefits. According to Harrigan (1985), IJVs are often formed to generate internal strengths.
These benefits include cost and risk sharing, obtaining scarce resources, obtaining financing, obtaining information, obtaining managerial know-how, and retaining innovative employees (Vaidya, 2006). Competitive benefits. Competitive strengths are created through vertical integration or consolidation of firms, and may include influence over industry structure, preempting competitors, response to globalization, and creation of more effective competitors (Vaidya, 2006).
Strategic benefits. IJVs can serve to assist companies in implementing change in their strategic positions, and involves benefits such as creation and exploitation of synergies, technology transfer, and diversification (Vaidya, 2006). The study by Makino and Beamish (1999) lend support to the conclusions by Vaidya (2006) regarding the motives behind forming IJVs.
According to Makino and Beamish (1999), there are three distinct strategies which correspond to the choice of IJV ownership structure: 1) opportunity to make use of the competitive advantage specific to a parent organization; 2) or to a pre-existing relationship; and 3) complementing local partners’ competitive advantage. In their study, Ainuddin et al. (2007) identified four key resource attributes which affect the successful performance of 96 IJVs in Malaysia.
The study determined the extent to which four resources – product reputation, technical expertise, local business network and marketing skills – exhibited the following attributes: 1) value; 2) rarity; 3) imperfect imitability; and 4) non-sustainability. The results of their studies showed that value, rarity and non-sustainability were significant drivers of performance for IJV assets, while value, rarity and non-imitability were key attributes for organizational capabilities.
In his research, Kogut (1988) suggests an approach to understanding the motives for IJV formation that differs from Vaidya’s (2006) approach. Kogut (1988) outlines the following three motives behind IJC formation: Transaction cost approach. Based on this approach, the motives behind setting up an IJV is to minimize the cost of production for the companies. When the production costs of internalizing exceed the cost of externally sourcing then formation of a joint venture is a viable option.
(Kogut, 1988). Strategic behavior approach. Following this approach, IJVs are formed as a response to external environmental pressures. Companies opt to enter into IJVs to maximize their profits by improving their competitive position and to reduce the risk of strategic uncertainties (Kogut, 1988 citing Vernon, 1983). Organizational learning approach. Pursuant to this approach, firms enter into IJVs to acquire knowledge or know-how from another firm (Kogut, 1988).
The study by Beamish and Berdrow (2003) however provides for an argument to the organizational learning approach that contradicts Kogut’s (1988) contention. According to Beamish and Berdrow (2003), it is not always true that IJVs are in fact motivated by a learning imperative, or that organizations enter into IJVs to provide opportunities for each partner to gain access to existing knowledge and to develop new knowledge.
The authors measured the following processes in existing IJV agreements: 1) transfer of existing knowledge to the IJV and between partner; 2) transformation of knowledge through IJV to create new knowledge; and 3) harvesting of newly created knowledge from the IJV back to the partner firms. The findings of the study showed that production-based IJVs are not typically motivated by learning outcomes, and as to these types of IJVs, there is no conclusive evidence of a direct relationship between learning performance.
The authors assert that only a minority of the firms showed strong indirect learning outcomes, especially with regard to partnering and market knowledge (Beamish & Berdrow, 2003). The organizations may be driven by any or all of the motives enumerated by Blanchard (2006), Kogut (1988), and Vaidya (2006) in their studies, as previously discussed in the preceding sections of this chapter. It is important that a company conducts a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis before entering into an IJV or even before making the decision to enter into a global strategic alliance.
Evidence from related research shows that although IJVs are inherently unstable organizational forms, successful IJVs survive because the foreign partner organization arms itself with thorough knowledge of the local economic, political, and cultural environments of the IJV and the partner organization (Beamish & Inkpen, 1995). Beamish (2006) stresses the importance of being thoroughly prepared before entering into an IJV, and suggests that IJV research should be published so that it would have a larger impact on practitioners, academics, and governments involved in global strategic alliances.