PERFORMANCE OF INTERNATIONAL JOINT VENTURES: AN EMPIRICAL STUDY IN TUNISIA

Fatma Kamoun Abdelkefi, Faculte des Sciences Economiques et de Gestion de Sfax, Tunisia

ABSTRACT
This paper presents the factors that may affect the performance of international joint ventures (IJV). The empirical study
investigates a sample of IJVs located in Tunisia. Findings support that the factors that disadvantage the performance are:
cultural attitudes and business practices dissimilarities, lack of communication, domination of one partner and avoidance of
outside mediation. The factors which influence positively the partnership performance are: trust, communication and no-
domination of one partner in conflicts.

INTRODUCTION

Although there is an evidence that partnerships, notably the international joint ventures (IJVs) offer many advantages,
several researchers criticize them because of their rate of failure, that is over 70 percent (Osborn and Baughn 1990; Parkhe
1993; Levy, Simond and SchUrr 1996), the difficulty in measuring their performance (Anderson 1990; Park and Ungson
1997), and their problem of instability (Jolly 1989; Dussauge and Garrette 1995b). In addition, despite the rich literature on
the topic, "scholars know little about the underlying causes of successful alliances" (Saxton 1997, p 444). Our purpose in this
paper is to study factors that affect performance of international joint ventures (IJVs) in a developing country which is
Tunisia.

PERFORMANCE OF IJ V AND SUCCESS FACTORS: LITTERATURE REVIEW

In our literature review we identified essentially two types of contracts of alliances: equity joint ventures and non-equity joint
ventures. "The equity joint ventures (EJVs) involve the incorporation of a new company in which two or more partners hold
an equity stake. Each partner will expect to participate in the decision making activities of the jointly owned entity, will
anticipate a proportional share of dividend and expect representation on the board of directors" (Glaister and Bukley 1999,
p124). In contrast to EJVs, "non-equity joint ventures (NEJVs) do not involve the creation of new firms, but are formal long-
term agreements between partners to cooperate in some way. Employees of the partner firms tend to work together directly
from their own organisations. With NEJVs carefully defined rules and formulas may govern the allocation of tasks, costs and
revenues, and there is at least a moderate degree of inter-organisational dependence" (Contractor and Lorange 1988). Kotler
and Dubois ( 1997) add a third type of agreement. Indeed, sometimes the foreign partner can take an equity stake in the local
firm and vice versa.

SUCCESS FACTORS

Feasibility study and negotiation

It is very important to undertake an in-depth feasibility study prior to the ultimate agreement {lnkepen and Li 1999) because
it provides detailed knowledge about the future partner (Simiar 1983). In addition, firms engaged in the negotiation process
have probably distinct strategic objectives, asymmetric capabilities as well as other important differences (Glaister and
Buckley 1998). Moreover, this analysis should help the firm in reducing the potential opportunistic behaviour of a partner
and knowing about his strategy and ulterior motives, because the cooperation could be a good opportunity to disarm the
partner from his knowledge and to rob him of his competitive advantages (Doz, Hamel and Prahalad 1989). Thus:
H 1.: there is a significant difference between IJVs which undertake feasibility study and those ignoring this step in terms of
performance.
H 1b: there is a significant difference between IJVs whose partners negotiate the contract and those ignoring this step in terms
of performance.

Similarities

Size: Firms tend to avoid size dissimilarity because it generates differences in corporate perspectives, value system and
methods of aligning internal resources that might influence negatively JV's performance (Park and Ungson 1997). This
dissimilarity might have a more stressed impact in the case of firms in developing countries (Sim and Ali 1998) due to the
differences in partners' perspectives (Lane and Beamish 1990). Hence:

243 Academy of Marketing Science, 2004 Cotiference Proceedings, Volume XXVII

H 2.: there is a significant difference between IJVs established between partners of similar size and those established between
partners of dissimilar size in terms of performance.

Culture: The cultural distance can influence negatively the relationship stability (Glaister and Buckley 1999) and the
longevity of a relationship and this effect will be more important when the IJV is based in a developing country (Barkema et
a!. 1997). This coincides with the observation of Sim and Ali ( 1998) in Bangladesh who measured cultural distance by
psychic distance. This distance was measured by a composite index indicating the degree of similarity between parents'
countries of origin in terms of three factors that we are going to use in our hypothesis. These factors are: cultural attitudes,
business practices and the case of communication among the JV partners. However, Bouayad (1996) maintains that the
congruence between different cultures constitutes a "cliche" and it does not constitute a guarantee for the success of the IJV.
In the similar vein, Park and Ungson ( 1997) note that the pernicious influence of cultural differences can be diminished
thanks to other variables such as prior relationship between partners. Despite this controversy, our hypothesis will be in line
with the majority of studies in developing countries. Thus:
H 2b: there is a significant difference between IJVs established between partners of similar cultural attitudes and those
established between partners of dissimilar cultural attitudes in terms of performance.
H 2c: there is a significant difference between IJVs established between partners of similar business practices and those
established between partners of dissimilar business practices in terms of performance.
H 2d: there is a significant difference between IJVs established between partners of similar case of communication and those
established between partners of dissimilar case of communication in terms of performance.

Autonomy

Many researchers (e.g., Ohmae 1989; Anderson 1990; Bleek and Ernest 1992; Sim and Ali 1998) find that autonomy has a
positive impact on the performance of the IJV. But parent firms often tend to manage their venture even if it is far away from
them a thousand kilometres. This may lead to failure because to take competitive decision, local managers need considerable
autonomy. This autonomy will be limited when certain strategies call for coordination between venture and parent firms and
that might have a negative impact on JV's success (Simiar 1983; Hoon-Halbauer 1997). So, giving the autonomy to the IJV
favours its flexibility (Zeira, Newberry and Yeheskel 1997), promotes harmony among partners, increases its relatively feeble
chances of survival and prosperity and facilitates learning and innovation (Anderson 1990). Thus:
H 3 : there is a significant difference between autonomous IJVs and non-autonomous IJVs in terms of performance.

Communication

Communication process has a close relation with most of the functioning aspects of any organisation. So whenever there is a
problem in communication process, the relationship among partners will be disrupted and consequently the performance of
the JV affected. Communication is important in achieving the goals of partnership, to the continued growth of close ties
between partners (Mohr and Speckman 1994) and in creating a stable environment and reducing incertitude in decision-
making process (Denis and Seguin 1981). Moreover according to organizational learning theory, the ability to access to
knowledge of partner requires close involvement in business and decision-making process (Saxton 1997). Thus:
H 4 : there is a significant difference between IJVs established between communicating partners and those established between
non communicating partners in terms of performance.

Ownership structure

Studies, that have approached the question of ownership, reached mixed findings. Some researchers maintain that balanced
partnerships have more chance to succeed than those with a dominant partner (e.g., Doz, Hamel and Prahalad 1989; Bleek
and Ernest 1992). Conversely Ingham (1990) asserts that the difficulties inherent in control sharing are such that the
operations which are dominated by one partner have more chances to last and to succeed. Bouayad ( 1996) adds credence to
this and maintains that balanced alliance in terms of control and return is nothing else than an illusion. However, in some
countries, it is the government which decides about the equity stake that the foreign partner must hold. Given that diversity of
conclusions concerning O'\\<nership distribution, it could be expected that:
H 5 : there is no significant difference between IJVs with an equal ownership distribution and IJVs with an unequal ownership
distribution in terms of performance.

Academy of Marketing Science, 2004 Conference Proceedings, Volume XXVII 244

 Trust

It is considered fundamental to the success of a JV that the partners trust each other (Mohr and Speckman 1994; Saxton 1997;
Gulati 1998). In fact, there is no contractual guarantee if there is no trust. The trust of each partner in the loyalty and the
willingness of the other to meet one's obligation diminishes the risk to face partner's opportunistic behaviour because it
pushes each partner to act with loyalty (Giaister and Buckley 1999). In addition, trust has a very important role in favour of
information exchange, and ease of interaction and flexible orientation on the part of each partner (Gulati 1998). Thus:
H 6 there is a significant difference between IJVs established between partners who trust one another and those established
between partners who mistrust one another in terms of performance.

Prior relationship between partners

The essential advantage of these previous relationships is the emergence of inter-firm trust, which reduces the opportunistic
behaviour, eases the resolution of problems, enhances partner's transparency and diminishes the costs of control (Gulati 1995;
Park and Ungson 1997; Parkhe 1997). Such a relationship, which is less close than a JV, offers an opportunity to the partners
to have knowledge of each other and thus to realize if they can engage in a JV relationship (Donkels and Lambert 1995).
H 7: there is a significant difference between IJVs established between partners with prior relationship and those established
between partners with no prior relationship in terms of performance.

Conflict resolution

Mohr and Speckman (1994) suggest that joint-problem solving will be very important to reach a satisfactory solution for each
party, thereby favouring the success of the JV. This method consists in persuasion instead of coercion and domination which
are considered as destructive and counter-productive methods. The authors add that in some partnerships, the method of
conflict resolution is institutionalised and the arbitration of a third party is required. Despite the advantage of such a
mediation, 'internal resolution' is more beneficial in the long run. Mohr and Speckman (1994) indicate other conflict
resolution problem such as smoothing over or ignoring/avoiding the issue. But partners are not called to resort to such
methods if they want to build a successful and proactive relationship where the problems of one side become the problem of
both sides. Indeed, smoothing over or ignoring/avoiding the problem do not allow the partners to go to the origin of the
conflict. On the basis of Mohr and Speckman's ( 1994) analysis of conflict resolution, we can advance that:
H 8 : there is a significant difference between:
a. IJVs which use the constructive resolution techniques including joint problem solving and persuasion and
those ignoring such methods in terms of performance.
b. IJVs which have a low use of destructive conflict resolution techniques including domination and harsh
words and those having ongoing use of such methods in terms of performance.
c. IJVs which have a low use of conflict resolution techniques including outside arbitration, and
smoothing/avoiding issues and those having ongoing use of such methods in terms of performance.

RESEARCH METHODOLOGY

Measures

The performance of the IJV, which is the dependent variable, can be assessed by two measures: objective measure and
subjective measure. For the former, we invited the respondent to give us the turnover of the last four years. As to the
subjective measure, we use items inspired from the studies of Zeira, Newberry and Yeheskel (1997) and Saxton (1997).
These items concern the partner's perception of the performance of the JV. We use the five points Iikert's Scale from
!.strongly agree to 5.strongly disagree. Items for independent variables are derived for literature. We conduct the factorial
analysis in order to reach the unidimensionality of the used scales for all variables. We test the reliability of the scales by the
Cronbach coefficient alpha. Coefficients Alpha show acceptable reliability (Nunnally I978).

Data collection

The chosen country of study is Tunisia. The survey instrument is a questionnaire which we pre-tested in order to avoid
potential errors. At the end of this preliminary survey, we note a great reticence from the respondents regarding the question
of turnover which leads us to eliminate this particular question and focus on the perceptions of the managers according to the
suggestions of many authors (e.g., Anderson 1990; Park and Ungson 1997; Glaister and Buckley 1999).

245 Academy of Marketing Science, 2004 Coriference Proceedings, Volume XXVII

 RESULTS

We conduct an analysis of variance in order to determine the variables that have an impact on the performance of the IJV. F
is significant (sig>0.1) for the following variables: cultural attitudes, business practices, communication, trust, persuasion,
joint solving problem, outside mediation, and the domination. Thus, we can conclude that only these variables influence the
performance. The remaining variables which are: feasibility study and negotiation, size similarity, business practices,
communication case, ownership structure and autonomy have no impact on the performance of the IJV. Thus, according to
these results, the hypotheses H2b, H2c, H4, H5, H6 and H8 were supported. The other hypotheses were not supported by this
analysis. For the supported hypotheses, we conduct the analysis of multiple correspondences by ST ATISTICAS (version 5,
1997). We can conclude that performing IJVs tend to have a good communication, a trustful relationship, and to avoid the
domination of any partner. The non-performing IJVs tend to have partners with different cultural attitudes and business
practices, "bad" communication between partners, to avoid outside mediation in conflict resolution, and to resort to the
domination of one side when there is a problem.

DISCUSSIONS

Findings inherent in the factor, feasibility study and negotiation, appear as counter-intuitive. This finding may be explained
by the existence of a direct link with another variable which is the prior relationship. As far as the size similarity is
concerned, we find that this factor has no effect on the performance of the IJV. This is also an unexpected result seeing that
the majority of the authors maintained the contrary. This finding means that cooperation between two dissimilar firms in
terms of size can be fruitful and advantageous for both parties. This is consistent with DamSon and Fai9al (1993) conclusion.
Regarding the similarity of cultures, we find that only the two first factors, which are "cultural attitudes" and "business
practices", influence negatively the IJV performance while the factor, "the case of communication", has no effect on the
performance. This result calls for some discussion. Indeed we can attribute this result to the scale of measure used which is
different from the usual scale used in other studies. It is possible, nevertheless, that this result reflects the reality of the
Tunisian context. But, if we want to put forward an explanation to this finding, we should distinguish between organisational
culture and national culture, because the factor, "case of communication", among partners is a part of the former, while the
other factors are especially influenced by the national culture. The impact of these two factors is found different as also noted
by Meshi and Roger (1994) in an earlier study. Indeed, the authors conclude that the national cultural distance has a greater
impact than organizational cultural distance on social effectiveness in EIJVs in Hungary. The absence of impact ofthe factor
"case of communication" on the IJV performance may also be due to, according to the respondents, the fact that the foreign
partner watches over establishing communication practices similar to those existing in foreign parent firm in such a way that
differences between national and foreign employees become blurred. However, the foreign influence on the national culture
remains very limited because the culture is rooted in the individual's personality. Regarding the result of the relationship
between non- performing IJVs and the dissimilarities in "cultural attitudes" and "business practices", it adds credence to the
conclusions of many researchers (e.g., Barkema et al. 1997; Meschi 1997; Glaister and Buckley 1999), who indicate that
cultural differences have a pernicious effect on the performance if they are mismanaged. We find also that there is no
relationship between the autonomy and the performance of the IJV. This may be due to the measures used for this variable.
Indeed, the items and the manner of treating the data are developed for this study because of the absence, to our knowledge,
of an alternative measure in the previous literature. We cannot, however, deny that this result can represent a specificity of
IJVs in Tunisia. Our finding concerning the communication reinforces the results of all studies indicating that the
performance is favourably impacted by this factor. The finding inherent in ownership structure, as having no influence on
the performance of IJVs in Tunisia is not supported by the literature. This result may be due to the absence of restrictions
from the Tunisian government on the equity stake that must hold the foreign partner. So the sharing might be more rational
since it is based on the contributions of each party. At this point, we can join Zeira, Newberry and Yehskel (1997) who state
that there is not a magic number that ensures the performance, the IJV can be effective even when the distribution is unequal
as long as all sides are satisfied. The result that there is no link between prior relationship and performance is similar to other
findings which state that such relationships are not a good predictor of successful alliance performance (Glaister and Buckley
1999) but they are linked to initial satisfaction and not to longer-term benefits to partners (Saxton 1997). Our finding
referring to the trust provides additional support to the view that this factor is an important element which contributes to
weave the first backdrop of partnership and thus to enhance the performance of IJV. Our findings regarding the conflict
resolution are limited to two relations. We find that the non-performing IJVs tend to avoid the outside mediation and there is
a negative relation between performance and domination.

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 CONCLUSION

Our objective in this paper is to bring out factors affecting the IJV performance. This research is important to define
guidelines which- when respected- may be helpful in preventing the most frequent causes of failure. However, some limits
must be noted concerning the results of the study. The subjective data used to measure the performance is likely to be subject
to halo effects and the measure of the variable culture which needs an in-depth study in future research in order to develop a
measure more adequate to the Tunisian context. Despite these limits, we suggest that this paper provides initial insights about
managing IJV in developing countries whose characteristics are similar to Tunisia. Future researches can consider other
aspects of JV such as the type of contract of the new entity: equity JV or non- equity JV. The empirical test of this study
offers a first attempt to understand the partnership's success and the factors associated with in Tunisia. At a managerial level,
such research provides a manner for managing pro-actively the relationship in order to profit from the cooperation and avoid
costs inherent to its failure.

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