Springer Mir: Management International Review

Strategic Motives for International Joint Venture Formation in Ghana
Author(s): Agyenim Boateng and Keith W. Glaister

Source: MIR: Management International Review, Vol. 43, No. 2 (2003 2nd Quarter), pp. 107-
128
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mir vol. 43, 2003/2, pp. 107-128 #
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© Gabler Verlag 2003
Agyenim Boateng/Keith W. Glaister
Strategic Motives for International

Joint Venture Formation in Ghana1
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 pro-
duction 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.
Authors
Agyenim Boateng, Senior Lecturer in Finance, Leeds Business School, Leeds Metropolitan Uni-
versity, Leeds, UK.
Keith W. Glaister, Professor of International Strategic Management, CIBUL, Leeds University
Business School, University of Leeds, Leeds, UK.
Manuscript received March 2000, revised May 2003, revised July 2002.
mir vol. 43, 2003/2 107
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 (Demir-
bag/Mirza 2000, Beamish/Delios 1997). Traditionally, JVs have been used as a
means of tackling the problems of lack of capital and reducing foreign domina-
tion 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 Gar-
rette (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 tech-
nology 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 part-
ners.
Despite the difficulties associated with joint ventures, they remain

and have grown unprecedentedly in both developed and developing
(Deloitte, Haskins & Sells International 1989, Anderson 1990, Calan
2000). An analysis of FDI trends in Ghana by Boateng and Glaister (1999
further evidence to support JVs as the most prevalent means of mak
investments rather than investment through wholly owned subsidiar
apparent from Table 1, which shows the region of origin and entr
the approved foreign direct investment projects in Ghana for t
108 mir vol. 43, 2003/2
Table 1. Approved FDI Projects by Ownership Type and Regional Origin: All Sectors, 1990-1997
Region Wholly Owned Equity Joint Venture Total
Number % (Row) Number % (Row) Number % (Col)
Africa 17 33.3 34 66.7 51 4.9

Asia/Pacific 58 23.9 185 76.1 243 23.4
Middle East 11 11.0 90 89.0 101 9.6
N/America 13 13.3 85 86.7 98 9.3
W/Europe 75 18.0 341 82.0 416 40.0
E/Europe 4 23.5 13 76.5 17 1.6
L/America 4 31.0 9 69.0 13 1.2
Multilateral 18 17.0 88 83.0 106 10.0
Total 200 19.1 845 80.9 1045 100.0
Triad Status
Triad 146 19.2 611 80.7 757 72.0
Non-Triad 54 18.7 228 81.3 288 28.0
Total 200 19.1 845 80.9 1045 100.0
Source: Ghana Investment Promotion Centre 1998
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. For each region JVs are the most prevalent mode of FDI entry
in Ghana.
The term joint venture often implies the creation of a separate corporation
whose stock is shared by two or more partners, each expecting a proportional share
of dividend as compensation (Contractor/Lorange 1988). A joint venture may be
classified as an equity joint venture (EJV) or a non-equity joint venture (NEJV).
EJVs involve two or more legally distinct organisations (the parents), each parti-
cipates in the decision-making activities of the jointly owned entity (Geringer
1991). In contrast, NEJVs are agreements between partners to co-operate in some
way, but they do not involve the creation of new firms (Contractor/Lorange 1988).
The domain of this study comprises EJVs formed in Ghana involving a host
country partner (public sector firms and private sector firms) and foreign partner
firms from Western Europe, North America and Asia.
While there is a rich prior literature on why MNCs might seek a collaborative
organisational mode, in the context of sub - Saharan Africa this has been given
scant attention. This paper presents new data and new empirical insights into the
strategic motivation for JV formation in Ghana. The paper builds on the few prior
studies of international joint ventures (IJVs) in sub-Saharan Africa with particu-
lar reference to Ghana. This paper has three main goals:
1) To consider the relative importance of the strategic motives for JV formation

by foreign MNCs in the context of the following characteristics: organisatio-
mlr vol. 43, 2003/2 109
nal type of host partner, ownership level, sector of operation and origin of
foreign partner.
2) To provide a parsimonious set of strategic motives for the sample studied by
means of factor analysis.
3) To formulate and test hypotheses on the way in which the relative importance
of strategic motives may vary with the sample characteristics previously identi-
fied.
The remainder of the paper is organised in the following way: The next section
reviews the literature relating to strategic motives for JV formation and sets out
the research hypotheses. The research method of the study and the characteristics
of the sample reported are set out in section three. The fourth section presents the
results and discussion. The final section contains the summary and conclusions.
Literature Review and Hypotheses
Many researchers of international business, for example, Mariti and Smiley

(1983), Harrigan (1985), Porter and Fuller (1986), Contractor and Lorange (1988),
Glaister and Buckley (1996), Tatoglu and Glaister (1998) have examined the
reasons for strategic alliance formation. Glaister and Buckley (1996) identified,
classified and explained the key motives for international strategic alliance for-
mation by UK firms. They reported that the main strategic motives were intrinsi-
cally linked to the market and geographical expansion of firms. Killing (1983),
in a sample of 34 joint ventures in developed countries divided the reasons for
creating a venture into three groups, namely: government suasion or legislation;
partners' needs for other partners' skills; and partners' needs for the other part-
ners' attributes or assets.
Miller, Jasperson, and Karmokolias (1996), identified the motives for joint
ventures from two points of view i.e. developed country and developing country
perspectives. They reported that government restrictions and foreign partner's
conribution to finance the JV are the primary reasons for advanced country firms
and firms from developing countries to invest through a JV respectively. Studies
by Friedmann and Kalamanoff (1961), Goldenberg (1989), Kent (1991), and
Selassie (1995) highlight the rationale for JV formation as the fulfillment of the
needs and objectives of the parties involved, which otherwise would have been
impossible to achieve with other business alternatives.
Several of the same motives are identified by various authors, while some
of them overlap. The main motives discussed in the literature include the follow-
ing:
110 mir vol. 43, 2003/2
Cost and Risk Sharing
Porter and Fuller (1986) identified joint ventures as a mechanism through which
companies could hedge risk. By partnering with a firm in a different geograph-
ical market and/or different product market, losses in one market may be offset
by gains in others, reducing the risk of the partner firm's overall portfolio of
investment. Davidson (1982) argues that firms having lower market knowledge
tend to reduce strategic risk by entering these markets through JV rather than
wholly owned modes. A cooperative venture is also seen as a means of reducing
cost because costs are shared, thus reducing the financial investment necessary to
undertake a given business venture by any individual firm. By reducing financial
investment the downside risk of the losses in the event of business failure is
reduced.
Economies of Large-Scale Production
Economies of scale is concerned with the average cost of production in relation

to the productive capacity of a plant. For example, if the productive capacity of
a plant were increased, economies of scale would exist if the average cost of pro-
duction fell. A joint venture can reduce average unit cost by pooling together each
partner's capability and resources in order to achieve the benefits of large scale
production. Furthermore, where components are made by both partners in diffe-
rent locations and with unequal costs, production could be transferred to the lower
cost location thereby further lowering sourcing costs.
Transfer of Complementary Technology and Patents
Joint ventures, production partnerships, and licensing agreements may be formed

in order to pool the complementary technologies of the partners. Several allian-
ces in the pharmaceutical and biotechnology fields, for instance, are built on this
rationale. Each partner contributes a missing piece. Pooling and ulitising partner
resources through joint venturing do not only lead to superior product but may
also create financial and operating synergies by sharing complementary resour-
ces between partners in a way not possible through internal development (Luo
2002, Buckley/Casson 1988). Contractor and Lorange (1988) suggest that JV
agreements can also be a form of vertical quasi integration, with each partner
contributing one or more different elements in the production and distribution
chains. The inputs of the partners are in this case, complementary, not similar. In
general, it is important to consider JVs as vehicles to bring together complemen-
tary skills and talents which cover different aspects of the know-how needed in
high technology industries.
mir vol. 43, 2003/2 111
Shaping Competition
Porter and Fuller (1986) pointed out that strategic alliances can influence who a
firm competes with and the basis of competition. Potential (or existing) com-
petition can be coopted by forming a joint venture with the competitor or by enter-
ing into a network of cross-licensing agreements (Telesio 1977). Therefore, a
strategic alliance may be used as a defensive strategy. On the other hand, a JV
may also be made in a more offensive vein, for example, a company could link
up with a rival in order to put pressure on the profit and market share of a com-
mon competitor (Contractor/Lorange 1988).
Overcoming Government-mandated Investment Barriers
One of the oldest and still common rationale for joint ventures is that they enable
foreign parent firms to overcome government-mandated investment barriers. In
many instances, host government policy makes JV formation the most convenient
way to a market (Contractor/Lorange 1988). In some countries investment regu-
lations require a link with a local firm. In many cases, the regulations have called
on foreign companies to limit participation to minority status. Until recently, India
and Nigeria, for example, required foreign firms to be minority partners in a joint
venture if they were to invest at all (Miller et al. 1996).
Facilitating International Expansion
For medium or small-sized companies lacking international experience, initial

overseas expansion is often likely to be a joint venture (Contractor/Lorange 1988).
Contractor and Lorange (1988) argue that, in general, it is an expensive, difficult,
and time-consuming business to build up a global organisation and a competitive
presence. JVs offer significant time savings in this respect. Even though one might
consider building up one's market position independently, this may simply take
too long to be viable. Again, though acquisitions abroad might be another alter-
native for international expansion, it can often be hard to find good acquisition
candidates at realistic price levels - many of the "good deals" may be gone. All
of these considerations add to the attractiveness of the joint venture approach.
Hypotheses
The literature gives little indication a priori of what to expect in terms of the
relative importance of a set of motivating factors for joint venture formation (Glai-
112 mir vol. 43, 2003/2
ster/Buckley 1996). It may be conjectured, however, that the relative importance

of the motives would vary with the underlying key characteristics of the sample.
For the purpose of this study these characteristics have been identified as or-
ganisation type, ownership level, sector of operation and origin of foreign
partner.
Organisational Type of Host Partner
A partner to a JV may either be a private sector organisation or a public sector or-

ganisation related to the government of the host country. It is expected that the
motives for forming the JV are likely to differ according to the type of partner.
A foreign partner, for example, may be able to enter certain sectors considered
as vital to the interest of the host country, such as petroleum, telecommunication
and gold mining, through a JV with the host government but not a private
organisation, because these sectors are reserved for the state. Government orga-
nisations may exist to provide essential services whereas private sector orga-
nisations exist for commercial purposes. This reasoning leads to the following
hypothesis:
Hypothesis 1. The relative importance of motives for JV formation will vary with
the organisational type of the host country partner.
Ownership Level
Control in an international joint venture can be defined as a process through which

parent companies ensure that the way the JV is managed conforms to their interest
(Schaan 1983). Closely allied with control is the level of ownership of each part-
ner, in that the split of ownership between the partners of a JV influences the level
of resources commitment, control and consequently the strategic direction of the
JV (Lorange/Roos 1990). There is therefore a strong theoretical basis for linking
the setting of strategic motives with ownership level as the possession of a majo-
rity shareholding generally confers on the partner a major part of the decision-
making control. It may be argued that ownership level is expected to influence
the motives for setting up the JV. The reasoning leads to the second hypothesis of
the study:
Hypothesis 2. The relative importance of motives will vary with the level of ow-
nership of the joint venture.
mir vol. 43, 2003/2 113
Sector of Operation
Glaister and Buckley (1996) examined the relative importance of strategic moti-
ves for JV formation according to the industry of the venture in the UK. Other
studies (see Afriyie 1988, Selassie 1995) on strategic motives for JV formation
have implicitly focused on the manufacturing and agricultural sectors, with re-
latively little in the literature specifically dealing with motives for joint venture
formation in the tertiary sector. A priori, several of the strategic motives appear
to lend themselves more readily to JV formation in the manufacturing sector, for
example, product rationalisation and economies of scale, and transfer of com-
plementary technology, than they do to JV formation in the tertiary sector, where
risk sharing and shaping competition appear to be more relevant (Glaister/Buck-
ley 1996). It may be noted that most countries put certain sectors off-limits to
wholly owned foreign investment, but the motives for these restrictions and the
sectors differ among countries. In line with this reasoning, it is hypothesised that:
Hypothesis 3. The relative importance of strategic motives will vary with the type
of JV business sector activities.
Origin of Foreign Partner
Prior literature (see Geringer 1988, 1991) indicates that the choice of a partner to
a JV is influenced by the task to be accomplished by the venture and the charac-
teristics required from the partner. For example, a Ghanaian firm may believe that
a partner from a particular country can provide certain resources, such as access
to finance or a type of technology, which it is hoped will enable the venture to
accomplish its task or achieve its motives. Then when forming the JV it is expected
that these partners will be chosen in preference to potential partners of different
nationalities. Hence the fundamental motive for the JV may be expected to vary
according to the nationality of the foreign partner. This reasoning leads to the
following hypothesis:
Hypothesis 4. The relative importance of strategic motives will vary with the na-
tionality of the foreign partner.
114 mir vol. 43, 2003/2
Research Methods and Sample Characteristics
Data Collection Method
The data were gathered via a cross-sectional survey using a questionnaire on a

sample of equity joint ventures (EJVs) in Ghana with partners from Western
Europe, America and Asia. The questionnaire presented a list of 10 strate
motives which were derived from the literature. A pre-test of the questionnai
was conducted in two stages. The first stage involved two academics, one fro
Ghana and one from the UK, who had previously conducted research in s
Saharan Africa. The second involved six senior managers in Ghana.
The research population of interest was obtained from secondary sources (T
Ghana Investment and Promotion Centre 1996, Franklin 1996). This resulted i
an initial sample frame of 400 JVs. Two restrictions were employed in select
the final sample frame. First, the sample was restricted to JVs with a minimu
capital of $200 million because companies of that size are obliged by the Com
panies Act to keep proper records and that is likely to facilitate data collectio
Second, the sample was restricted to JVs with only one foreign parent and a foreign
equity holding of more than 10% because such parents are likely to participate
the JVs decision making. These restrictions led to a derived population of 90 J
In July 1998, 90 questionnaires with covering letters were delivered persona
to potential respondents in Ghana to eliminate the unreliability of the postal system
typical of many sub-Saharan Africa countries. Two weeks after delivery,
questionnaires were collected personally from the respondents. A follow-up w
made in the third and fourth weeks and a total of 41 usable questionnaires w
collected, representing a response rate of 45.6 per cent. The survey for this st
relies on data collected from managers of the JVs in Ghana. The study conside
the ex post assessment of the managers' perception of the relative importance
each strategic motive at the time of JV formation (see Appendix 1).
As the questions were of a strategic nature, it was determined that responde
should be upper-level managers of JVs in Ghana. An examination of the job tit
of the respondents revealed: Chief executive (70% of respondents), Finan
Director (20%), Executive Director/Board Secretary (5%), Personnel Direc
(5 %). It is likely that these respondents will be involved in strategic decision
making of their respective firms.
Using Armstrong and Overton's procedure (1977), a non-response bias w
tested for by implementing a t-test comparing early and late responses along
number of key descriptive variables. Differences between the two groups we
not significant, suggesting that non-response bias is not a major problem in th
study.
mir vol. 43, 2003/2 115
Characteristics of the Sample
The characteristics of the sample are summarised below. The time dimension of
the study runs from 1965-1995 with about 49 percent of the EJVs formed prior
to 1978. Only 10 percent of the EJVs were formed in the 1978-1988 period with
the remaining 41 percent established in the 1989 -1995 period. With regard to
country of origin of foreign partner, about 66 percent are from Western Europe
with most being from the UK. This followed by Asia/Pacific (17 percent) and
North America (17 percent). The size of the EJVs are categorised according to
total capitalisation: less than $5 million (41 %); over $5 million and less than $10
(32%); and greater than $10 million (27%). The industry categories of the JVs
are as follows: agriculture (9.8%), automobiles (12%), food/drink manufacturing
(20.5%), textiles (9%), building and construction (7.3%), mining (9.8%), finan-
cial services (18.2%) IT and services (13.5%).
Statistical Analysis
The hypotheses were tested by considering differences in means of the impor-

tance of the strategic motives. As the sample size exceeds 30 it was reasonable to
assume that the sample is from a normal distribution, and parametric tests were
used, that is two sample t-test or ANO VA as appropriate. The non-parametric equi-
valent of the above tests (Mann- Whitney U and the Kruskal-Wallis Test) were
also conducted to remove any doubt that may stem from the nature of the data.
The non-parametric tests (not reported here) confirmed the findings of the
parametric tests.
Results and Discussion
Strategic Motives
Table 2 shows the rank order of the strategic motives for JV formation
based on the mean measure of the importance of 10 strategic motives. T
measure is exceeded by five strategic motives: 'to overcome gove
mandated barriers' (3.66), 'risk and cost sharing' (3.46), 'to facilitate in
nal expansion' (3.34) 'to have access to low labour cost' (2.80), to obt
mies of large scale production' (2.66).
It is hardly surprising that 'to overcome government mandated barrie
highest ranked motive. This is because developing countries use a wide
116 mir vol. 43, 2003/2
specific policies and institutions to regulate investments. These include owner-

ship limits for foreign investors, investment screening and monitoring processes
that tend to deter foreign investors from investing in many developing countries.
Ghana is no exception and even with extensive liberalisation of investment poli-
cies, obstacles still remain and investment legislation tends to promote joint ven-
tures (Boateng/Glaister 1999).
Under such circumstances JVs provide a means for faster entry. 'Risk and cost
sharing' which is ranked second highest supports the earlier research findings by
Bhattacharya et al. (1997) which reported that Africa, including Ghana, is per-
ceived to be a risky place to do business. Many African countries including Ghana
have been hostile towards foreign investors (Bennell 1990). For example, sudden
changes in policies and rules were commonplace in sub Saharan Africa. It appears
that every change of government, particularly military ones, brings about a change
in investment rules and policies. The IMF (1996) reported that what worries
foreign investors most is a sudden change in the 'rules of the game'. Besides the
political risk, many sub-Saharan African countries suffer from civil strife, erratic
monetary policies, large structural deficits and weaknesses in the financial system,
which render running business more risky. Evidence from this sample indicates
that EJVs are seen as a highly effective mode of FDI entry in order to reduce the
perceived political risk.
Accessing a Ghanaian partner's financial resources appears not to be an im-
portant motivation for foreign firms to collaborate. This is not surprising given
the prevalence of capital constraints on many Ghanaian firms. Domestic credit is
scarce and where available tends to be prohibitive and costly. It may also be noted
that forming a joint venture in order for the foreign partner to gain access to
management know-how, and the Ghanaian partner's technology are ranked rela-
Table 2. Relative Importance of Strategic Motives for Joint Venture Formation in Ghana
Rank Motivation Mean SD
1 To overcome government-mandated barrier 3.66 1.37

2 Risk and cost sharing 3.46 1.07
3 To facilitate international expansion 3.34 1.41
4 To have access to low cost labour 2.80 1.12
5 To obtain economies of large scale production 2.66 1 .20
6 To gain access to finance 2.05 1 .09
7 To gain access to management know-how 1.93 0.91
8 To gain access to partner's technology 1.59 0.92
9 To enable product diversification 1.56 1.00
10 To co-opt existing competitor in order to reduce competition 1.54 1.07
Notes: N = 41
The mean is the average on a scale of 1 ('not at all important') to 5 (= 'very important')
SD = standard deviation
mir vol. 43, 2003/2 117
tively low. It would be expected that the foreign partner would be bringing these
resources to the joint venture. It is also apparent from Table 2 that to enable pro-
duct diversification is a relatively unimportant motive for JV formation indicat-
ing that the foreign partners are not venturing into new business areas through JV
formation in Ghana. Similarly, the formation of JVs in Ghana appears not to be
motivated by the desire to block or reduce competition.
Factor Analysis of Strategic Motives
The correlation matrix of 10 strategic motives revealed a number of low to

moderate intercorrelations. Due to potential conceptual and statistical overlap, an
attempt was made to identify a parsimonious set of variables to determine the
underlying dimensions governing the full set of 10 strategic motives. Exploratory
factor analysis using varimax rotation was used to extract the underlying factors.
The factor analysis produced three underlying factors with a total of 63.8 percent
of the observed variance as shown in Table 3. The three factors may be summa-
rised as follows: market development and power, partner synergies, and produc-
tion efficiency.
To further investigate the underlying nature and pattern of the strategic motives
for this sample of JVs, the analysis was developed by considering the strategic
Table 3. Factor Analysis of Strategic Motivation
Factors Factor Eigenvalue % Variance Cumulative

loads explained per cent
Factor 1: Market development and power 3.33 33.4 33.4

Facilitates international expansion 0.68
To overcome government-mandated barrier -0.78
To reduce competition 0.69
To enable product diversification 0.69
Factor 2: Partner synergies 1.79 17.9 51.3
Risk and cost sharing 0.63
To gain access to finance 0.67
To gain access to partner's technology 0.89
To gain access to management know-how 0.83
Factor 3: Production efficiency 1.25 12.5 63.8
To obtain economies of large scale production 0.67
To have access to low cost labour 0.92
Notes: Principal components factor analysis with varimax rotation

K-M-O Measure of sampling Adequacy = 0.5902
Barlett Test of sphericity = 135.737; p < 0.0000
118 mir vol. 43, 2003/2
motives in terms of the characteristics of the sample. For each of the relevant
characteristics of the sample under consideration, Tables 4 to 7 show the means
and standard deviation of the three factors and individual strategic motives
constituting each factor and the appropriate test statistic for comparing differen-
ces in mean scores.
Strategic Motives and Type of Host Partner
Table 4 shows that there is lack of support for hypothesis 1 in that the relative
importance of the strategic motives hardly varies between the type of host partner
(private sector or public sector). None of the factors have mean scores that are
statistically different. With regard to individual motives, the relative importance
of three - overcome government-mandated barrier (p < 0.05), to gain access to
Table 4. Strategic Motives for EJV Formation in Ghana: Partnership Type
Motivation Group Mean SD T-value
Factor 1: Market development and power Private sector 2.41 0.44

Public sector 2.61 0.61 1.13
Facilitate international expansion Private sector 3.65 1.27
Overcome government-mandated barrier Private sector 3.12 1.77
Public sector 4.04 1.22 2.18**
To reduce competition Private sector 1.53 1.01
To enable product diversification Private sector 1.35 0.72
Public sector 1.74 1.18 -1.20
Factor 2: Partner synergies Private sector 2.27 0.81

Risk and cost sharing Private sector 3.71 1.16
To gain access to finance Private sector 1.77 0.97
Public sector 2.26 1.18 -1.42*
To gain access to partner's technology Private sector 1.59 1.00
Access to management know-how Private sector 2.00 0.87
Factor 3: Production efficiency Private sector 2.65 0.93

Economies of large scale production Private sector 2.82 1.31
To have access to low cost labour Private sector 2.47 1 .07
Public sector 3.04 1.15 -1.61*
Notes: The mean for the factors is the mean for the factor scores: t
is the average on a scale of (= not at all important) to 5 (= ve
p < 0.05** p< 0.01***
mir vol. 43, 2003/2 119
finance (p < 0.1), and access to low cost labour (p < 0.1) are found to vary signi-
ficantly between the type of partner. In each case, the mean score is higher for
JVs with government related partners.
The finding related to 'overcome government-mandated barrier' may be
explained by the fact that, in Ghana, some strategic sectors can be entered by a
foreign partner only through a JV with the host government. In the case of access
to finance, the variation may explained by the fact that domestic financing of
investment projects is considered to be a major problem in many African countries
particularly for private investors (International Monetary Fund 1996). Where the
JV project requires a large capital investment it is likely that the government is
more able to supply the needed capital than the private sector firms. As regards
to 'access to low cost labour', private sector wage rates are often higher than
public sector wage rates partly because of workers' fears of the uncertainty of
employment in the private sector. As a result foreign partners are more able to
access low cost labour through partnerships with government organisations which
are more likely to comply strictly with the payment of the minimum wage rate
fixed by government.
Strategic Motives and Ownership Level
Strategic motives for JV formation by the level of partner's ownership is shown

in Table 5. There is weak support for hypothesis 2, with the mean of the factor
scores being significantly different for only one of the three factors, i.e., partner
synergies (p < 0.05). Three of the four items constituting the partner synergies
factor, i.e., risk and cost sharing (p < 0.05), access to partner's technology
(p < 0.05), and access to management know-how (p < 0.05), have means signifi-
cantly different between ownership level. In each case the mean score is highest
for equal ownership (50-50), indicating an inverted U-shaped relationship
between the importance of the motivating factors and the level of foreign partner
ownership.
Strategic Motives and Sector of JV
To facilitate the statistical testing of the strategic motives, the industry of the JV
was categorised in the conventional way by distinguishing between the primary,
secondary and tertiary sectors in the following manner:
Primary: agriculture, mining and exploration

Secondary: automobiles, food/drink manufacturing, textiles, building and con-
struction.
Tertiary: financial services, IT and services
120 mir vol. 43, 2003/2
Table 5. Strategic Motivation of EJV Formation in Ghana: Ownership Level
Motivation Group Mean SD F-ratio
Factor 1: Market dev. and power More than 50% 2.57 0.70
Co-ownership (50-50) 2.54 0.40
Less than 50% 2.47 0.39 0.14
Facilitate international expansion More than 50% 3.17 1.58
Co-ownership (50-50) 3.67 0.82
Less than 50% 3.41 1.42 0.31
Overcome go v't-mandated barrier More than 50% 3.83 1.43
Co-ownership (50-50) 3.17 0.75
Less than 50% 3.65 1.50 0.52
To reduce competition More than 50% 1.44 0.98
Co-ownership (50-50) 2.17 1.47
Less than 50% 1.41 1.00 1.28
To enable product diversification More than 50 % 1.83 1 .20
Co-ownership (50-50) 1.17 0.41
Less than 50% 1.41 0.87 1.34
Factor 2: Partner synergies More than 50% 1.90 0.67

Co-ownership (50-50) 2.83 0.80
Less than 50% 2.43 0.74 4.63**
Risk and cost sharing More than 50% 3.11 1.28
Co-ownership (50-50) 4.33 0.52
Less than 50% 3.53 0.80 3.31**
To gain access to finance More than 50% 1.83 1.15
Co-ownership (50-50) 2.17 0.98
Less than 50% 2.23 1.09 0.62
Access to partner' s technology More than 50 % 1 .22 0.55
Co-ownership (50-50) 2.33 1.37
Less than 50% 1.71 0.92 4.06**
Access to management know-how More than 50% 1.44 0.62
Co-ownership (50-50) 2.50 0.55
Less than 50% 2.24 1.03 5.91**
Factor 3: Production efficiency More than 50% 2.69 1.15

Co-ownership (50-50) 3.00 0.32
Less than 50% 2.68 0.98 0.25
Economies of large scale prod. More than 50% 2.56 1.29
Co-ownership (50-50) 3.17 0.75
Less than 50% 2.59 1.23 0.63
Access to low cost labour More than 50 % 2.83 1 .34
Co-ownership (50-50) 2.83 0.75
Less than 50% 2.77 1.03 0.17
Notes: The mean for the factors is the mean of the factor scores
is the average on a scale of (= not at all important) to 5 (= v
p < 0.05** p< 0.01***
mir vol. 43, 2003/2 121
Table 6 indicates reasonable support for hypothesis 3. Two of the three factors,
partner synergies (p < 0.05) and production efficiency (p < 0.05), show a signifi-
cant difference in the means of the factor scores, with the mean of both factors
being significantly higher for JVs in the primary sector compared with those in
the secondary and tertiary sectors. Three of the motives constituting partner
synergies, i.e, risk and cost sharing (p < 0.1), to gain access to partner's techno-
logy (p<0.01), and access to management know-how (p<0.1), have means
significantly higher for JVs in the primary sector. One of the two motives com-
prising the production efficiency factor, i.e, economies of large scale production
(p < 0.05), has a mean significantly higher for JVs in the primary sector compar-
ed to the secondary and the tertiary sectors.
It is apparent that where there are significant differences in the strategic
motives these are relatively more important for JVs in the primary sector than for
either the secondary or tertiary sectors. For some of the individual strategic
motives such as economies of scale, risk and cost sharing this is perhaps to be
expected, as these strategic motives appear to constitute pertinent motivating
forces to the primary sector. The primary sector, consisting mainly of agriculture
and mining, employs about 70 percent of the working population in Ghana, is
highly regulated and is considered strategic and is more subject to political risk.
To reduce the perceived political risk foreign investors are likely to form a joint
venture with the government. It is somewhat surprising however, that to gain
access to partner's technology and access to management know-how are more
important motives for JV formation in the primary sector than in the secondary
or tertiary sectors. While intuitively there is an expectation that the foreign part-
ner will be bringing technology and know-how to all sectors, this appears to be
less so in the primary sector. Perhaps as the primary sector is considered strate-
gic, local expertise may be more often found in this sector.
Strategic Motives and Foreign Partner Nationality
The strategic motivation for JV formation by regional category of nationality of

the foreign partner is shown in Table 7. There is weak support for hypothesis 4 in
that one of the three factors has mean scores that are significantly different, i.e.,
partner synergies (p < 0.1). One of the four individual motives constituting the
partner synergies factor, i.e., risk and cost sharing, (p < 0.05), shows means
significantly higher for JVs formed by North American partners compared with
JVs formed by European and Asia/Pacific based partners. This finding is not sur-
prising in that it has been reported that two thirds of North America's FDI in
developing countries are in primary sector (UNCTAD 1995) and, as noted in Ghana
the primary sector is considered strategic, highly regulated and appears suscep-
tible to more political interference than other sectors. In order to reduce the per-
122 mir vol. 43, 2003/2
Table 6. Strategic Motives for JV in Ghana: Sector of Activity
Motivation Group Mean SD T-value
Factor 1: Market dev. and power Primary 2.44 0.42

Secondary 2.55 0.66
Tertiary 2.54 0.42 0.13
Facilitate international expansion Primary 2.87 1.36
Secondary 3.40 1.54
Tertiary 3.54 1.27 0.57
Overcome gov't mandated barrier Primary 3.75 1.04
Secondary 3.60 1.47
Tertiary 3.69 1.49 0.04
To reduce competition Primary 2.00 1.30
Secondary 1.60 1.23
Tertiary 1.15 0.38 1.66
To enable product diversification Primary 1.13 0.35
Secondary 1.60 1.00
Tertiary 1.77 1.24 1.06
Factor 2: Partner synergies Primary 2.94 0.80
Secondary 2.11 0.75
Tertiary 2.06 0.60 4.51**
Risk and cost sharing Primary 4.12 0.64
Secondary 3.20 1.20
Tertiary 3.46 0.97 2.25*
To gain access to finance Primary 2.63 0.52
Secondary 1.90 1.21
Tertiary 1.92 1.12 1.41
Access to partner's technology Primary 1.63 1.30
Secondary 1.40 0.68
Tertiary 1.23 0.44 9.07***
Access management know- how Primary 2.38 1.06
Secondary 1.95 0.89
Tertiary 1.62 0.77 1.83*
Factor 3: production efficiency Primary 3.13 0.64
Secondary 2.95 0.97
Tertiary 2.15 0.99 3.82**
Economies of large scale production Primary 3.13 0.99
Secondary 2.95 1.14
Tertiary 1.92 1.12 4.26**
Access to low cost labour Primary 3.12 1.13
Secondary 2.95 1.15
Tertiary 2.39 1.04 1.43
Notes: The mean for the factors is the mean of the factor scores: the mean for the individual motives
is the average on a scale of (= not at all important) to 5 (= very important) p < 0. 1 * p < 0.05**
p<0.01***
mir vol. 43, 2003/2 123
ceived political risk, North American partners are more likely to form JVs to for
the purpose of risk and cost sharing than either European or Asian/Pacific part-
ners.
Table 7. Strategic Motives for EJV in Ghana: Origin of Foreign Partner
Motivation Group Mean SD F-ratio
Factor 1: Market dev. and power North America 2.68 0.37

Western Europe 2.51 0.6 1
Asia/Pacific 2.43 0.35 0.40
Facilitate international expansion North America 3.57 0.98
Western Europe 3.15 1 .61
Overcome gov't mandated barrier North America 3.29 1.11
Western Europe 3.85 1.49
To reduce competition North America 2.29 1.25
Western Europe 1 .44 1 .09
To enable product diversification North America 1.57 1.34
Western Europe 1 .59 1 .04
Factor 2: Partner synergies North America 2.71 0.78

Asia/Pacific 2.61 0.48 3.24*
Risk and cost sharing North America 4.14 0.69
Asia/Pacific 4.00 0.00 3.94**
To gain access to finance North America 2.7 1 1.11
Western Europe 1.81 1 .07
Access to partner's technology North America 2. 14 1 .35
Access management know- how North America 1.86 0.90
Factor 3: Production efficiency North America 2.86 1.03

Asia/Pacific 2.85 0 69 0.16
Economies of large scale production North America 3.00 1.16
Western Africa 2.59 1.28
Access to low cost labour North America 2.7 1 1.38
Asia/Africa 3.14 0.69 0.37
Notes: The mean for the factors is the mean of the factor sco
factors is the average of the scale of (= not at all importan
p < 0.05** p< 0.01***
124 mir vol. 43, 2003/2
Summary and Conclusions
This paper identifies the main strategic motives that influence joint venture for-
mation in Ghana with partners from Western Europe, North America and Asia.
Joint ventures are seen primarily as a means to overcome government-mandated
barriers, to allow cost and risk sharing, to facilitate international expansion, to
provide access to low cost labour, and to enable partners to obtain economies of
scale. The findings of this study differ significantly from those reported by Glaister
and Buckley (1996) who also examined the motives for JV formation. This is not
surprising as the sample for this study is drawn from JVs formed between a
partner from a developed market economy and a partner from a developing
country, while the Glaister and Buckley (1996) study was based on a sample
of JVs between partner firms from developed market economies. However, this
study tends to provide support for the findings reported by Killing (1983),
Contractor and Lorange (1988) and Miller et al. (1996), which show that over-
coming government-mandated barriers and cost and risk sharing are the oldest
and most common strategic motives in a foreign partner's decision to invest
through a JV.
The study also finds that 'to enable product diversification' and 'to co-opt
existing competitor in order to reduce competition' appear to be relatively un-
important motives for JV formation in Ghana. This appears to support the findings
reported by Appiah-Adu (1998) that before the introduction of economic reforms
in Ghana, marketing decisions were made in an environment where competition
was virtually non-existent. This is inconsistent with the views in the literature that
highlight JVs as competitive weapons (Glaister/Buckley 1996, Porter/Fuller
1986). It therefore appears that after years of reforms and liberalisation, compe-
tition in Ghana remains largely undeveloped.
Due to potential conceptual and statistical overlap among the 10 strategic
motives identified, factor analysis was conducted to produce a parsimonious set
of distinct, non-overlapping strategic motives. The analysis yielded three non-
overlapping factors which explained a total of 63.8 percent of the observed
variance in the sample data. To investigate the underlying nature and pattern of
the strategic motives for this sample of EJVs, the paper considered strategic
motives across a range of sample characteristics: type of host partner, ownership
level, sector of operation and origin of foreign investor.
Test of hypotheses 1 to 4 indicate that the relative importance of the strategic
motives vary most with the sector of JV activity, to a moderate extent with the
ownership levels and to the weak extent with the partnership type and nationality
of the foreign partner. While the variation in importance of several of the strategic
motives appears to be readily justifiable the reason for the variation in importance
is not always apparent. Further investigation of the relative importance of strategic
mir vol. 43, 2003/2 125
motives in the context of developed and developing country firm partnerships

appears warranted.
Appendix 1.
As far as the foreign partner was concerned, how important were the following
motives for entering into JV? (please circle)
Notatali Very
important important
(1) To gain access to finance 12 3 4 5

(2) To overcome government-mandated barrier 12 3 4 5
(3) To gain access to partner's technology 12 3 4 5
(4) To gain access to management know - how 12 3 4 5
(5) Risk and Cost sharing 12 3 4 5
(6) To obtain economies of large-scale production 12 3 4 5
(7) To facilitate international expansion 12 3 4 5
(8) To have access to low cost labour 12 3 4 5
(9) To co-opt existing competitor in order 12 3 4 5
to reduce competition
(10) To enable product diversification 12 3 4 5
Endnote
1 The authors would like to thank the journal's referees for providing useful comments on an ear-
lier draft of this paper.
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Strategic Motives for International Joint Venture Formation in Ghana

Author(s): Agyenim Boateng and Keith W. Glaister

© Gabler Verlag 2003

Agyenim Boateng/Keith W. Glaister

Strategic Motives for International

■ The main strategic motives influencing foreign partners to collaborate are to

mir vol. 43, 2003/2 107

Despite the difficulties associated with joint ventures, they remain

108 mir vol. 43, 2003/2

Region Wholly Owned Equity Joint Venture Total

Number % (Row) Number % (Row) Number % (Col)

Africa 17 33.3 34 66.7 51 4.9

Source: Ghana Investment Promotion Centre 1998

1) To consider the relative importance of the strategic motives for JV formation

mlr vol. 43, 2003/2 109

Literature Review and Hypotheses

Many researchers of international business, for example, Mariti and Smiley

110 mir vol. 43, 2003/2

Cost and Risk Sharing

Economies of Large-Scale Production

Economies of scale is concerned with the average cost of production in relation

Transfer of Complementary Technology and Patents

Joint ventures, production partnerships, and licensing agreements may be formed

mir vol. 43, 2003/2 111

Overcoming Government-mandated Investment Barriers

Facilitating International Expansion

For medium or small-sized companies lacking international experience, initial

112 mir vol. 43, 2003/2

ster/Buckley 1996). It may be conjectured, however, that the relative importance

Organisational Type of Host Partner

A partner to a JV may either be a private sector organisation or a public sector or-

Control in an international joint venture can be defined as a process through which

mir vol. 43, 2003/2 113

Origin of Foreign Partner

114 mir vol. 43, 2003/2

Research Methods and Sample Characteristics

Data Collection Method

The data were gathered via a cross-sectional survey using a questionnaire on a

mir vol. 43, 2003/2 115

Characteristics of the Sample

The hypotheses were tested by considering differences in means of the impor-

Results and Discussion

116 mir vol. 43, 2003/2

specific policies and institutions to regulate investments. These include owner-

Rank Motivation Mean SD

1 To overcome government-mandated barrier 3.66 1.37

mir vol. 43, 2003/2 117

Factor Analysis of Strategic Motives

The correlation matrix of 10 strategic motives revealed a number of low to

Table 3. Factor Analysis of Strategic Motivation

Factors Factor Eigenvalue % Variance Cumulative

Factor 1: Market development and power 3.33 33.4 33.4

Notes: Principal components factor analysis with varimax rotation

118 mir vol. 43, 2003/2

Strategic Motives and Type of Host Partner

Table 4. Strategic Motives for EJV Formation in Ghana: Partnership Type

Motivation Group Mean SD T-value

Factor 1: Market development and power Private sector 2.41 0.44

Factor 2: Partner synergies Private sector 2.27 0.81

Factor 3: Production efficiency Private sector 2.65 0.93

mir vol. 43, 2003/2 119

Strategic Motives and Ownership Level

Strategic motives for JV formation by the level of partner's ownership is shown