W49 Child Article

Journal of Management Studies 40:2 March 2003
0022-2380
Predicting the Performance of International Joint

Ventures: An Investigation in China*
John Child and Yanni Yan

University of Birmingham; City University of Hong Kong, Hong Kong
Organizational learning, resourcing and control have been identified in
the literature as potential firm-level influences on the performance of international
joint ventures (IJVs). The study reported here examines the impact of these factors
on the performance of Sino-foreign IJVs. Their performance is assessed in terms of
both goal and system criteria. The hypothesized performance determinants are
found to be more strongly associated with variance in system performance than in
goal performance. The main performance predictors are the parent companies
experience with international business and joint ventures, and the quality of
resources they provide to the joint ventures in respect of capital investment, new
facilities and operational inputs. When good quality resourcing is provided, the
sharing of control with local partners also predicts higher IJV performance. The
performance effects of these factors appears to be cumulative, implying that further
research should examine them together rather than singularly.
INTRODUCTION
The performance of international joint ventures [IJVs] continues to be a challenging issue, both from the standpoint of practitioners and of researchers on the
subject. The collaborative nature of joint ventures places constraints upon the
actions any one partner can take ( Janger, 1980), and even the sincerity of a
partners long-term commitment to the collaboration can be in doubt (Bleeke and
Ernst, 1995; Hamel, 1991). The influence of different cultures in the case of IJVs
adds to the risk of misunderstanding and failure in cooperation. For academic
researchers, the hybrid nature of joint ventures (Borys and Jemison, 1989) and the
possibility of incongruence between the goals of their partners, renders both the
evaluation and prediction of performance hazardous (Beamish and Delios, 1997).
Address for reprints: John Child, Department of Commerce, Birmingham Business School, Ashley Building, University of Birmingham, Edgbaston, Birmingham B15 2TT, UK ( J.Child@bham.ac.uk).
Blackwell Publishing Ltd 2003. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ ,
UK and 350 Main Street, Malden, MA 02148, USA.
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J. Child and Y. Yan
It is fair to say that there is, as yet, no consensus on the determinants of IJV
performance.
The legacy of traditional cultures and the absence of developed institutional
systems add to the difficulties of achieving IJV success in emerging economies, of
which the largest is China (Beamish, 1988; Peng, 2000). Since 1992 China has
ranked second only to the United States as a host country for FDI (UNCTAD,
2000), most of which has been implemented through IJVs (State Statistical Bureau,
2000). China offers a particularly instructive location in which to examine IJV performance not only because of the large number of IJVs there but also because
the performance record of Sino-foreign joint ventures is quite variable (Beamish,
1993; Pan and Chi, 1999). While there are examples of highly successful Sinoforeign joint ventures (Shenkar and Nyaw, 1994), more recent surveys suggest that
many foreign firms are disappointed by the performance they are achieving in
China (EIU, 1997, 1999a, 1999b; Wonacott, 1999).
Various explanations are being offered for the problems of IJV performance in
China. Exogenous factors such as increasingly tough price competition, and an
uncertain regulatory and tax environment, tend to be singled out for blame
(Yatsko, 1997). Compared to developed countries, and even to some other emerging economies like Brazil, Chinas legal, corporate governance and other institutional systems are underdeveloped, as are its infrastructure, resource supply and
managerial competencies (World Economic Forum, 2000). China is a relatively
complex and uncertain environment, which presents several performance risks to
foreign firms operating there.
Explanations purely in terms of environment, however, refer to the difficult
situation facing China-based IJVs as a whole, and do not necessarily account for
variations in performance between them. The ways in which IJV partners might
respond to risks in the environment point to the potential performance impact of
endogenous (firm-level) factors. These are more likely to account for variations in
performance between IJVs themselves. One response to the risk presented by environmental complexity and uncertainty is to attempt to reduce it through the exercise of greater control, both over the environment (such as through political
lobbying) and over IJVs themselves (Boisot and Child, 1999). Many larger foreign
companies in China have been adopting this approach. During negotiations for
Chinas WTO entry, they lobbied their governments to get conditions in China
eased. Within China, they have been securing dominant positions in their existing
joint ventures, and establishing new investments as wholly-owned subsidiaries
(Vanhonacker, 1997). The alternative approach is to absorb the risk presented by
complexity by maintaining flexibility of response through developing a range of
options, as recommended by real options theory (McGrath, 1999). This places a
premium on working with local partners and sharing control with them.
Working with partners is also a way for foreign IJV partners to enhance their
learning about an opaque local context. The experience of working with IJV part Blackwell Publishing Ltd 2003
International Joint Ventures
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ners, in China or elsewhere, should also enhance the ability to learn from, and
adapt to, new and evolving contexts. A further risk for IJV performance arises from
the resource deficiency that China still experiences, especially in regard to capital,
advanced technology, training and sophisticated components. If IJV resource deficiencies can be reduced, their performance is expected to benefit.
Thus, learning, quality of resourcing, and control are potential ways of addressing the risks presented to IJVs by an emerging economy environment like China.
Their role as potential predictors of IJV performance is the focus of this paper.
Though deriving from China, its findings have implications for other developing
and transition countries that present similar risks. The paper begins by addressing
the concept of IJV performance. It then formulates hypotheses on endogenous
performance predictors in the light of available theory and research. The
hypotheses are examined and discussed with reference to research in a sample
of Sino-foreign joint ventures.
This paper departs from existing work in four significant ways. First, the conceptualization of IJV performance adopted is broader than usual and takes into
account both goal and system perspectives. Second, it covers a range of firm-level
factors that are identified by different theoretical perspectives as potential influences on IJV performance. Much previous research has focused either on primarily
contextual factors such as market concentration or has adopted a single theoretical perspective on firm-level factors. There is, however, considerable evidence that
complex relationships can usually be better understood when viewed through more
than a single theoretical lens (e.g. Allison, 1991; Gray and Wood, 1991). Third,
the present study examines the contribution to IJV performance made by both
main alliance partners, Chinese and foreign, whereas often the characteristics only
of MNEs or other foreign-investing firms have been taken into account. Finally,
the sample is drawn in a way that permits a control for both sector and foreign
parent nationality.[1]
CONCEPTUALIZATION AND ASSESSMENT OF IJV
PERFORMANCE
There are two main perspectives on IJV performance, deriving from a distinction
originally made by Seashore and Yuchtman (1967). The first takes as its criterion
the extent to which the goals expressed in the parent companies objectives for
the venture are met. Goal performance is therefore defined as the extent to which
the objectives that each parent company has in forming an IJV are realized in
practice. The second perspective takes as its criterion the health of the IJV in
respect of its viability as an operational system. System performance is therefore defined as the extent to which an IJV performs well as a business unit. Bleeke
and Ernst (1993) consider that an alliance is successful if it passes two tests that
broadly accord with these two perspectives on IJV performance. The first test is
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that both partners achieve their in-going strategic objectives; the second that both
recover their financial costs of capital.
One of the arguments in favour of applying the goal perspective is that joint
ventures are formed for a variety of reasons, and it is therefore not legitimate to
assess their performance by reference to a sole indicator and/or in a way that prejudges parent company objectives. Some previous studies have examined joint
venture performance from the viewpoint of a single partner, normally using perceptual measures applied to the attainment of that partners goals (Beamish and
Delios, 1997). A lesser number have included performance evaluations in terms of
an assessment of both or all partners goal attainment, arguing that only when
each partner is satisfied can the joint venture be considered successful (e.g.,
Beamish, 1984; Hill and Hellriegel, 1994; Schaan, 1983). A problem is that many
alliances are asymmetric in partner objectives and/or power, which means that
the partners are unlikely to meet their objectives to a similar extent. This may indicate that the alliance has failed in terms of one partners goal attainment, but it
does not necessarily mean that an IJV established by the alliance has failed either
in terms of another partners criteria or as a business unit.
The counter argument in favour of the system perspective is in fact that IJVs
are, in principle, established as separate legal entities to operate as viable business
units. Over the course of time they may increasingly formulate their own strategies as a condition for prospering in their own environments, and this is the basis
on which they can satisfy parent goals as well. Lyles and Reger (1993) provide a
case study of how an IJV developed in this way. The argument that IJVs are
expected to hold their own under competitive conditions speaks in favour of evaluating their performance on the same basis as unitary firms. This also avoids the
complication that parent goals for joint ventures can conflict or may become obsolete. Moreover, parent goals can amount to aspirations that are not expressed in
terms of resources actually committed to an IJV, and applying indicators of its
health as a system may reveal this gap. Since each perspective throws light upon
different aspects of IJV performance, there is a strong case for adopting both. The
conceptual objection to system criteria that they may not adequately reflect parent
goals for an IJV is best addressed through a comparison of both goal and system
criteria. Only this will indicate whether they provide different interpretations and,
if so, to what extent. It is one of the strengths of the study reported in this paper
that it adopts both goal and system performance perspectives.
Early studies of IJV performance used a variety of financial measures typically
employed in business research, such as profitability, growth and costs. Other objective measures used include survival and stability of ownership (Geringer and
Hbert, 1991). These have somewhat fallen out of favour due to their conceptual
limitation in addressing only a limited range of goals, to problems of data unavailability, and to distortions associated with transfer pricing and creative accounting.
Problems of data access and measurement have led some researchers away from
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objective measures and towards subjective alternatives based on managers perceptions of performance. Beamish and Delios (1997) conclude from their review
that perceptual and objective measures of IJV performance are generally correlated. These considerations suggest that perceptual measures of performance are
suitable for research purposes.
THEORY AND HYPOTHESES
Three influential perspectives refer respectively to the impact of organizational
learning, resource-provision and parent control upon IJV performance. They postulate that performance will benefit from a higher quality of learning and resourceprovision. However, the arguments regarding the impact of parent control are
mixed. The hypotheses derived from these perspectives are in principle generally
applicable, though the following discussion indicates that some may be expected
to apply with particular force in a developing economy context like China.
Learning
IJVs bring additional dimensions of management into play compared with purely
domestic and unitary enterprises. The relationships to be managed are more
complex, because of the hybrid nature of joint ventures per se (Borys and Jemison,
1989) and the mix of corporate and national cultures in IJVs (Shenkar and Zeira,
1992). Extra managerial competencies are required (Barham and Oates, 1991;
Beamish et al., 1994), including a broader strategic vision to reflect parent
company objectives (Yoshino and Rangan, 1995), a capacity to handle cultural
and institutional differences (Tung, 1993), and an ability to transfer hard and soft
technologies to the IJV (Child and Faulkner, 1998). The challenge for an international company is even greater when its IJV is located in a developing country
such as China, which has significant resource deficiencies and an unfamiliar environment (Beamish, 1988; Schaan and Beamish, 1988). These considerations imply
that IJV success requires considerable competence and knowledge, some of which
can be learned from previous or ongoing experience.
The results of studies conducted thus far largely support the thesis that learning by organizations enhances their performance (Luo and Peng, 1999; Moingeon
and Edmondson, 1996). Three aspects of learning are likely to have particular
relevance for the specific case of IJVs. First, there is learning from experience. This is
a transfer to a new IJV of relevant knowledge acquired by parent company personnel from their previous experience of joint ventures and international business.
Second, there is formation learning. This takes place in the process of seeking and
negotiating terms with new partners; the more extensive and thorough that process
is, the greater the learning opportunity it provides. Third, there is operational
learning, which is learning how to work effectively with one or more partners in the
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subsequent operation of an IJV. The amount of learning required is likely to be

greater when the joint venture partnership crosses national boundaries, especially
if the host location is a developing transition economy like China in which the
environment is turbulent and many local partners have had little previous experience of working or trading with foreign counterparts (Boisot and Child, 1999; Luo
and Peng, 1999).
Learning from experience. The expectation from organizational learning theory is that
previous relevant learning eases the acquisition and application of new related
knowledge (Cohen and Levinthal, 1990). Thus the more that parents have already
acquired IJV-related knowledge, and the skills to apply it, the more their subsequent IJVs are expected to benefit (Barkema et al., 1997; Inkpen, 1995; Lyles,
1988). This reasoning helps to explain why previous experience of forming IJVs
has been found to increase firms propensity to form new ventures (Gulati, 1998;
Madhok, 1997). The implication is that parent companies previous experience
both of international business and of IJVs has the potential to confer benefits for
IJV performance. Previous experience should assist companies to develop realistic expectations and avoid gross mistakes when establishing and managing further
international ventures. This experience is potentially relevant both to the realistic
setting of IJV goals, and hence to goal performance and to subsequently
managing IJVs effectively as business units (system performance).
However, evidence concerning the impact on performance of previous international business and joint venture experience is mixed. Li (1995) found that
foreign investment experience reduced the risk of failure in subsequent international expansion. Firms do not, however, always capitalize on previous international venturing experience, and indeed it may not be always relevant (Simonin,
1997). Thus, Harrigan (1988) found that previous venturing experience added little
predictive power in regression models of joint venture success. Inkpen (1995)
reported that previous joint-venture experience by partners of ventures with
Japanese companies did not benefit their ability to learn from the collaboration,
possibly because cooperation with Japanese partners introduced new conditions
(cf. Hamel, 1991). Assessing IJV performance in terms of survival, Barkema et al.
(1997) found that previous experience with domestic JVs and international whollyowned subsidiaries contributed to IJV longevity, but that prior experience with
IJVs per se did not.
This last study suggests that the type of previous experience matters. An IJV
partner could have previous experience of JVs with or without experience of international business relations, and vice versa. Moreover, there are various kinds of
international business experience, such as trading, technology transfer, joint
venture or a wholly-owned subsidiary. While only the latter two imply experience
of managing in a foreign country, international experience across the categories
might have a cumulative learning effect. One might therefore expect that both
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international business experience and international JV experience will benefit IJV

performance. Moreover, since IJVs are partnerships, it is relevant to take the experience of both partners into account, though many previous studies have not
done so. Luo (1997) examined the performance effects of local partner attributes
and found that Sino-foreign IJVs whose local partners had previous international
business or investment experience performed better. We therefore propose:
Hypothesis 1: IJVs whose parent companies have previous experience of international business and of IJVs will have higher levels of performance than IJVs
without this parent experience.
Formation learning. The normative literature on joint venture partner selection
stresses the importance for subsequent IJV performance of the care each partner
takes to learn about the other and to assess its suitability (Bronder and Pritzel,
1992; Tallman and Shenkar, 1994). Suitability may be in terms of both strategic
and organizational characteristics, including the complementarity of partner
objectives and assets (Geringer, 1991), the strength of the business each partner
brings to the IJV (Lorange and Roos, 1992), and the compatibility of their cultures and key managers (Kanter, 1994). A central notion in the literature is that a
realization of the potential benefits to a firm from forming an IJV depends on its
finding a partner who can provide complementary capabilities that match its own
and enable the IJV to meet the firms strategic objectives (Buckley and Casson,
1988; Geringer, 1991). Particularly in a developing country, there may be limited
public information on the attributes of potential local partners, and this makes
their search and assessment a more critical learning process for foreign companies. IJV performance should also benefit from care by local companies in partner
search and assessment, since many of them will not be very familiar with foreign
companies. These considerations suggest that a longer period of search and investigation by the partners before forming an IJV will be conducive to its better
performance in both goal and systems terms, as will the effort to assess and discuss
with alternative partners before making a final selection (Bjrkman 1996; Gray
and Yan, 1997). Therefore:
Hypothesis 2: IJVs whose parent companies spent a longer period of search and
investigation before formation, will have higher levels of performance.
Hypothesis 3: IJVs whose parent companies assessed alternative partners before
formation, will have higher levels of performance.
Operational learning. This third type of organizational learning implies that the
longer an IJV has been operating, the more opportunity there will have been for
its members to learn how to achieve congruence between partner goals, to estab Blackwell Publishing Ltd 2003
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J. Child and Y. Yan
lish a strategic profile for the venture, and to accommodate cultural and other
partner-related differences. A longer operational history should denote that an IJV
has been able to avoid or resolve severe conflicts over both the attainment of
partner goals and the way it is going to be managed. Unless it fails in its relatively
early stages, an IJV is likely to move up a learning curve. In other words, longer
operation should have a positive effect on both goal and system performance.
Evidence from US-partnered alliances suggests that a critical period comes at
about two or three years of life, by which time an unsatisfactory relationship should
have become evident (Bleeke and Ernst, 1995; Park and Russo, 1997; Troy, 1994).
Harrigan (1988) concluded that joint ventures of longer standing tend to achieve
better performance. Luo and Peng (1999) found that the number of years an MNE
sub-unit had been operating in China (intensity of experience) was positively
related to its performance. A survey by the Berger consulting group also found
that the average age of successful German companies in China was greater than
for less successful ones (Berger and Partner, 1998). Therefore:
Hypothesis 4: The longer the time that an IJV has been in operation, the higher
will be its levels of performance.
Quality of Resource Provision
The resource-based view of the firm stresses the contribution that possession of
key resources and competencies can make to the system performance of firms
(Barney, 1991; Rumelt, 1984; Wernerfelt, 1984). This perspective singles out, as a
source of economic rent, the strategic value of possessing distinctive resources that
are costly to imitate. The deployment of such resources to an IJV should mean
that its competitive advantage can less easily be duplicated by rivals (Reed and
DeFillippi, 1990). Despite the intense interest in the resource-based view of the
firm, the concept of resource lacks an agreed operational definition and its application to strategic alliances has covered only limited aspects (Conner, 1991; Combs
and Ketchen, 1999; Das and Teng, 2000). Barneys definition for example, is
comprehensive but not operationally precise: firm resources include all assets,
capabilities, organizational processes, firm attributes, information, knowledge, etc.
controlled by a firm that enable the firm to conceive of and implement strategies
that improve its efficiency and effectiveness (1991, p. 101). Grant (1991) classifies
resources as tangible, intangible and personnel-based. Tangible resources include
financial reserves and physical resources such as plant, equipment, and stocks of
raw materials. Intangible resources include technology, know-how and reputation.
Personnel-based resources include the skills, expertise and motivation of employees. Organizational capabilities may also be included within this third category, since they constitute the prime resource provided by managers (Russo and
Fouts, 1997). This classification suggests that key resources parent companies can
291
provide to a joint venture include capital, plant and technology, know-how and technical support, investment in its human resources, and organizational capabilities.
In a developed economy, the partners to an IJV face a relative rather than an
absolute shortage of resources and competencies. Discussions of IJV performance
have therefore tended to be couched in terms of how partners share and control
the resources they provide, and combine them distinctively, rather than in terms
of fundamental resource quality (Hamel, 1991; Mjoen and Tallman, 1997). Developing and transition economies are, however, closer to absolute rather than relative resource deficiency. Thus, although the situation is now easing somewhat,
China has been short of the capital, technology and expertise required to sustain
its rapid economic development, and has looked to foreign-invested firms to
provide these (Peng, 2000). The production technology, product design, expertise
and training supplied by foreign IJV partners are typically superior in quality and
efficiency to those available locally (Pan, 1996). The quality of resourcing by foreign
partners is therefore likely to be particularly critical for IJV performance in the
context of China and other developing and transition economies, simply to enable
the IJVs to attain international standards. Similarly, Steensma and Lyles (2000)
concluded from a study of 121 Hungarian manufacturing IJVs that within transitional economies the support of the foreign parent in terms of technology and
managerial know-how contributes significantly to IJV performance and survival.
Lyles et al. (1999) found similarly that foreign parent assistance in terms of capital,
technology and expertise was the main predictor of higher performance among a
sample of IJVs in Malaysia.
Capital investment in new facilities by foreign joint venture partners should
enhance the capacity, efficiency and quality of IJV production in a developing transition economy like China. New facilities should further contribute to improved IJV
performance by providing the opportunity to recruit and train employees de novo
from the market, rather than have people allocated to the IJV who are already
employed in existing facilities by the Chinese partner. Existing employees are more
liable to bring with them attitudes and work practices from the old featherbedded
iron rice bowl regime (Warner, 1995). Plant and equipment supplied by the
Chinese partner as a capital contribution is likely to constitute a performance
liability because it is generally obsolete and weakens the asset base of the IJV.
Training in Sino-foreign IJVs is overwhelmingly organized by the foreign parent or
its staff and is expected to facilitate the transfer of technology, improved techniques
and superior management practices. These considerations lead to:
Hypothesis 5: The higher the quality of resources provided by foreign (international) parent companies, the higher will be IJV performance.
Barney (1991, p. 110) has noted that a firms resources may constitute a very
complex social phenomenon, which includes external relations with suppliers and
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J. Child and Y. Yan
customers, as well as internal relations. External transactions can in China be a

source of major uncertainty (Boisot and Child, 1999; Martinsons and Tseng,
1995). Parent companies may therefore favour direct supply to their joint ventures
so as to ensure quality, technical integrity and reliable delivery. Direct supply
can, of course, also provide an opportunity for transfer pricing that is advantageous to the parent company, though not to the IJV itself. If parent companies
absorb a substantial proportion of joint venture output, this can similarly relieve
the venture of uncertainties due to underdeveloped local markets and distribution
systems.
The external transactions of Sino-foreign IJVs are in this sense complex social
phenomena that some parent companies may decide to handle directly in order
to reduce uncertainty and in this way enhance the operational performance of
their IJVs. The integration of input and output transactions between an IJV and
its parent companies also offers channels for mutual learning and adjustment
between the two parties. Direct supply, in particular, permits knowledge transfer
from parent companies to IJVs through the provision of technical designs and
other know-how, as well as through the support of parent company staff that is
likely to accompany direct supply arrangements. These are all potential advantages of internalization (Buckley and Casson, 1976, 1996; Hymer, 1976) that are
expected to improve IJV performance. There may be variation between sectors in
the inputs and outputs for which parentIJV integration has the most performance
consequence, in the light of specific technological requirements and market
conditions. Nevertheless, the general proposition is that there are performance
advantages in parents supplying superior inputs and helping IJVs to avoid market
uncertainties. Therefore:
Hypothesis 6: IJVs which transact their inputs and outputs directly with their
parent companies, will have higher levels of performance.
Parent Control
The third perspective is concerned with the ability of IJV parent companies to
control IJVs in a manner that is conducive to good performance (Barkema et al.,
1997; Geringer and Hbert, 1989; Yan, 2000). There are two main reasons for
expecting that dominant control of IJVs by one parent will contribute to superior
performance. First, the proposition advanced by Killing (1983) that joint ventures
having dominant control by one partner will be more successful because they
approximate to a unitary firm and are easier to manage. Second, control offers an
ability to determine the most effective use of whatever strategic resources a parent
company shares with an IJV. This is an argument in favour of leaving IJV control
in the hands of the parent that supplies the most critical resources and has the
greater expertise, an arrangement which should best permit those assets to con Blackwell Publishing Ltd 2003
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tribute to IJV performance (Mjoen and Tallman, 1997). Further arguments are
advanced to the effect that benefits will accrue to the IJV parent which exercises
strong control. Geringer and Hbert (1989) suggest that the exercise by a parent
company of control over some or all of an IJVs activities helps to protect it from
the risk of prematurely exposing its technological or other proprietary assets to
other partners. A related argument is that the threat of an initially weaker IJV
partner gaining a future competitive advantage through a superior ability to learn
from collaboration also increases the need to control activities and information
flows in the IJV (Hamel, 1991; Makhija and Ganesh, 1997).
On the other hand, one reason for companies to form joint ventures is that they
hope to remedy a resource deficiency or to take advantage of an opportunity that
they cannot realize on their own. If this is the case, a policy of dominant control
may vitiate the contribution a partner can make for two reasons. It may damage
that partners willingness to contribute to what it regards as an unequal partnership in which its own goals are not given due weight. The level of trust and quality
of relationship between the partners is likely to suffer. Second, unequal control
may also limit the dominant partners receptivity to advice and information offered
by the weaker partner. Finding that IJVs with 50/50 ownership achieved superior
goal and system performance, Bleeke and Ernst (1993) stressed the benefits of
strong management within an alliance rather than the argument in favour of strong
management over an alliance. They concluded that shared IJV ownership and
control builds trust by ensuring that each partner is concerned about the others
success (1993, p. 28).
Beamish (1988, 1993) reviewed studies, including his own, on the controlperformance link in developed and developing country alliances. Several of these
investigations concluded that when alliances are formed between developed and
less-developed country partners, there tends to be a positive association between
satisfactory performance and shared control between the foreign and local partners. The argument is that a sharing of control with local partners will lead to a
greater contribution from them which can assist in coping with circumstances that
are unfamiliar to the foreign partner, and therefore result in a higher return on
investment.
Killings (1983) findings were in a competitive Western context, with relatively
transparent information and rules, where a clear unified approach to IJV management might well have an advantage. China, however, is a developing transition
economy that presents complex and unfamiliar conditions for foreign investors
(Boisot and Child, 1999). Dominant control by foreign parents who are not fully
informed of, or networked into, this kind of context might be expected to lead to
below optimum levels of IJV performance. Chinese partners can help their IJVs
to succeed by providing country-specific knowledge, contacts with regulatory
authorities, and management of the local workforce (Inkpen and Beamish, 1997).
Complementarity between foreign and Chinese partners is likely to be achieved
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J. Child and Y. Yan
less in the area of tangible resources, where the foreign partner usually has a large
advantage, than in the management of an unfamiliar and dynamic environment
which can appear hostile because its institutional and cultural features are not
highly transparent (Teagarden and Von Glinow, 1990). Moreover, the costs of
employing expatriate managers to take charge of management in Sino-foreign
IJVs can substantially eat into their profits (EIU, 1995).
Nevertheless, some practitioners and writers have recently voiced the opinion
that these uncertainties can be mastered and Chinese partners make such a limited
contribution by way of resources and managerial competence that they are more
trouble than they are worth. The conclusion is that foreign firms should take
control (Vanhonacker, 1997), and there has been a clamour for investment control
by many of the foreign companies in China (Shaw, 1998). To quote a recent
comprehensive report by the Economist Intelligence Unit (1999b, Chapter 9,
pp. 1011):
Foreign investors now opt for the WFOE [wholly foreign-owned enterprise]
option whenever possible, loth to entangle themselves in what will almost certainly be an unhappy union . . . The balance is also changing among existing
ventures as foreign multinationals aggressively buy out useless joint-venture partners to bring their investments toward profitability.
Evidence on the performance consequences of shared IJV control as opposed to
dominance or whole-ownership is mixed both for China and for other parts of the
world. In the case of China, a large-scale survey using data from the 1995 industrial census concluded that while WFOEs on average achieved a higher market
share than did equity joint ventures, they had an inferior level of profitability (Pan
et al., 1999). This finding for profitability is supported by more detailed data from
Jiangsu Province (Luo, 1996). An EIU/Andersen Consulting study found that the
most profitable Sino-foreign joint ventures had a lower average foreign equity share
(54 per cent) than did the unprofitable ones (68 per cent) (EIU/Andersen Consulting, 1995, p. 24). Beamishs (1993) review of studies also suggested that in
China shared control is conducive to better IJV performance.
On the other hand, Wang et al. (2000) found that foreign partner rights to key
managerial appointments in joint ventures were associated with greater satisfaction with JV performance among both foreign and Chinese managers. Hu
and Chen (1994) found from a survey of 382 Hong Kong subsidiaries and
ventures operating in China, that wholly-owned subsidiaries were more likely
to be successful than equity joint ventures or those based on contractual agreements. This again suggests that sole management control has performance advantages. The results must, however, be treated with caution since there were only 27
wholly-owned subsidiaries in the sample, and very indirect measures of perfor Blackwell Publishing Ltd 2003
295
Learning
H1. Learning from
experience
H2 & 3. Formation
learning
H4. Operational
learning
Quality of Resourcing
H5. Capital, facilities &
training
H6. High transactional
integration with
parents
IJV Performance
Goal performance
System performance
+
Control
H7. Dominant foreign
control
Figure 1. A summary of hypothesized endogenous influences on IJV performance (H refers to the

corresponding hypothesis)
mance were employed: duration of the alliance and total partner investment
in it. Yan and Gray (1996), in their study of Sino-US joint ventures, assessed
performance in terms of the extent to which joint venture general managers or
deputy general managers perceived each parent companys strategic objectives to
have been achieved. Path analysis suggested that the higher the level of operational control a parent company exercises in the joint venture relative to its partner,
the greater the extent to which that parent is perceived to be achieving its
objectives.
Although evidence on this issue is mixed, the dominant control hypothesis for
China may be formulated as follows:
Hypothesis 7: IJVs in which the foreign parent has dominant control will have
higher levels of performance.
The three perspectives concerning the hypothesized influence of learning, quality
of resourcing and control on IJV performance, and the main variables they identify, are summarized in Figure 1. These variables primarily concern the contributions that parent companies can make to IJV performance.
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J. Child and Y. Yan
Table I. Profile of IJVs
Electronics4
FMCG5
Total
Anglo-Saxon1
Continental European2
Japanese
Overseas Chinese3
Total
8
9
17
9
8
17
8
8
16
8
9
17
33
34
67
Distribution of foreign equity share

Foreign MNC parent companies
Number of foreign parent companies
One
Two
Number of Chinese parent companies
One
Two
Three
Four
Location
Beijing/Tianjin7
Shanghai region
Guangdong
Years of IJV operation
Average IJV employment
Distribution of IJV employment
Average % expatriates in total IJV employment
Range of % expatriates in total IJV employment
Persons interviewed: Chinese
Persons interviewed: expatriate
2595%6
29 (43%)
57
10
44
17
4
2
26
18
23
215
392
343072
2.83
0.1353.3
139
73
USA 11; UK 6.
France 4, Germany 4, Belgium 2, Netherlands 2, Sweden 2, Switzerland 2, Spain 1.
3
Overseas Chinese Hong Kong 10, Taiwan 6, Singapore 1.
4
Electronic and telecommunications equipment, excluding consumer electronics.
5
Fast-moving consumer goods: includes food processing and manufacturing, beverages, cosmetics and tobacco.
6
Ninety per cent of the sample had foreign equity holdings of under 80 per cent.
7
Includes one IJV located in Shandong Province.
2
METHOD
Sample
Table I provides profile information on the sample consisting of 67 manufacturing IJVs formed between Chinese and foreign owning companies. It is stratified
by sector and foreign parent origin to permit these parameters to be controlled in
view of the difficulty of achieving this statistically with a field-based methodology
that limits the total number of cases. The IJVs were chosen from two sectors:
electronic and telecommunications equipment, and fast-moving consumer goods
(FMCG). At the time of the study, these sectors were respectively the first and
297
second largest in terms of output value among foreign-invested companies in

China (State Statistical Bureau, 1995). The foreign parents origins were those
from which most FDI into China arises: the USA, Western Europe, Japan and
Overseas Chinese territories. These four categories of origin were distributed
evenly by sector. The aim of this sample frame was to include two particularly
important but contrasting sectors, as well as the main categories of foreign IJV
ownership in China. This permits a check on whether or not IJV performance is
independent of these parameters.
More specific criteria for case selection were that the IJV should have had a
minimum of two years operation and that at least one expatriate manager should
be working in it. A list of potentially suitable Sino-foreign joint ventures within
the chosen sectors was established from published sources, such as the Joint Ventures Directory published by Chinas Ministry of Foreign Trade & Economic Cooperation (MOFTEC) and business journals, as well as chambers of commerce
and the commercial departments of foreign embassies. A total of 311 companies
were then approached to check on their suitability for inclusion in the sample and
willingness to participate. Some of these companies proved impossible to contact,
because they had moved location, been restructured, or gone out of business.
Others presented problems, such as firms that had officially been established as
equity joint ventures but did not have real foreign partners involved at all. Finally,
a total of 67 suitable IJVs agreed to participate within the time period available
for the study. It had been intended to have 64 cases giving equal numbers of IJVs
in the two sectors, distributed equally among the four categories of foreign parent
origin, but the process of contacting a larger number of ventures to gain access
led to a slight overshoot.
Among the 67 IJVs, 57 had one foreign parent and the other ten had two foreign
parents. Forty-four of the IJVs had one Chinese parent, 17 had two Chinese
parents; there were a further four IJVs with three Chinese parents and two IJVs
with four Chinese parents. For purposes of analysis, only the foreign and Chinese
parent company respectively with the most active involvement in the IJV will be
taken into consideration. Degree of involvement in IJV management was assessed
with reference to equity share, appointment of senior managers by the parent,
participation in decision-making and direct operational transacting with the IJV.
In almost every case, the other parent companies only had investment stakes rather
than active involvement in the IJVs. The total foreign share of IJV equity ranged
between 25 and 95 per cent.
Twenty-nine of the foreign parent companies were MNCs, none of these being
Overseas Chinese. The IJVs were located in open cities and special economic
zones, where the great majority of foreign-invested companies are to be found (Pan
et al., 1999). They had been operating from between 2 and 15 years, with a mean
of 4.8 years and a mode of 3 years. Their employment ranged between 34 and
3072 people, with an average of 392.
298
J. Child and Y. Yan
Checks on the possible impact of sample parameters revealed that IJV performance is independent of sector, foreign partner nationality, and location in China.
However, larger IJVs and those with MNC foreign parents tend to achieve better
system performance (p < 0.001 for employment and p < 0.05 for MNC status),
and these variables will be included as controls in the analysis. Although IJV equity
share was not related to systems performance overall, the seven IJVs with more
than 80 per cent foreign equity holding registered greater satisfaction with sales
growth than did the rest of the sample. This contrast is broadly consistent with
the finding by Pan et al. (1999) that wholly-owned foreign subsidiaries in China
tend to achieve superior market share compared with joint ventures. A higher
foreign equity share was associated with lower levels of goal attainment by the
main Chinese partner. Certain of the hypothesized relationships vary according
to sector and these are noted later.
There are two main respects in which the sample is not typical of foreigninvested firms in China. First, the distribution among the four foreign parent
company origins does not reflect the fact that approximately two-thirds of inward
foreign direct investment has come from overseas Chinese sources (United Nations,
1998). Second, the study is confined to IJVs. The IJV remains the most numerous governance form for FDI in China, but during the 1990s, wholly-owned subsidiaries became increasingly favoured for new investment (State Statistical Bureau,
1998). In other respects, however, the IJVs sampled appear to be compatible with
profile indicators from larger data sets regarding: (1) the large number of MNC
subsidiaries worldwide in the two chosen sectors; (2) the greater tendency of MNCs
to share equity in Asian affiliates compared to those in other regions; and (3) the
proportion of expatriates employed in affiliates (Beamish et al., 1997; Pan et al.,
1999).
Procedure
It had been decided that personal visits to each IJV were necessary in order to
obtain valid information on variables otherwise difficult to assess, such as goal performance and control. These visits were made by one or both of the authors, normally accompanied by a faculty member of the Development Research Centre in
Beijing. Mandarin Chinese was the language of interviews with local and Overseas Chinese respondents, while English was generally used with foreign respondents. An interpreter was required in the case of some Japanese managers.
Relatively factual information on the IJVs formation and resource provision were
obtained from interviews with a total of 212 managers in the joint ventures, including general managers, deputy general managers and functional heads. Information on these issues was checked with at least two respondents. Parent company
objectives for each IJV and their attainment were assessed separately by respectively the most senior Chinese and foreign manager interviewed. Although inter Blackwell Publishing Ltd 2003
299
views were not conducted with managers located in the parent companies, all of
the respondents who assessed parent objectives were seconded by the relevant
parent. All the Chinese respondents for parent objectives had been with the IJVs
from the start of operations as had 54 per cent of the expatriate managers. Their
secondment from the parent companies, plus regular involvement in reporting and
other communication with the parent, was deemed to provide a reasonable basis
for them to assess parent company objectives for the IJVs.[2] Perceptual evaluations
of the IJVs system performance and of parent company control were obtained
from the most senior available joint venture manager, in order to obtain a broad
and authoritative view.[3]
Measures
IJV performance. Achievement of parent company goals was assessed in two stages.
First, the most senior Chinese and foreign managers were asked separately to select
the five most important strategic benefits that their parent company sought in
forming the IJV from a set of 12 items in the case of foreign parents and 17 items
for Chinese parents. Each item was displayed on a card and respondents were
invited to add further items if appropriate. The objectives most often given priority by the Chinese side were to learn management expertise, to acquire technology, to obtain cash investment from the foreign partner, to provide an
opportunity for good long-term profit, and to gain a strategic position vis--vis
competitors. The objectives most often given priority by the foreign side were to
gain a strategic position in China, to provide an opportunity for good long-term
profit, to access the attractive Chinese market, to establish a strong business
presence in China, and to benefit from lower labour costs.
The Chinese and foreign respondents then assessed the extent to which the five
priority objectives they had selected had been achieved along five-point scales
ranging from not achieved at all (score = 1) to fully achieved (score = 5). These
scores were aggregated to provide indicators respectively of the achievement of
Chinese parent objectives and achievement of foreign parent objectives. This procedure permits a high degree of respondent discretion in the selection of parent
objectives that are scored for achievement.
Assessments of system performance were made by the most senior available
IJV manager using five-point (1 to 5) scales relating to the IJVs profitability,
growth, market share, technological development, and development of local staff
and managers (human resource development).
Learning. (1) Learning from experience: Whether or not parent companies had previous experience of forming IJVs, had any kind of previous international business
experience, and had previously invested in China (foreign parent) or outside
(Chinese parent), were each scored as binary items. (2) Formation learning: Two
300
J. Child and Y. Yan
indicators are used here: (1) length of search and negotiation is the period of time
(months) over which each parent had conducted searches, assessments and negotiations before establishing the IJV; (2) whether or not the parent had assessed
alternative partners before IJV formation was recorded as a binary measure for
each parent. (3) Operational learning is indicated by the number of years the IJV had
been in operation.
Resource provision. A number of indicators were used to assess the resource provision to each IJV by its foreign parents. Total foreign capital invested was measured
in US dollars. Whether new production facilities had been established for the IJV,
and whether or not any existing Chinese plant and equipment was incorporated
into IJV capital, were each measured as binary items. The provision of non-capital
resourcing by Chinese and foreign parents was assessed through ten binary
indicators with reference to product design, production technology, management
systems, management services, and training, provided respectively on a contractual or non-contractual basis. Inspection of internal reliability coefficients suggested that it was acceptable to aggregate these indicators into a measure of overall
non-capital resourcing by Chinese parents (KR20 = 0.80), and overall non-capital
resourcing by foreign parents (KR20 = 0.76). The trend of expenditure on training for IJV personnel since formation was coded into a three-point scale (increase,
same, decrease). The support provided by the Chinese and foreign parents respectively towards the IJVs operational transactions was assessed in terms of the percentage of total IJV inputs they supplied directly, and the percentage of total
outputs they took directly from the IJV, all measured by US dollar value.
Parent control. The relative level of foreign parent control over the IJV was assessed
by first measuring the extent of control of each parent company over 13 different
aspects of IJV management and then subtracting the score for the Chinese parent
from the score for the foreign parent, item-by-item. We asked the most senior available IJV manager to indicate the influence of each parent by using a five-point
scale (1 = very little to 5 = considerable). The aspects are: (1) use of profit, (2) reinvestment policy, (3) setting strategic priorities, (4) allocating senior managerial
positions, (5) technological innovation, (6) financial control, (7) reward and incentive policies, (8) training and development policies, (9) sales and distribution, (10)
product pricing, (11) quality control, (12) purchasing policies, and (13) production
planning. These items were included because they are important areas for control
and decision making in China IJVs (Child, 1994; Geringer and Hbert, 1989).
When there was more than one Chinese or foreign parent company, the questions
on influence were put with reference to the Chinese or foreign parent most
involved in the joint ventures management. Coefficient alpha was calculated for
the 13 items of relative parent control and it proved to be acceptable to aggregate
them to produce an overall measure (a = 0.95).
301
RESULTS
IJV Performance
Table II shows the means, standard deviations and inter-correlations between the
main indicators of IJV performance. The means for all indicators are above the
scale mid-point, though attainments on developmental criteria are rated somewhat
lower than other indicators.[4] There is a significant correlation between the ratings
for the achievement of Chinese and foreign parent objectives (r = 0.39). However,
this correlation only denotes about 15 per cent of common variance, and the substantive basis of the two goal performance measures is sufficiently different as to
not warrant their consolidation. Three measures of IJV system performance (profitability, growth and market share) are inter-correlated at higher levels than the
others. Conceptually these refer to economic aspects of the IJVs system performance as business units, and they were therefore combined into an indictor called
economic system performance (a = 0.73).[5]
All the indicators of IJV performance, excepting the development items, are
significantly inter-correlated. Chinese goal performance attainment is more
strongly related to IJV profitability whereas foreign goal performance attainment
is more related to IJV growth and market share. This difference reflects the lower
ratings generally given to the achievement of profit as a foreign parent objective
compared to its ratings as a Chinese parent objective. The developmental indicators (technological development; HR development) are related to Chinese parent
goal performance, but not to foreign goal performance. They are also not strongly
related to the economic aspects of system performance.[6] Foreign goal attainment
is more highly correlated with economic system performance than is Chinese goal
attainment, largely because the system performance measure includes both sales
and market share.
Examination of Hypotheses
Learning. The first half of Table III sets out the correlations between the aspects
of learning and indicators of IJV goal and economic system performance. Regarding learning from experience, prior international business experience among
Chinese and foreign parent companies is positively associated with the economic
system performance of the IJVs. However, contrary to expectations, parent
experience is not associated with measures of IJV goal performance, except for a
positive correlation between the foreign parents previous IJV experience and the
achievement of its goals. Foreign parents experience with IJVs was positively associated with IJV economic system performance. Among the Chinese parents,
experience with IJVs was associated with better economic system performance.
Contrary to expectations, foreign parents experience of investing in China did
not add to the prediction of their IJVs performance levels. While the quality of
3.41
3.34
3.48
3.36
3.25
3.11
10.18
2. Achievement of foreign parent goals
3. Profitability
4. Growth
5. Market share
6. Technological development
7. Human resource development
8. Economic system performance2
One-tail test: *** p 0.001, ** p 0.01, * p 0.05.

1. All items are rated on scales between 1 (low) and 5 (high).
2. Aggregate of items 3, 4 and 5.
3.56
1. Achievement of Chinese parent goals
Mean1
2.64
0.98
0.96
1.03
1.07
1.17
0.75
0.68
s.d.
0.39***
0.40***
0.44***
0.49***
0.61***
0.28**
0.51***
0.43***
0.49***
0.34**
0.30*
0.22*
0.21*
0.18
0.36**
0.39**
0.11
0.26*
0.28*
0.17
0.36**
27*
30*
79***
82***
81***
61***
44***
Table II. Means, standard deviations and correlations between IJV performance indicators (Pearson product-moment correlations. N = 67 Sino-Foreign joint
ventures)
302
J. Child and Y. Yan
303
Table III. Correlations: IJV performance with hypothesized predictors (product-moment correlations. Decimal points omitted)
Hypothesized predictors
(relevant hypothesis is shown as H1, etc.)
Performance indicators
Achievement
of Chinese
parent goals
Learning
H1:
Chinese parents international experience
Foreign parents international experience
Chinese parent experience: IJVs
investment outside China
Foreign parent experience: IJVs
investment in China
Parent companies combined international experience
Parent companies combined IJV experience
H2:
Length of search and negotiation: Chinese parent
Length of search and negotiation: foreign parent
H3:
Alternative partners: Chinese parent
Alternative partners: foreign parent
H4:
Quality of resourcing
H5:
Foreign capital
New production facilities
Chinese plant and equipment
Chinese non-capital resourcing
Foreign non-capital resourcing
Total non-capital resourcing
Training
H6:
Direct inputs from Chinese parent (%)
Direct inputs from foreign parent (%)
Direct inputs from parents combined (%)
Outputs direct to Chinese parent (%)
Outputs direct to foreign parent (%)
Outputs direct to parents combined (%)
Control
H7:
Relative foreign control
01
07
14
00
10
01
06
19
Achievement
of foreign
parent goals
09
18
07
01
29**
07
18
28*
Economic
system
performance
20*
36**
22*
12
34**
07
39***
44***
-08
-08
-12
-01
10
17
02
-02
10
11
32**
-02
36**
17
19
09
19
-28*
11
-09
-02
30**
06
09
-29**
02
-05
-03
18
30**
45***
-39**
11
-13
-05
30**
21*
27*
35**
10
07
13
11
22*
24*
13
17
23*
29*
25*
40***
25*
-04
15
-16
02
-10
One-tail test: *** p 0.001, ** p 0.01, * p 0.05.
304
J. Child and Y. Yan
foreign partners experience is more significant than that of the Chinese partner,
their combined experience predicted IJV economic system performance more
strongly than did their separate experiences. Hypothesis 1 is therefore supported
for IJV economic system performance but not generally for goal performance.
The hypotheses on formation learning are not generally supported. Length of
parent search and negotiation was not related to the subsequent performance of
the IJVs, counter to Hypothesis 2. Hypothesis 3, concerning assessment of alternative partners, was supported only for Chinese parents.
Hypothesis 4 on operational learning is supported with respect to the attainment of Chinese parents IJV goals. The longer that IJVs have been in operation,
the higher tends to be the evaluation of Chinese goal attainment. The correlation
with economic system performance is significant at the p = 0.06 level and closer
examination of distributions indicates a threshold at around four years of IJV
operation, such that economic system performance tends to be better beyond
that age.
Quality of resourcing. Hypothesis 5 is more consistently supported, particularly in
respect of foreign capital resourcing and quality of facilities. Evaluations of IJV
economic system performance are superior when there is a higher level of foreign
capital investment into the venture, especially when this takes the form of new
production facilities and avoids the inclusion in capital of plant and equipment
from the Chinese parent. Investment in human resource development is also positively associated with higher evaluations of IJV performance. Non-capital resourcing, however, does not predict differences in IJV performance. The results suggest
that quality of resourcing contributes more to the performance of IJVs as on-going
systems than to the perceived attainment of parent goals.
The higher the percentage value of IJV inputs provided directly by the parent
companies, the more likely is IJV performance to be evaluated positively. There
also appears to be a performance advantage when Chinese parent companies
provide a direct outlet for a IJVs products. Transactional integration between
parent companies and IJVs tends to have a stronger positive impact on the latters
economic system performance than on parent goal attainment. Direct inputs from
parent companies also appear to have more impact on IJV performance than
direct outputs to them. A higher percentage of direct inputs from parent companies combined predicts better IJV performance on all indicators. Hypothesis 6 is
therefore partly supported.
Hypothesis 7 postulates that dominant foreign parent control will lead to better
IJV goal and economic system performance. The hypothesis is not supported. A
higher level of foreign IJV control relative to that of Chinese partners does not
predict better performance; two of the three insignificant bivariate correlations are
in fact negative.
305
Multivariate Analysis
A number of predictors of IJV performance have been identified, chiefly of economic system performance. In order to assess their relative and combined effects,
ordinary least squares multiple regressions for economic system performance are
shown in Table IV. Given the sample size of 67 IJVs, it is necessary to limit the
number of predictors entered into equations. The selection is guided by two considerations. First, potential performance predictors that do not have a significant
univariate relation to IJV performance are excluded.[7] For this reason, length of
search and negotiation, foreign parent dealing with alternative partners, noncapital resourcing, and direct output to parent companies are omitted. The exception is relative foreign control, which is included in order to retain the presence of
Hypothesis 7. Second, if correlations between predictors themselves exceed r =
0.50, the variable with the weaker association with IJV economic system performance is omitted. There is in fact only one such correlation, that between length
of search/negotiation and years of IJV operation, indicating that the earlier
Sino-foreign IJVs generally took longer to establish.
Equation 1 focuses on indicators of learning opportunities, which together
predict 33 per cent of economic system performance variance. The parent companies combined previous international business experience has a positive impact
on IJV performance. Their combined previous IJV experience has an even greater
positive performance impact. Assessment of alternative partners by Chinese
parent companies also contributes to the prediction of economic system performance. The years that IJVs have had for operational learning adds further to the
prediction of their economic system performance when taken in conjunction with
the other experience factors.
Equation 2 focuses on indicators of resourcing quality, which together predict
41 per cent of the variance in IJV economic system performance. The resources
of key significance are foreign capital, the quality of production facilities and the
integration of the IJVs with their parent companies, both Chinese and foreign,
concerning input transactions. When combined with these factors, training no
longer significantly predicts economic system performance. Equation 3 analyses
the combined contribution to explaining performance variance of learning,
resourcing and foreign parent control. It indicates that this combination predicts
over one half (53 per cent) of the variance in IJV economic system performance
assessments.[8] Parent company learning from experience retains a positive impact
on performance, but formation and operational learning are no longer significant.
Among the resource indicators, the quality of production facilities and input integration with parent companies remain significant positive predictors. Relative
foreign control is a negative predictor such that greater foreign dominance is associated with inferior performance. Because IJV employment and MNC status of
0.003
0.03
0.007
0.35
0.24
0.29
0.33
F: 9.123
0.04
0.23
0.01
0.003
0.01
0.42
0.01
0.41
F: 10.150
0.25
0.29
-0.26
0.08
0.25
Beta
Beta
Equation 2
ESP &
Quality of
Resourcing
Equation 1
Econ System
Perf. [ESP]
& Learning
0.02
-0.22
0.53
F: 8.380
0.17
0.03
0.07
0.50
0.02
0.36
0.21
0.06
0.05
0.14
0.29
-0.19
0.06
0.24
0.09
0.12
0.20
0.21
Beta
Equation 3
ESP &
Composite1
0.37
0.96
0.02
0.38
0.003
0.09
0.60
0.02
0.59
0.44
0.07
0.09
0.52
F: 6.911
0.11
0.01
-0.22
0.10
0.31
-0.18
0.05
0.25
0.06
0.08
0.20
0.18
Beta
Equation 4
ESP &
Composite
with controls2
If sector is entered into the equation, Beta = 0.04, p = 0.71, multiple R2 = 0.52, and other coefficients remain virtually unchanged.
If sector is entered into the equation, Beta = 0.04, p = 0.70, multiple R2 = 0.51, and other coefficients remain virtually unchanged.
3
For Equation 6, the item is alternative partners: foreign parent.
* For Equations 14, p = 0.000. For Equation 5, p = 0.006. For Equation 6, p = 0.36.
Adjusted multiple R2
ANOVA*
IJV employment
Foreign parent MNC status
Relative foreign control
Foreign capital
New production facilities
Chinese plant and equipment
Training
Direct inputs from parents combined
Parent companies combined

international business experience
Parent companies combined IJV
experience
Alternative partners: Chinese parent3
Predictors
Table IV. Regressions (ordinary least squares) of IJV performance on predictor variables
0.24
F: 2.170
0.73
0.65
-0.05
0.06
0.72
0.58
0.12
0.07
0.17
-0.05
0.07
-0.21
0.23
0.18
0.02
0.70
0.04
-0.05
0.29
-0.27
0.26
0.77
-0.04
0.16
Beta
Equation 5
Chinese Goal
Performance
0.81
0.67
0.68
0.65
0.67
0.23
0.65
0.23
0.76
0.47
0.30
0.56
0.02
F: 1.130
0.04
0.06
-0.05
-0.07
-0.06
-0.19
0.07
0.17
0.04
0.11
0.16
0.09
Beta
Equation 6
Foreign Goal
Performance
306
J. Child and Y. Yan
307
the foreign parent are positively related to IJV economic system performance,
Equation 4 adds these as control variables to the composite equation. However,
they make little difference to the outcome.
We noted earlier that the relationship of learning, resourcing and control factors
to goal performance was considerably weaker. This is borne out by Equations 5
and 6 which apply the same model as Equation 4 to Chinese and foreign goal performance respectively. Only 24 per cent of the variance in Chinese goal performance is predicted, with years of IJV operation, lack of dominant foreign control
and (marginally) training being significant predictors. Virtually none of the variance in foreign goal performance is predicted by the model, and none of the postulated predictors attains statistical significance.
Closer examination of the two sectors represented in the sample indicates that
previous parent experience of international business has, on the whole, a greater
impact on the economic system performance of electronics IJVs, compared to
those located in fast-moving consumer goods (FMCG). Previous experience may
be particularly valuable given the greater technological and logistical complexity
of most of the electronics IJV value-chains. The electronics IJVs also took a far
higher percentage of inputs by value, chiefly components, directly from their
foreign parents, and this percentage had a higher positive association with IJV
performance in electronics than in the FMCG sector. This suggests a propos of
Hypothesis 6, that integration is of greater consequence for IJV performance in
the electronics sector. A further difference is that increased expenditure on training during the history of the IJV was more highly correlated with level of economic performance in the electronics sector, reflecting its greater technical
requirements. Nevertheless, if sector is added to Equations 3 or 4, the impact is
negligible, as footnotes to Table IV indicate. Similarly, the inclusion of sector in
Equations 5 and 6 has no impact.
DISCUSSION
Contributions and Implications
The findings of this study offer five main contributions to the literature. First, they
confirm that firm-level variables are consequential for IJV performance. Second,
they indicate the value of adopting a broad theoretical approach with respect to
such variables. Third, they uncover subtleties in the relationship between IJV
control and performance. Fourth, they demonstrate the utility of distinguishing
between goal and system perspectives on IJV performance. Fifth, they suggest
qualifications to international business theory as applied to developing and transition economy contexts.
Firm-level factors are found to be consequential for IJV performance even in a
complex and turbulent environment such as China, where the business press and
308
J. Child and Y. Yan
some academic studies have understandably focused primarily on exogenous influences. The present investigation indicates that factors endogenous to IJV partners
and to the way they constitute IJVs also have a bearing on subsequent performance. In other words, attention to the strategic factors informing the establishment of IJVs deserves to be complemented by attention to the means whereby
international business strategies are implemented through them. This is not to
deny the theoretical or practical significance of strategic factors such as market
entry policy and complementarity of goals. It is, however, to point out that the
viability of IJVs as operational units also depends on the quality of the intangible
and tangible assets provided to them. A parallel observation has been made with
respect to post-acquisition performance. Namely, while the strategic fit of an acquisition indicates potential sources of value creation, actual value creation depends
on factors other than just strategic ones including the intrinsic resource quality of
the newly constituted unit (Haspeslagh and Jemison, 1991).
Secondly, our study has adopted a broad theoretical approach with respect to
firm-level influences on IJV performance. It has taken account of perspectives on
learning, resourcing and control, and each has identified variables that impact on
IJV performance. This is the first study to have examined this combination of
hypothesized performance predictors and to have identified how they contribute
to value-creation in IJVs. Each theoretical perspective has been found to add to
the understanding and prediction of IJV performance in a cumulative manner.
This leads to the recommendation that future research continues to take all the
perspectives into account, and to explore in more detail how learning, resourcing
and control interact as factors conditioning IJV performance.
The findings build upon the insights of researchers such as Lyles (1988) and
Barkema et al. (1997) by indicating that the performance of IJVs is affected by
several aspects of learning. When parents have had the opportunity to learn from
previous experience of international business, in particular of joint ventures, their
IJV tends to perform better. The combination of parent experiences is a more
powerful performance predictor than that of an individual parent company. The
results also suggest that previous experience is likely to be of particular significance
for joint venture performance in a developing country context like China, where
cultural differences and a under-developed institutional framework present major
challenges that can otherwise seriously unsettle a partnership. It appears to be
helpful for foreign firms entering developing countries to find as an IJV partner
an enterprise that can not only provide local knowledge and connections, but that
also has some experience of international business and can therefore communicate on the same wavelength. The conclusion that a joint venturing firm should
draw upon its relevant experience, and evaluate the extent to which that experience needs to be supplemented by a partners local knowledge, is consistent with
the methodical approach to joint venture formation advocated by Tallman and
Shenkar (1994).
309
The quality of resourcing that parent companies put into IJVs has an even more
significant bearing upon their performance. Our findings are consistent with
research by Lyles and her collaborators in Hungary and Malaysia (Lyles et al.,
1999; Steensma and Lyles, 2000). Transition or developing countries such as these,
including China, offer high potential opportunities for FDI, but they are still
limited in their ability to supply the tangible and intangible economic resources
required to achieve international standards of competitiveness. Foremost among
these scarce resources are modern technology and modern management practices.
However, the significance for IJV performance of providing new facilities and
avoiding the use of existing Chinese facilities does not just stem from the modern
technology that this introduces. It also offers the IJV an opportunity to introduce
its own forms of work organization and to recruit and train its personnel afresh
according to its own criteria, rather than inheriting the existing local standards of
a country in transition from socialism (Lu and Bjrkman, 1997). The policy implication is that it is wise to resource a business venture in ways that avoid getting
locked into the often outmoded technologies and the heavily institutionalized
working practices of a developing country. This includes provision of adequate
capital to establishing new plant and facilities, and the direct supply of high quality
components and other production inputs where appropriate. Our research indicates that the introduction of new production facilities, without reliance on existing Chinese plant or equipment, appears to furnish an important basis for
achieving superior economic performance. In other words, the use of IJVs as a
means of internalizing the resourcing of operations by foreign-investing companies appears to be beneficial, in a developing country context.
Thirdly, the study also points to subtleties in the link between parent control
and performance in IJVs that have not been recognized in previous discussions.
These discussions have generally looked to control dominance by one partner as
having either a positive or negative impact on IJV performance. Rather than the
relationship being of this eitheror kind, the present study suggests that an
approach to control permitting the combination of foreign leadership in resourcing, through the transfer of technology and expertise, with local participation in
decision making will be conducive to better performance. This permits a degree
of leadership by international firms consistent with the effective transfer of what
they can offer by way of superior resources, but which is not taken to the point
where foreign dominance creates a barrier to contributions from the local partner
or its ability to learn.
It is instructive to note that parent control only becomes a significant predictor
of IJV performance when the quality of parent resourcing is taken into account.
This suggests that, in a developing country, it becomes a positive move for IJV performance to bring the local partner into its decision making process if and when
the foreign partner can lay down an adequate resource base. If the resource base
is not adequate, this appears to require compensation by additional foreign man Blackwell Publishing Ltd 2003
310
J. Child and Y. Yan
agerial intervention. The alternative explanation is that it is a combination at IJV

formation of less foreign control with the provision of greater resource quality
(coming overwhelmingly from the foreign partner) that leads to better performance. This is, however, not very plausible since it goes against the prevailing
opinion among foreign companies in China that they are more inclined to risk
investment if they have control over the joint venture. The ways that quality
of resourcing and the distribution of control between the partners affect IJV performance deserve closer examination in future research, preferably through longitudinal investigation that can observe how these factors interact as an IJV
develops.
These observations on control in relation to resourcing are clearly specific to
IJVs in which, on balance, the technical competencies of one partner are inferior
to those of the other. In such circumstances, a transfer of knowledge and expertise is both an objective of the junior partner and a necessity for the effective operation of the IJV itself. While this configuration can be found in IJVs between
developed country partners, it is more characteristic of those between developed
country firms and partners from developing countries such as China. In this
respect, our findings extend the conclusion reached by Beamish (1988) that shared
control rather than domination by one partner is likely to lead to superior performance in developed-developing country IJVs.
The fourth significant contribution of this study derives from its distinction
between goal and systems perspectives on performance. This distinction proved to
be consequential. While it was possible to predict a substantial proportion of IJV
performance variance when assessed in terms of system criteria, this was not the
case when either Chinese or foreign parent company goals were adopted as performance criteria. The reason is likely to lie in the varied portfolios of goals that
parent companies bring to the establishment of different IJVs. This means that
parent goal attainment is not a stable referent for identifying the predictors of IJV
performance, because what is being measured for each IJV does not refer to the
same set of goals. The lack of consistency in the dependent variable implies that
a somewhat different predictive model will be required for different IJVs. System
variables, by contrast, provide a more consistent set of IJV performance criteria.
They refer to fundamentals for the survival and development of IJVs as business
units and this provides a superior basis for comparison across different cases. On
these grounds, reliance on the goal model in future research on IJV performance
is open to question. This is a significant conclusion in view of the widespread use
of goal attainment measures for IJV performance assessment.
The contrast between a prediction of 24 per cent of the variance in Chinese
goal performance and near zero prediction of foreign goal performance also poses
a question. Further exploration may reveal that different models are required to
account for the two contrasting sets of goal priorities. Foreign IJV parents quite
uniformly gave priority to strategic positioning in the newly-opened China market,
311
establishing their credibility there and pursuing the opportunities they envisaged
for long-term profit. By contrast, Chinese IJV parents tended to attach priority to
learning management expertise, technology transfer and obtaining foreign cash
investment. As noted earlier, foreign goal performance was more oriented to
longer-term IJV development in terms of securing growth and market share,
whereas Chinese goal performance was more oriented towards profitability. Application of the models in Table IV to profitability, growth and market share separately, indicated that they provided stronger predictions of profitability than of the
other two economic criteria. This implies that further more detailed work into
the relationship between specific goal and system performance indicators might
provide additional clarification of the relation between the two performance perspectives, even though we have urged caution about the status of goal attainment
indicators.
We have not considered developmental criteria of IJV system performance in
any detail. The study included indicators of technological and human resource
development. The results presented in Table II tend to bear out the conceptual
distinctiveness of this aspect of IJV performance. Given its importance to Chinas
economic development, it is understandable that both of the developmental items
correlated more highly with the attainment of Chinese parent company goals than
with foreign parent goals or with other system performance indicators. Note 8
mentions that the models which are predictive of economic system performance
fail to account for any significant variance in the developmental criteria. A different theoretical approach is therefore required for developmental performance
in future research, which is likely to focus upon knowledge transfer and postformation learning.
Fifthly, the findings of this study draw attention to distinctions within the theory
of IJV performance that may be required for developing rather than developed
economy locations. We have suggested that previous international experience
(including that of local partners), foreign parent resource provision, parent internalization of IJV input transactions, and shared IJV control probably have rather
more important positive impacts on IJV performance in developing and transition
economies. The prime reason lies in the different context that tends to characterize those economies. This context is generally deficient in capital, technology and
expertise. Also it usually blends elements of traditionalism and authoritarianism
within an institutional environment that is not transparent by western standards,
the navigation of which can therefore benefit from the assistance of local partners. This line of argument carries the obvious, but sometimes neglected, implication that international business theory needs to be sensitive to the economic, social
and political contexts of countries in which IJVs are located even when, as in this
paper, its focus is on firm-level variables (Child and Tse, 2001). This is consistent
with the more expansive view of the subject advocated by Toyne and Nigh
(1998).
312
J. Child and Y. Yan
A final observation also concerns sensitivity to the context. Our research pointed
to some sector-based nuances in the weight of experience and resource-provision
as performance predictors. This suggests that future investigations of IJV performance should be sensitive to the sector context. Sectors operate on the basis of
different factor combinations and with different core competencies, and one would
expect these to be reflected in the kind of resource provision that is most critical
for good IJV performance. While remaining consistent with the thesis that the
quality of intangible and tangible resourcing is a significant determinant of IJV
performance, this observation also recalls the point that the ultimate key to
high performance lies in matching qualitatively distinctive resources to the
contextually-informed strategy of the IJV as a business enterprise (cf. Foss, 1997).
CONCLUSION
Our investigation in China lends support to the view that learning, resourcing and
control by parent companies is consequential for IJV performance. These factors
are likely to assume particular importance in a business environment characterized by resource scarcity and high complexity. The quality of resourcing provided
by foreign-investor IJV partners is critical in a developing country context like
China where inward FDI is a necessary vehicle for the transfer of technology and
management expertise. Previous international business experience on the part of
both partners, including previous IJVs, also helps to ensure better performance,
though not to the same extent as the quality of resourcing. If the quality of resourcing is poor, it seems to be more critical for the foreign partner to compensate
for this through exercising a higher level of control. When resourcing is good,
advantages accrue from sharing control with the Chinese partner who can assist
in dealing with the complex environment. The findings both on experience and
control strongly suggest that local domestic partners can contribute valuably to
IJV success. The results of our study suggest that the effects of these factors upon
IJV performance are cumulative and that further research should examine them
together rather than singularly.
NOTES
*Grateful acknowledgment is made of funding provided by the UK Economic & Social Research
Council, the Leverhulme Trust and the Hong Kong Research Grants Council to defray the cost of
the research from which this paper draws. The authors wish to thank Dr Yuan Lu who joined in the
research design and fieldwork. Dr Timothy Devinney, Dr Yigang Pan and JMS reviewers offered
valuable comments on a previous version of this paper. Sally Heavens contributed to the editing of
the paper.
[1] Partners in an IJV become its parent companies once it is formed. The two terms are therefore used interchangeably in this paper depending on which best fits the sense of the passage in
which it occurs.
[2] A recent case-based study of 21 Sino-UK joint ventures reveals little difference between the
evaluation of key strategic priorities made by corporate level managers in the UK parent
[3]
[4]
[5]
[6]
[7]
[8]
313
companies and expatriate IJV managers, thus further suggesting that IJV managers seconded
from parent companies usually have a good understanding of their parents IJV objectives.
Source: End of Award Report to Economic and Social Research Council, ref.: 000235982,
November 1998, available from the British Library, London. Lyles et al. (1999) also argue in the
same vein.
Within the total of 67 joint ventures, 44 of these senior respondents were general managers, 19
were deputy general managers and four were functional heads. Thirty-seven of them were expatriates and the other 30 were PRC Chinese. While we are confident that this set of respondents
was able to present an overall perspective for each IJV, its national mix introduces the possibility of bias. In 28 IJVs, the cumulative process of gaining access led to senior Chinese and foreign
managers each giving separate subjective evaluations of IJV system performance; there were no
statistically significant differences between these two sets of assessments. This suggests that we
can place confidence in the ability of the procedure to represent a general view of each IJVs
performance. Similarly, in 21 IJVs, senior Chinese and foreign managers gave separate evaluations of parent company control using measures described in the following section. There were
no significant differences between these two sets of assessments, and this suggests that confidence
can be had in the ability of the procedure to compare parent control between different IJVs.
The present study was conducted between 1994 and 1996 when Chinas GDP was growing very
rapidly (12.6 per cent and 10.5 per cent respectively) and this may help to account for the fairly
high performance means. Beamish (1993) in an earlier period found growing dissatisfaction
among foreign parents with the performance of their joint ventures in China, while more recent
reports also indicate high dissatisfaction (Shaw, 1998).
The combination of all five system indicators (i.e. economic and developmental items) has a =
0.70, which is only on the margins of acceptability.
If all performance indicators are combined into one scale, a = 0.79, and without the development indicators, a = 0.80. While it would be statistically acceptable to combine goal and system
performance indicators, this is conceptually less satisfactory. Also to preserve focus and economy
of space, the development items are not given full consideration in this paper.
The omission of these variables did not reduce the predictive power of the regression equations.
None of them had a confidence level within equations of more than 90 per cent. In view of its
conceptual importance and attainment of marginal statistical significance, years of IJV operation was included.
Equation 3 predicts only 7 per cent of technological development and 0.5 per cent of human
resource development, and neither solution is statistically significant. If a composite performance
measure, aggregating goal and economic system performance indicators, is entered as the dependent variable, Equation 3 predicts less performance variance (49 per cent) than that of economic
system performance alone (53 per cent). Equation 3 predicts only 46 per cent of variance in a
composite performance measure including goal, economic system and development performance items. The beta weightings for the independent variables in the equations for the composite performance measures do not change appreciably, except that parent companies
combined international business experience is no longer a significant performance predictor, and
the positive impact of foreign capital and new facilities declines when performance includes the
two development items.
APPENDIX. INTERVIEW QUESTIONS FOR MULTI-ITEM

MEASURES
IJV Performance
Please choose and place in order of importance a maximum of five items from
the set of cards that you think best describe the strategic benefits which the main
Foreign and Chinese parent companies sought from the JV/affiliate, (1) when it was
formed and (2) at the present time. (Separate card for each item)
How far do you think each of the strategic benefits you identified, both at formation and at the present time, has been achieved? Please use the scale on the
314
J. Child and Y. Yan
card to indicate your assessment. (Show card with scale ranging from 1 = not achieved at
all to 5 = fully achieved)
Foreign parent
Priority of goals
Achievement rating
(1) at formation (2) now
Gain strategic position in
China vis--vis competitors
Attraction of Chinese market
Low-cost sourcing
Benefit from advantageous
transfer pricing
Low labour cost
Opportunity for quick profit
Benefit from tax incentives
Opportunity for good
long-term profit
Facilitate international
expansion
Learning how to do business
in China
Establish strong business
presence/credibility in China
Diversification of products
and services
Other
Chinese parent
Technology transfer
Obtain foreign cash investment
Benefit from tax incentives
Develop export opportunities/
learning how to export
Opportunity for quick profit
Foreign exchange generation
Gain strategic position vis--vis
competitors
Opportunity for good
long-term profit
Establish strong business
presence/credibility in China
Import substitution
Employment creation
315
Help expand in Chinese market

Learning management expertise
Help upgrade Chinese
suppliers technology
Assist diversification of products
and services
Ability to import superior goods
and components
Opportunity to train Chinese staff
Others
Please use the 5 point scale to indicate the extent to which you are satisfied with
the JVs performance on the following criteria:
1
not satiffied at all
5
fully satisfied
Respondents score
Foreign
Chinese
Profitability
Growth
Market share
Technological development
Development of local staff/managers
Resource Provision
Contracted resources
Please specify any inputs/resources which the parent companies have a contract
to provide the JV/affiliate, in addition to their equity contributions.
Input
Description
Which parent
company provided?
Product design
Production technology
Management systems
Management services
Training
Other
Non-contracted inputs/resources
Please specify any other inputs/resources which the parent companies have
provided to the JV/affiliate on a non-contractual basis.
[Same format as for contracted resources]
316
J. Child and Y. Yan
Parent Control
In your view, how much influence is exercised by the foreign and local parties in
each of the following areas of the joint venture? Please insert the number closest
to your view in each space, where 5 = dominant, 4 = considerable, 3 = some, 2 =
minor, 1 = very little: (using the scale on the card)
Degree of influence
Dominant Considerable Some Minor Very little

Areas
Allocation of profit
Allocating senior managerial positions
Setting strategic priorities
Product pricing
Training and development policies
Reward and incentive policies
Financial control
Re-investment policy
Purchasing policies
Production planning
Sales and distribution
Technological innovation
Quality control
Foreign party
Chinese party
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Journal of Management Studies 40:2 March 2003

Predicting the Performance of International Joint

John Child and Yanni Yan

J. Child and Y. Yan

International Joint Ventures

J. Child and Y. Yan

International Joint Ventures

J. Child and Y. Yan

subsequent operation of an IJV. The amount of learning required is likely to be

International Joint Ventures

international business experience and international JV experience will benefit IJV

J. Child and Y. Yan

International Joint Ventures

J. Child and Y. Yan

customers, as well as internal relations. External transactions can in China be a

International Joint Ventures

J. Child and Y. Yan

International Joint Ventures

Figure 1. A summary of hypothesized endogenous influences on IJV performance (H refers to the

J. Child and Y. Yan

Table I. Profile of IJVs

Distribution of foreign equity share

International Joint Ventures

second largest in terms of output value among foreign-invested companies in

J. Child and Y. Yan

International Joint Ventures

J. Child and Y. Yan

International Joint Ventures

Blackwell Publishing Ltd 2003

2. Achievement of foreign parent goals

7. Human resource development

8. Economic system performance2

One-tail test: *** p 0.001, ** p 0.01, * p 0.05.

1. Achievement of Chinese parent goals

International Joint Ventures

One-tail test: *** p 0.001, ** p 0.01, * p 0.05.

Blackwell Publishing Ltd 2003

J. Child and Y. Yan

International Joint Ventures

Blackwell Publishing Ltd 2003

Relative foreign control

Parent companies combined

International Joint Ventures

J. Child and Y. Yan

International Joint Ventures

J. Child and Y. Yan

agerial intervention. The alternative explanation is that it is a combination at IJV

International Joint Ventures

J. Child and Y. Yan

International Joint Ventures

APPENDIX. INTERVIEW QUESTIONS FOR MULTI-ITEM

J. Child and Y. Yan

International Joint Ventures

Help expand in Chinese market

not satiffied at all

J. Child and Y. Yan

Dominant Considerable Some Minor Very little

International Joint Ventures

J. Child and Y. Yan

Grant, R. M. (1991). The resource-based theory of competitive advantage. California Management

International Joint Ventures

J. Child and Y. Yan

Blackwell Publishing Ltd 2003

One-tail test: * p 0.001, p 0.01, * p 0.05.

One-tail test: * p 0.001, p 0.01, * p 0.05.