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J. Michael Geringer*and Louis Hebert**

Universityof WesternOntario
Abstrct. Control is a criticalconcept for successfulmanagement
and performanceof internationaljoint ventures(IJUs).This paper
reviewsand synthesizespriorstudiesaddressingthe conceptualiza-
tion and operationalizationof control within IJVs, as well as the
IJV control-performancerelationship.The paper also presentsa
newconceptualizationof IJVcontrol,as well as a conceptualframe-
work for studying control of IJVs.


With continuedglobalizationof the world'seconomies,joint ventures(JVs)
havebecomean importantelementof manyfirms' internationalstrategies.
These venturesinvolve two or more legally distinct organizations (the
parents),each of which activelyparticipatesin the decisionmakingactiv-
ities of the jointly owned entity [Geringer1988]. If at least one parent
organizationis headquarteredoutside the JV's countryof operation, or
if the venturehas a significantlevelof operationsin morethan one country,
then it is consideredto be an internationaljoint venture(IJV).
An alternativeto wholly-ownedsubsidiaries,IJVs are commonly used by
firms as a meansof competingwithinmultidomesticor global competitive
arenas [Porter & Fuller 1986; Harrigan 1988]. Increasingly,they are
perceivedas strategicweapons,as one of the elementsof an organization's
business units network [Harrigan1987]. Joint venturesalso representan

*J. MichaelGeringer(Ph.D., Universityof Washington)is an AssistantProfessor

of Policyat the Universityof WesternOntario.Besidesthe Journalof International
Business Studies, his articles have appearedin such journals as the Columbia
Journal of WorldBusiness, Business Quarterly,and the StrategicManagement
Journal.His researchinterestsincludeformationand managementof international
alliances,MNEdiversificationstrategies,and strategicmanagementof technology.
**LouisHebert(M.Sc., Universityof Quebecat TroisRivieres)is a Ph.D. candi-
date in BusinessPolicy at the Universityof WesternOntario.His currentresearch
interestscenteron the strategicmanagementand control of technology,partic-
ularly within internationaljoint ventures.
This researchwas sponsoredby the Plan for Excellence,School of Business,Universityof Western
Ontario,and the QuebecFonds pour la formationde chercheurset l'aidea la recherche(F.C.A.R.).
Of the manypeoplewho providedcontributionsto this research,the authorswouldlike to acknowl-
edge Paul Beamish,Rod White, ColetteFrayne,and the anonymousreviewers.
Received:June 1988;Revised:November& December1988;Accepted:December1988.


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effectiveway of coping with the increasingcompetitiveand technological

challengesof today's environment[Perlmutter& Heenan 1986].
However,despitetheir potentalcontributions,IJVs are not without their
drawbacks.The presenceof two or more parentscan make IJVs difficult
to manage and often characterizedby poor performance[Drucker1974;
Young& Bradford1977;Janger1980;Killing1983;Geringer1986].A crit-
ical determinantof IJV performanceappearsto be the control exercised
by parentsovera venture'sactivities[Rafli1978;Killing1983;Schaan1983].
Yet, particularlyin comparisonto wholly-ownedsubsidiaries,the exercise
of effectivecontrol over IJVsmay representa more difficult proposition
for the parentorganizationsbecause they are often unable to rely solely
on their ownershipposition to determinethe IJV's behaviorand manage-
ment, instead requiringrecourseto other modes of influence.
Furthermore,a firm that agreesto participatein an IJV inevitablycompli-
cates its life. Although each partnermust, by definition, relinquishsome
controloveran IJV's activities,sucha move is often accompaniedby great
consternation.A firm may avoid relinquishingcontroloversome or all of
its activities for reasons intimatelyrelated to its corporatestrategyand
objectives.Attainmentof a firm'sobjectivesoverthe longtermis contingent
on its abilityto implementa strategywhich exploitsits distinctivecompe-
tenciesalongone or severalcriticaldimensionsof corporateactivity.Insuf-
ficient or ineffectivecontrol overan IJV can limit the parentfirm'sability
to coordinateits activities,to efficientlyutilize its resourcesand to effec-
tively implementits strategy[Stopford& Wells 1972;Lorange,et al. 1986;
Anderson& Gatignon 1986]. In turn, exercisingcontrol over some or all
of the activitiesof an IJV helpsprotectthe firm fromprematureexposure
of its strategy,technologicalcoreor otherproprietarycomponentsto outside
groups.Evenif its productsor processesare protectedby patentsor copy-
rights, a firm may nonethelessfear damaging "leakage"of unprotected
innovationsor know-howif sharedwithpartners.Suchdisclosures,between
the partnersor to organizationsoutsidethe venture,mayhaveseriouseffects
on the competitiveposition of a parentor the IJV,possiblycreatingnew
competitorsor otherwiselimitingthe IJV's or parent'soverallefficiency
[Parry 1985;Rugman 1985;Reich & Mankin 1986].
It is from this perspectivethat we will presenta reviewand synthesisof
the principalresearchaddressingthe issue of the control of IJVs. The
discussion'semphasiswill be on the similaritiesand differencesin prior
conceptualizationsand operationalizationsof IJV control, and in the
approachesusedto examinethe control-performance relationshipfor IJVs.
The paperwill concludewith the presentationof a new conceptualization
of IJV controland a conceptualframeworkfor studyingcontrol of IJVs.


Control refersto the process by which one entity influences,to varying
degrees,the behaviorand output of anotherentity [Ouchi 1977]through

the use of power,authority [Etzioni 1965] and a wide range of bureau-

cratic,culturaland informalmechanisms[Baliga& Jaeger1984]. Control
plays an importantrole in the capacityof a firm to achieveits goals. Typi-
cally, as organizationsexpandin size, thereare concurrentincreasesin the
complexityanddifferentiationof theirstructures[Lawrence& Lorsch1967],
as well as in the risks of conflicts, opportunisticbehaviorand competing
goals betweenunits. As a result, top managementare confrontedby the
increasinglycrucialneed to monitor,coordinateand integratethe activities
of the organization'sbusinessunits, includingIJVs[Child1977;Mintzberg
The importanceof the issue of control explains why, for many years,
scholarshave devotedattentionto this concept's role in the management
of organizations[Etzioni 1961;Tannebaum1968; Child 1972a, 1972b;
Lorange& ScottMorton 1974;Ouchi& Maguire1975;Edstrom& Galbraith
1977;Ouchi 1978;Vancil 1979].Nevertheless,many researchershave felt
that the essence of the concept had not yet been adequatelycaptured
[Giglioni & Bedeian 1974; Miner 1982], resulting in numerous recent
attempts to providemore thoroughand explicit frameworks,definitions
and conceptualizationsof control [Green & Welsh 1988; Schreyogg&
Steinmann1987;Merchant1982]. Severalauthors have shown particular
concernfor the exerciseof controlwithinlargeorganizations,particularly
multinationalcorporations[Skinner1968;Franko1971;Stopford& Wells
1972; Brooke & Remmers 1978]. In particular,they have examinedthe
differentdegreesof control multinationalsexerciseover their subsidiaries
[Cray1984;Anderson& Gatignon1987],as wellas the mechanisms,systems
and proceduresused and the variablesinfluencingthe recourseto them [Doz
& Prahalad 1981, 1984; Baliga & Jaeger 1984;Egelhoff 1984].
In contrast,the issueof controlof IJVshas receivedrelativelyscantattention.
The topic of IJV control was first raisedby West [1959],who recognized
the potentialinter-partnerconflicts which could resultfrom this form of
organization.Accordingto West, without effective control efforts, firms
werelikelyto experiencegreatdifficultyin managingJVs.Yet,despitethis
earlyobservationregardingits importance,the issue of controlhas received
only fragmentedand unsystematicattentionin the JV literature.Morethan
ten yearspassedbetweenWest'sinitial observationsand the re-emergence
of the issueof controlwithinthe JV literature.Moreover,as discussedbelow,
these subsequentresearch efforts have largely examinedvery different
dimensionsof IJV control, and no explicit attemptshave been made to
provide an integrativeapproachto the issue.
The first dimensionof IJV controlwhich researchershaveexaminedis the
mechanismsby which controlmaybe exercised.Initialstudiesshowedthat
firms frequentlyreliedon majorityownershipor on votingcontrol(in turn,
largely determinedby majorityequity shareholdings)to achieveeffective
managementcontrol of an IJV's activities rfomlinson1970;Friedman&
Beguin 1971;Stopford& Wells 1972].Although these studiesshowedthat
a majorityposition in equityor votes could ensuresome degreeof control

over the venture,the same argumentmight not be valid for IJVs where
the equitywasequallydividedbetweenparentsor in whicha firm had only
a minorityparticipationrole.Thislattersituationespeciallyconcernedfirms
that, overtime, wereunable to demandfull or dominantownershipposi-
tions in manyinternationalinvestments.With continueddiffusionof tech-
nology, increasedscale and risk accompanyingnew projects, increased
globalizationof many industriesand host governmentpolicies promoting
local equity participationin orderto obtain resourcesor marketaccess,
the option of implementingwholly-ownedor dominantownershipventures
has oftenbeenconstrained[Moxon& Geringer1985;Porter& Fuller1986].
In addressingsuchconcerns,Behrman[1970]as wellas Friedmanand Beguin
[1971]suggestedthat control was not a strict and automaticconsequence
of ownership.Accordingto these studies, a varietyof mechanismswere
availableto firms for exercisingeffectiveIJV control:right of veto, repre-
sentationin managementbodies and special agreementsrelatedto either
technology (e.g., licensing) or management(e.g., managementservices).
Companiesmight also be able to rely on their technicalsuperiorityand
managerialskillsas a means of guaranteeingparticipationin the manage-
mentof day-to-dayoperations.Thenominationof one of a firm'smanagers
as the IJVgeneralmanager[Rafii1978],as well as employmentof different
means of exercisingmanagerialcontrol.
In extendingthis stream of research,Schann [1983] demonstratedthe
breadthof mechanismsavailableto parentfirmsfor exercisingcontrolover
their IJVs(Table1). Among these control options, the JV board of direc-
tors, formalagreements,the appointmentof keypersonnel,the JV planning
process,the reportingrelationshipsand a varietyof informalmechanisms
appearedto be particularlyimportantfor Schaan'ssample.He also made
a significant contributionto knowledgeof IJV control by categorizing
control mechanismsinto two main types. Schaan distinguishedpositive
control mechanisms,which parent firms employedin order to promote
certainbehaviors,from negativecontrolmechanisms,whichwereused by
a parentto stop or to preventthe IJV from implementingcertainactivities
or decisions. Positive control was most often exercisedthroughinformal
mechanisms,staffing, participationin the planningprocessand reporting
relationships.In contrast,negativecontrolreliedprincipallyon formalagree-
ments, approvalby parentsand the use of the JV boardof directors.These
latter,negativeforms of control exemplifiedwhat Child [1973]described
as bureaucraticmechanisms.
In additionto the mechanismsby whichcontrolmaybe exercised,a second
dimensionexaminedby scholarswasthe extentof controlexercisedoveran
ing this latterdimensionhave conceptualizedcontrol as being dependent
upon the centralizationor the locus of the decisionmakingprocess. One
such study was Dang's [1977]researchon the autonomy of U.S. multi-
in the PhilippinesanndTaiwan.Undoubtedlyinfluenced

Positive and Negative Control Mechanisms

Positive Negative
Ability to make specific decisions Board
Ability to design: Executive committee
1) Planning process Approvalrequiredfor.
2) Appropriationrequests 1) Specific decisions
Policies and procedures 2) Plans, budgets
Ability to set objectives for JVGM 3) Appropriationrequests
Contracts: 4) Nomination of JVGM
management ScreeninglNo objection of parent before
technology transfer ideas or projects are discussed with other
marketing parent
Participation in planning or budgeting
Parent organization structure
Reporting structure
Staff services
Bonus of JVGMtied to parent results
Ability to decide on future promotion of
JVGM(and other JV managers)
Feedback; strategylplan budgets,
JVGMparticipation in parent's worldwide
Relations with JVGM;phone calls,
meetings, visits
Staffing parent with someone with
experience with JV
MNC level in Mexico
Informalmeetings with other parent
Source: J. L.Schaan, Parentcontrol and joint venturesuccess: Thecase of Mexico,249. Unpub-
lished doctoral dissertation, University of Western Ontario, 1983.

by the Aston Groupstudies and the streamof researchon centralization/

decentralization/autonomy in largeorganizationsand multinationals,Dang
definedcontrolas the autonomyof a subsidiaryand measuredthe construct
with a decentralizationindex basedon seventeenkeydecisions.Executives
from parentcompaniesand their subsidiarieswere asked to evaluatethe
subsidiaries'degreeof autonomy for these decisions along a three-point
scale. Non-parametrictests failedto revealany differencesin controlbased
on ownership,or betweencompleteor joint ownership.As a result, Dang
concludedthatthe tendencyand degreeof multinationals'controlovertheir
subsidiariescould not be explainedby equity ownershipand, thus, that
wholly-ownedsubsidiarieswerenot moretightlycontrolledthanJVs.Never-
theless,he observeda morefrequentpresenceof multinationals'expatriate
managersin JVs and, therefore,suggestedthat the control exercisedover
the JVs might be more importantthan indicatedby his control index.
Using a similarperspective,Killing [1983]studied control in thirty-seven
JVs from developedcountries.Buildingin part on the work of Tomlinson
[1970],Killingemployedinterviewsof parentcompanyexecutivesand JV
generalmanagersto examineparentfirms' influenceon nine types of deci-

process, quality control, replacementof managers, sales targets, cost

budgetingand capitalexpenditures.Morespecifically,he inquiredwhether
each decisionwas made (1) by the JV generalmanageralone, (2) by the
local parentalone, (3) by the foreignparent alone, (4) by the JV general
managerwith input from the local parentor (5) from the foreign parent
or (6) from both parents.Using this scale, Killingclassifiedeach sample
ventureas either a dominantpartnerJV (whereonly one of the parents
playeda dominantrolein decisionmaking), a sharedmanagementJV (where
each parentplayedan active role in or an independentJV (where
the JV general manager enjoyed extensive decisionmakingautonomy).
Beamish [1984]subsequentlyemployedthis same scale in an examination
of JVs in less developedcountries.
A significantcontributionof the locus of decisionmakingperspectiveto
the JV literaturewasconceptualizing controlas a continuousvariable,rather
than merelyan absolute,dichotomousvariablerepresentingparents'exer-
cise of either total control or no control over the IJV. However,despite
this contribution,severalscholarshave criticizedthe locus of decision-
making perspectivefor presentinga very limited and incompleteview of
IJV control[Skinner1968;Brooke& Remmers1978].Forexample,several
studies discussedabove demonstratedthe existenceof means other than
decisionmakingfor exercisingeffective control over IJVs. Another criti-
cism of this perspectiveis its implicitsuggestionthat parentfirms seek to
controlthe overallIJV,ratherthan targetingspecificactivitiesor processes
perceivedas crucialfor achievementof the IJV's or the parent'sstrategic
objectives.Concernwith this implicitconceptualizationof control consti-
tuted one of the bases for Schann's [1983] examinationof ten IJVs in
Mexico.Explicitlydefiningcontrolas "the processthroughwhicha parent
companyensuresthatthe waya JV is managedconformsto its owninterest"
(p. 57), Schaandemonstratedthat firmstendedto seekcontroloverspecific
"strategicallyimportantactivities"ratherthan over the whole IJV.
Schaan'sfindingthat controlalso had afocus dimension,i.e., that parents
may choose to exercisecontrol over a relativelywider or narrowerscope
of the IJV's activities,was supportedby Geringer's[1986]study of ninety
developedcountryJVs. These findingssupportthe notion of parentfirms'
parsimoniousand contingentusage of resourcesfor controllingIJVs.This
suggests that the exerciseof effective control should emphasizeselective
control over those dimensionsa parentperceivesas critical, ratherthan
attemptingto control the entirerangeof the IJV's activities.This notion
of selectivecontrol efforts raisesthe prospectof a split control IJV, one
in whicha parentfirmmayexercisedominantcontroloveronly a fewdimen-
sions of the venture.A split control IJV might be distinctfrom either of
Killing's [1983]categoriesof an overalldominantcontrol JV or a shared
controlJV,if all or most of the IJV'sactivitiesweredominatedby a single
parent firm but if no individualparentcontrolleda clearmajorityof the
As demonstratedby the precedingreview,IJV control is a complex and
multidimensional concept.Controlis a muchmoresubtlephenomenonthan

a proxy like centralizationof decisionmakingis liable to capture,and it

can be quite distinctfrom mereconsiderationof relativeequity ownership
or relativeoverallcontrol of an IJV. In fact, as suggestedby the above
discussion,it is possibleto distinguishthreedimensionsor parameterswhich
compriseIJV control:(1) thefocus of control, i.e., the scope of activities
over which parentsexercisecontrol; (2) the extent or degree of control
achievedby the parents;and (3) the mechanismsthe parentsuse to exer-
cise control. Contraryto initial appearances,these three parametersare
not incompatible,but rathercomplementaryand interdependent. Theyeach
examinea differentaspect of IJV control.
The main problemremainsthat most studies on IJV control have had a
limited perspectiveof the control concept or have only looked at one of
its dimensions.Onlya few studies,in particularones by Schaan[1983]and
Geringer[1986],have consideredmore than one parameter.However,it
appearsnecessaryto considerall threedimensionsof control in order to
obtain a thorough understandingof the control phenomenon for IJVs,
although this integrationhas yet to be accomplished.
In additionto simultaneouslyaddressingcontrol'sthreedimensions,another
importantstep towardimprovedunderstandingof parentcontrol of IJVs
lies in the identification of the different types of control mechanisms,
similarto Schaan[1983].Researchersneed to broadenthe rangeof control
mechanismswhichmanagersmayemploy,as well as refiningthe operation-
alization of these various mechanisms.In pursuingthis task, it may be
valuableto acknowledgethe differencesin the orientationof controlmech-
anisms.BorrowingBartlett's[1986]terminology,the "mechanism"dimen-
sion maybe brokendown into threecomponents.First,controlmechanisms
may be context-oriented.These mechanismsencompassa wide varietyof
informal and culture-basedmechanismsand their essentialpurpose is to
establishan organizationalcontextappropriatefor the achievementof parent
company objectives.For example,firms frequentlyemphasizethe IJV's
developmentof a teamworkculture,rather than an "us-them" culture.
This might be promotedby designatingall personnelas employeesof the
IJV,ratherthanindividualparentfirms,and by promotinga set of policies
that evidencesconsistencybetweenindividuals'motivationsand the IJV's
well-being.Sucha culturemay representa veryeffectivesubstituteto more
formal or content-orientedmechanisms.In the case of this second dimen-
sion of controlmechanisms,ratherthanrelyingon the organizational setting,
parentsrelyon moredirectinterventions,eitherby top managersor by the
IJV's board of directors.These mechanismsare typicallybureaucraticin
nature,or whatSchaan[1983]termed"negative"controlmechanisms.They
includespecificationin the IJV agreementof veto rightsor the assignment
of selected responsibilitiesto each parent. The final dimension may be
termedprocess-orientedmechanisms,in whichparentfirmsexercisecontrol
through reportingrelationshipsor influence on IJV planning and decis-
ionmaking processes.For instance,parent firms may requirethe partic-
ipation of their corporatestaff in the IJV's strategicplanningprocess.

Futureresearchshould also emphasizegreaterdepth of probingregarding

the criticalconsiderationsand implicationsassociatedwith each control
mechanism,as well as the interrelationshipsbetweencontrolmechanisms
and both the extent and the focus of IJV control. For instance, staffing
may representa crucial strategiccontrol mechanismfor an IJV parent
[Frayne& Geringer1987;Pucik 1988].A parentmay be able to influence
the relativeallocationof controlover a ventureby influencingstaffing of
the IJV's top managementpositions.The IJV generalmanager'sposition,
in particular,can affect an IJV'soperations[Schaan& Beamish1988]since
the generalmanageris responsiblefor maintainingrelationshipswith each
of the parents,as well as runningthe venture.The means of selecting,
training,evaluatingand rewarding theperformanceof IJVgeneralmanagers
can significantlyaffect not only the ventureitself, but also its relationship
with each parent.The relativepowerof the IJV generalmanager'sposi-
tion is influencedby the governancestructureestablishedby the parents,
and can rangefromautocratic(individualdominantcontrol)to democratic
(sharingof controlamong manymanagers).Giventhe importanceof this
and other controlmechanisms,moreextensiveexaminationof these vari-
ables is necessaryto enhance understandingof IJV control.
To the extentthat scholarshave devotedattentionto control in IJVs, the
ultimateobjectiveshould not be limitedto the studyof the controlconcept
itself. Rather,the underlyingrationaleshould be improvedunderstanding
of the relationshipof control to IJV performance.Thus, this section will
reviewthe approachesthat have been employedin examiningthis critical
relationship,as well as the studies' findings.
Tomlinson[1970],often consideredthe first scholar to empiricallystudy
the control-performancerelationshipfor IJVs, did not directly examine
parentcontrol,but ratherthe "attitudeof parentstowardcontrol." From
a sampleof seventy-oneIJVsin Indiaand Pakistan,Tomlinsonfound that
IJVsevidencedhigherlevelsof profitabilitywhentheirU.K.parentsassumed
a morerelaxedattitudetowardcontrol.However,the validityof theseresults
may be questionable,since Tomlinsonused returnon investmentas the
measureof profitability.Utilizationof this measurefor a multi-industry
sampledoes not appearadequateandmayhaveproducedbias in the results.
Variationsin the financial performanceof IJVs could be caused, for
example, by industry differencesratherthan differencesin the attitude
AlthoughFranko[1971]also studiedthe control-performance relationship,
his work,whichwas relatedto Stopfordand Wells'research[19721on multi-
nationalcorporations(MNCs),has receivedlimitedattentionby researchers
in the "IJV control"field becauseit focusedon the parent(the MNC) and
its strategyratherthan on the IJV and its control. Using a sample of 169
U.S. MNCs involvedin morethan 1100JVs, Frankoexaminedhow parent

control over JVs as well as the JVs' stability or instability(measuredby

the liquidationor significantchangesin ownershipof a JV)variedaccording
to the MNC parent'sstrategy.Franko'smain argumentwas that different
strategieshad differentorganizationaland control requirements,thereby
influencingthe stabilityof JVs. Fromhis sample data, Frankoconcluded
that JVs were more stable when the MNC parent followed a product-
diversificationstrategy(roughlyequivalentto Doz' [1986]nationalrespon-
sivenessstrategy),which usually demandedless controlover subsidiaries.
In contrast, JVs evidencedgreaterinstabilitywhen the parent's strategy
emphasizedproductconcentration(roughlyequivalentto Doz' [1986]global
productstrategy),whichusuallyreliedon centralizationof decisionmaking
and strongcontrol.Moreover,Frankodemonstratedthat JV stabilitytended
to vary with the evolution of the MNC parent's organizationalstructure
and strategy.
Nevertheless,Franko'sresultsembodyseriouslimitations.The authornever
clearly defined his concept of control, nor did he propose a genuine and
directmeasureof this construct.Toevaluatecontrol,he reliedon the impor-
tancegivenby MNCparentfirmsto standardization andto the centralization
of decisionmaking,particularlyfor marketingpolicy issues. Furthermore,
the author'sdependentvariable,changesin JV ownershipstructure,fails
to providea clear sense of the JV's absolute or relativesuccess or of the
achievementof the JV's objectives,and thereforeof the performanceof
the JVs. Becauseownershipmay also be a control mechanism,utilization
of this constructmay resultin confusionregardingthe meaningof owner-
ship changes.It is open to conjecturewhetherthese changesare indicative
of modificationsin the controlof the JV,or of its poorperformance.Despite
these concerns,Frankomade a significantcontributionby examiningthe
JV control-performancelink using the "strategy-structure"conceptual
framework.Withinthis perspective,the degreeof parentalcontrol as well
as the JV's performance(or its stability)is presumedto be contingenton
the MNC's strategyand structure.Unfortunately,despite the potential
insightsfromemployingthis framework,no researchershaveyet attempted
to extendFranko'swork in studyingthe control-performancerelationship
for IJVs.
The studiesthat constitutethe "mainstream"of researchon control and
performanceof IJVshave adopteda different,but not necessarilyincom-
patible, approach than that employed by Franko [1971].For example,
Killing [1983] asserted that, among his three JV categories, dominant
partnerJVs are more likely to be successful, at least comparedto shared
managementventures.His argumentwas essentiallyas follows: since the
presenceof two (or more)parentsconstitutesthe majorsourceof manage-
ment difficulties in JVs, dominant partner JVs, in which the venture's
activities are dominatedby a single parent, will be easierto manage and
consequentlymoresuccessful.This argumentis especiallyeasy to interpret
withina transactioncost analyticalframework,wheretransactioncosts are
definedas the costs assumedby firmsfor the enforcement,monitoringand

administration of a transaction[Williamson1981].Accordingto Williamson,

firms tend to choose structuralarrangementsfor transactions(marketsor
hierarchies)thatminimizethesecosts.Coordinationof andconflictsbetween
parents,as wellas the potentialunintendeddisclosuresof proprietaryknow-
how discussedearlier,can generatetransactioncosts associatedprincipally
with uncertainty,opportunisticbehaviorand asset-specificity[Williamson
1975;Ouchi 1977;Anderson& Gatignon1987]that can limit the potential
gainsfromcooperatingin an IJV[Beamish& Banks1987;Buckley& Casson
19881.Viewedfrom this perspective,dominantcontrolis a mechanismfor
reducingthe risksassociatedwith coordination,potentialconflictsand dis-
closuresand, consequently,for minimizingtransactioncosts and stabilizing
the IJV.
To test this hypothesis,Killingmeasuredperformancevia management's
assessmentof the JV's performance(rangingfrom poor to good), as well
as evaluatingthe liquidationor reorganizationof the JV as a sign of failure.
To justify use of these variablesratherthan financialindicators,Killing
[1983], like Rafii [1978], explainedthat the profitabilityof the JV for a
parent firm is not based solely on the JV's profits, but also on transfer
prices,royaltiesand managementfees not includedin traditionalfinancial
performancemeasures.Due to this deficiency,traditionalfimancialmeasures
were,consequently,judged to be inadequatefor use within a JV context.
Consistentwith his hypothesis,Killingfound that dominantpartnerJVs
tendedto be moresuccessful,on both measures,thanweresharedmanage-
ment ventures.IndependentJVsalso exhibitedsuperiorlevelsof perform-
ance. In this lattercase, Killingsuggestedthat the JVs'autonomywas more
a resultthana causeof theirperformance.However,the evidencepresented
in support of this assertionwas inconclusive.It did not completelyrule
out that autonomy,or the absenceof parentalcontrol, was the stimulus
ratherthanthe responseto higherJV performance.Furthermore, no formal
statisticaltests were used to supportthe assertion.
Similarto Killing[1983],AndersonandGatignon[1986]proposedthat entry
modes offeringgreatercontrol,as measuredvia the relativelevelof owner-
ship, wouldbe moreefficient for highlyproprietaryproductsor processes.
However,the work of other researchershas not providedmuch evidence
to supportKilling's[1983]contentionthat JVs dominatedby one parent
exhibitedsuperiorityin performance.For instance, Janger [1980]used a
classificationschemasimilarto Killing's,yet did not find that one type of
JV tended to be more successfulthan another.Similarly,Awadzi, et al.,
[1986]failedto find any relationshipbetweenextentof parentcontrol and
the performanceof IJVs.
Beamish[1984]also attemptedto test Killing'shypothesis.Using Killing's
[1983]data, he used a chi-squaretest to examinethe relationshipbetween
type of JV and its performance,but found no significantrelationships
evident at the 0.05 level. Beamishsubsequentlyutilized Killing's control
scale and performancemeasuresfor twelveJVsin less developedcountries
(LDCs). Unsatisfactory IJY performancewas found to be correlated

(significance=0.067) to dominant foreign control, while dominant local

control (control by LDC partner)and shared control JVs were judged
unsatisfactoryin only a few cases. Furtheranalysisalso demonstratedthat
dominant foreigncontrol was significantlyassociatedwith unsatisfactory
performancein four decisions(productionscheduling,productionprocess,
qualitycontroland replacementof managers)involvingmainlyproduction
Using the notion that parentfirms seek control over specific activitiesas
a conceptualstartingpoint, Schaan[1983]extendedthat argumentas well
as identifyingseveralsubtletiesregardingthe phenomenon.In particular,
Schaanconcludedthatventuresuccess,or the extentto whichparentalexpec-
tations for the IJV were met, was a function of the fit among three vari-
ables:the parent'scriteriafor success,the activitiesor decisionsit controlled
and the controlmechanismswhich wereutilized. He concludedthat IJVs
in which parentsachievedthis "fit" would evidencebetter performance.
Schaan failed to providedetailsregardingthe underlyingrationalefor his
conclusions.However,one can imaginethat a parentfirm not adequately
exercisingcontrol over activitiesjudged as critical for the achievementof
its objectivescould ultimatelysuffer from ineffectivestrategyimplemen-
tation and strategicinflexibility.
Thus, despite its conceptual appeal, the relationshipbetween dominant
controland IJVperformanceappearsto be far morecomplexand less direct
than scholarsmay have originallyperceived.Janger[1980]suggestedthat
the organizationof a JV has only a small directinfluenceon its perform-
ance. Accordingto him, it would not be "the structurealone that makes
for a successfulorganization,but how well the structurefits the strategy
and powersituationin the venture"(p. 32). Despite such comments,most
prior researchhas been limited to a direct test of the IJV control-
performancerelationshipwithouttakingaccountof or controllingfor other
variablessuch as the parents'strategyand structure,as Franko[1971]did.
Subsequentinconsistenciesin resultsmay thereforebe an outgrowthof this
Furthermore,the tendencyof prior researchto evidencedifferencesboth
in the object of study and in the operationalizationof performancemay
also helpexplainthe conflictingresultsfoundin the literature.On one hand,
scholars have focused either on developed country JVs [Killing 1983;
Geringer1988],on less developedcountryJVs [fomlinson1970;Friedman
& Beguin1971;Renforth1974;Raveed1976;Dang 1977;Rafli 1978;Schaan
1983;Beamish1984],or on both types of JVs [Franko1971;Janger1980].
As demonstratedby Beamish [1985],less developedcountryJVs typically
havepurposesand dynamicsquitedifferentfromthoseof developedcountry
JVs. For instance,the motivesunderlyingtheir formationhave often been
tacticalin nature,or limitedto the desireeitherto obtainknowledgeabout
the local environmentor respondto foreign ownershiplegislation.
On the other hand, no consensus on the appropriatedefinition of IJV
performancehas yet emerged. A variety of objectivemeasuresfor IJY

performancehavebeen used, rangingfrom financialindicators[omlinson

1970;Good 1972;Dang 1977;Renforth1974], to the survivalor liquida-
tion of the venture[Franko1971;Raveed1976;Killing 1983],its duration
[Harrigan1988;Kogut 1988a],and instabilityof (or significantchanges
in) its ownership[Franko 1971;Gomes-Casseres1987]. However,these
objectivemeasuresmaynot adequatelyreflectthe extentan IJVhas achieved
its objectives.Despitepoor financialresults,liquidation,or instability,an
IJV may neverthelesshave attained the objectives of its parents-for
example,of transferring a technology-and thusbe considered"successful"
by one or all of the parents. Likewise,IJVs may be viewed as "unsuc-
cessful," despiteachievinggood financialresultsor continuedstabilityin
ownershipor governancestructures.Because of such concerns, Killing
[1983], and later Schaan [1983] and Beamish [1984] used a perceptual
measurebased on a single-itemscale measuringthe parent'ssatisfaction
vis-a-visthe performanceof an IJV. The main advantageof this type of
measureis its abilityto provideinformationregardingthe extentto which
the IJV has achievedits objectives.Moreover,by collectingdata from each
parentregardingtheir level of satisfaction,as done by Schaan [1983]and
Beamish[1984],researcherscan help overcomemethodologicallimitations
associatedwith the use of such perceptualmeasures.The measure'sreli-
abilitymayalso be enhancedif datais collectedfrommultipletimeperiods,
or from more than one respondentper firm, although such efforts may
confront a myriadof logistical and cost barriers.
In short, the above reviewsuggeststhat the empiricalevidenceregarding
the control-performancerelationshipin IJVs is still limited. The impor-
tance and directionof this relationshiphave yet to be established,tested,
and clarified.
As previouslydiscussed,priorresearchhas been highlyfragmentedon the
basis either of the conceptualizationof IJV control, the object of study
or the attentiondevotedto IJV performance(Table2). In addition, clear
understandingof the IJV control-performance relationshipis constrained
by apparent inconsistenciesin results.
As a firststeptowardsolvingtheseproblems,we havepreviouslyproposed
a conceptualizationof control that takes into account its three different
dimensions. The next step involves the developmentof an integrative
approach for studying control in IJVs. To addressthis latter issue, two
conceptualframeworksappearto be particularlyuseful. The first frame-
work is the transactioncost approach.Severalworks, mainly conceptual
in nature, have already used their theoreticalframeworkto explain the
formationand dynamicsof JVs [Beamish& Banks 1987;Harrigan1988;
Hennart 1988;Kogut 1988b].Other studies that do not directlyrefer to
transactioncosts, includingmost of the recentstudiesof IJV control, also
employ rationalesthat are compatiblewith this framework.Although the

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transactioncost frameworkseems particularlyvaluablefor providinga

general theoreticalbase for analyzingcontrol in IJVs, this perspective's
potentialusefulnessmay be limitedby the difficultiesand complexityassoc-
iated with its empiricalverificationand operationalization.Furtherwork
aimed at operationalizingthe measurementand evaluationof transaction
costs is neededbeforethe usefulnessof this conceptualschemacan be fully
appreciated,particularlyfor studyingIJV control.
The secondconceptualframeworkwith potentialapplicationsfor studying
control of IJVsis the strategy-structure approach.Although its potential
usefulnesswas suggestedby Franko'sresearch[1971],and despite exten-
sive use in examinationsof parent-subsidiaryrelationships,the strategy-
structureschemahas not been employedsubsequentlyfor researchon IJV
control or the control-performancerelationship.In fact, with the excep-
tion of Franko's,there have not been any studies which have explicitly
consideredthe roleof parentfirmstrategyin influencingthe controlparents
subsequentlyexerciseover their IJVs. This situation seems particularly
surprisingconsideringthe importanceattributedto organizationalstrategy-
structurefit within the strategicmanagementliterature.
An especiallypromisingavenuefor futureresearchlies in the integration
of these two frameworks,which are not fundamentallyincompatiblebut
rathercomplementary. As shownby Jonesand Hill [1988],transactioncost
analysis provides the theoretical underpinningsabsent in the strategy-
structureparadigm.Thus, to better understandthe relationshiplinking
controland performanceof IJVs,we mustconsideron one hand that there
can be benefits from the exerciseof IJV control. Without such control,
parent firms may encounterdifficultiesin achievingthe full potential of
theirstrategiesand in attainingtheirobjectives.Controlthereforecan enable
the firm to reducetransactioncosts that could limit a strategy'sbenefits.
On the other hand, the exerciseof IJV control is not without drawbacks;
it indeedhas a cost [Hulbrut& Brandt1976;Jaeger1982;Wilkins& Ouchi
1983;Vernon1983]. Control often implies a commitmentfrom a firm in
termsof both responsibilityand resources,and maylead to increasedover-
head costs [Anderson& Gatignon1986]. It can also increasethe risks to
which a firm is exposed [Davidson 1982]. Consequently,the exerciseof
extensivecontroloveran IJV'sactivitiesand decisionscan generateimpor-
tant coordinationand governancecosts and limit the efficiencyof an alli-
ance [Contractor& Lorange1988].This may be especiallytrue for control
efforts orientedtowardactivitiesand decisionshavinglittleimportancefor
performanceof either the IJV or the parent firm.
Therefore,the criticalissue for a parentfirm is to exercisecontrol,in terms
of mechanisms,extent and focus, over an IJV in such a mannerthat will
enable it to successfullyimplementits strategywithout incurringa level
of administrativeor organizationalinefficiencieswhichoutweighsthe gains
from its cooperativeendeavor.In otherwords,thereis a strategy-structure
"fit" whenthe benefitsoutweighthe costs of control,andthis "fit" is best
when the marginbetweenbenefits and costs is optimized.This rationale

is readilyillustratedby Franko's[19711results. In the case of a product

diversification(or nationalresponsiveness)strategy,the foreignparentmay
perceivethe need to exerciseat least a moderatelevel of control over the
IJV in orderto protectits interestsand to ensureeffectivestrategyimple-
mentation.However,the extentof controlthat the foreignpartnerattempts
to exercisemay limit the autonomyand flexibilityof the IJV and its local
management,hinderingthe venture'sability to respondto local market
demands and generatinga level of transactioncosts that may offset the
It is from this perspectivethat we propose a model for the study of IJV
control (Table3). Among its majorcharacteristics,this model relieson an
integrativeconceptof IJV controlthattakesinto accountits differentdimen-
sions. Furthermore,it is organizedaround the concept of strategy,more
specificallythe parents'internationalcompetitivestrategiesand the IJV's
strategy.On one hand, Porterand Fuller[1986]haveadvocatedthe impor-
tance of looking at coalitions, such as IJVs, within the contextof a firm's
overallstrategyfor competinginternationallyin an industry.This approach
is consistentwiththe streamof researchon the relationshipbetweenstrategy
(at the corporateas well as the businesslevel), structureand performance
[Chandler1962; Stopford & Wells 1972; Rumelt 1974;White 1986]. On
the other hand, severalauthorshave recentlysuggestedthat subsidiaries
could haveverydifferentstrategicrolesdependingon theirparent'sstrategy,
their environmentand their competencies[White& Poynter1984;Bartlett
& Ghoshal 1986;Ghoshal 1987].In addition, Gupta [1987]indicatedthat
differentstrategicroleshad differentorganizationalrequirementsand that,
consequently,subsidiaries'strategieshad a relevanteffect on how a parent
managedits subsidiaries.Therefore,we believe that a thoroughexamina-
tion of the ways parentsmanage or control their subsidiaries,jointly or
wholly-owned,must include considerationof strategy.
In the proposedmodel, IJV performanceis mainly a function of the fit
betweenthe internationalstrategyof the parents,the IJV strategy,and the
parametersof control. It thus marksa net departurefrom traditionalor
most-usedmodels where IJV performanceis viewedas a direct outcome
either of the mechanismsused or of the extent of control. In our model,
strategyand control are also expectedto have a direct influence, but to
a much smallerextent. This raisesthe possibilitythat some combinations
of strategyand control may be associated with superiorperformance.
However,this issue has not yet been addressedin the literature,and space
and focus limitations preventus from addressingit here. Furthermore,
among its advantages,our approachhelps to emphasizewhat functions
would be most critical to an organization'soverallsuccess. This type of
researchperspectivecould enhanceunderstandingof the decisions parent
firms makeabout which IJV activitiesto control, the extentof control to
exercise,andthe controlmechanismsto employ.It can helpclarifythe nature
of the linkagesbetween these three basic parametersof control and IJV
performance,and also permitrecommendationsto managerson what and
how to control in order to promoteachievementof IJV goals.

A Strategy-Control Model of JV Performance




As corporationsincreasinglyutilize alliances such as IJVs as tools for
attainingstrategicobjectives,the issueof IJV controlis experiencing
a corre-
spondingincreasein attentionfromacademicsand practitionersalike.Yet,
understandingof IJV managementlags behind the demandsof practice.
Although a wide variety of control mechanisms have been identified,
managershavereceivedminimalguidanceaboutwhenandhow to use them,
as well as aboutthe potentialtradeoffsbetweenalternativecontroloptions.
As a result,manyfirmshavechosento bypassthe IJVoptionor haveentered
ventures ill-prepared.These firms may not only be missing potentially
valuableopportunities,they may ultimatelybe eliminatingthemselvesas
viablecontenderswithinentireindustries.This concernis particularlycrit-
ical whenit affectsparticipationwithinhighly competitiveglobal (or glob-
alizing) industries.
In addressingcontrolof IJVs,this paperhas attemptedto bringinto focus
a criticalvariableinfluencingventuredevelopmentand performance,and
to providea base for improvedunderstandingand managementof IJVs.
Reviewof the literatureleaves no doubt that control is a crucial organ-
izational process, for IJVs as well as for any other organizationalform.
It is also a complexand multidimensionalconcept. This featuremay help
explain why researchershave used differentapproachesto study control
in IJVs.These differences,as shownin this paper,are particularlyevident
in the conceptualizationand operationalization of control.In addition,due
to variationsamong, and weaknessesof, prior measuresof IJV perform-
ance, manyconclusionsfrom these previousstudieshaveto be interpreted
with some degreeof caution. Furthermore,the empiricalcomponent of
many studiesis not without its shortcomings.Methodologicalissues such

as differencesin the object of studyand in dependentvariablesmay consti-

tute potentiallyserious threatsto the externalvalidityof many,if not all,
prior studies of IJV control.
Differencesin researchapproachesare also evidentin the frameworksor
rationalesused to link parentcontrol to IJV performance.The reviewof
the literatureprovidedin this paperillustratesthat the developmentof JV
theory, specificallyfor the issue of control, has not reapedthe full bene-
fits possible from cross-fertilizationwith theoreticaldevelopmentswithin
otherdisciplines.In particular,developmentsin both transactioncost theory
and the strategy-structuremodel appearparticularlyrelevantfor examining
this relationship.
Consequently, research opportunities regarding control in IJVs are
numerous.Manyopportunitiesremainfor furtherresearchstressingtheory
developmentand testing, particularlyfor JVs in developedcountries.The
objectiveof this paper was to assist in this endeavorby synthesizingprior
researchon IJV control. The identificationof threeunderlyingdimensions
of control-focus, extent and mechanisms-as well as three orientations
which controlmechanismsmay evidence,should be valuablein improving
the designof futureresearch.Similarly,discussionof a conceptualframe-
work of IJV control should furtherenhance developmentof JV theory,
specificallyas it concerns control and performanceof IJVs.

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