Factors Influencing International Joint Ventures’ Performance An Investigation into the Telecommunication Industry in Laos

DECLARATION

I hereby declare that this dissertation is my own work and effort. The
dissertation has not been submitted anywhere for any award. All the sources
of information used have been well acknowledged.

Date:

Signature

Thansamay KOMMASITH


ACKNOWLEDGMENT

I would like to express my sincere appreciation to all the people who helped
me during my doctoral research course.
First of all, I am forever indebted to my supervisor Associate Professor Dr.
NGUYEN THI TUYET MAI (National Economics University – Vietnam) with her
fantastic personality and unbelievably supportive approach, and my colleagues.
Without their guidance and continuous support this dissertation could not have been
completed. I have learned a great many insights from all of them during the
dissertation project. They really helped me as a team, and I also consider them not
only as my teachers, but also as my friends. Thank you!
I am also grateful to my office in encouraging me to achieve higher
education at National Economics University, Vietnam. Besides, my dissertation will
not be completed without the honestly help of interview team and interviewees from
International telecommunication ventures in Laos. I greatly appreciate the help and
the time these people have spent on me.
Last but not least, I would not have been able to pursue my studies without
the help of my family: thanks to my parents, my brother, my wife, and my children

who have been giving me the endless love with supports and strength.


i

Table of Contents
Acronyms ............................................................................................................................ iii
Table of Figures ................................................................................................................... v
List of Tables ....................................................................................................................... vi
CHAPTER 1: INTRODUCTION ....................................................................................... 1
1.1

Research Motivation ................................................................................................... 1
1.1.1

International Joint Ventures (IJVs) in Telecommunication industry in Laos ...1

1.1.2

Factors influencing IJVs’ Performance in Telecommunication Industry in Laos
.............................................................................................................................................................4

Theoretical Background ............................................................................................. 7
Research Methodology................................................................................................ 7
Contribution of the Study........................................................................................... 8
Organization of the Study ........................................................................................ 10
CHAPTER 2: LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK ................. 12
2.1 Literature review on International Joint Ventures’ Performance....................................... 12

1.2

1.3
1.4
1.5

2.1.1 Survival and Longevity .................................................................................................................. 14
2.1.2 Financial Output Measures.......................................................................................................... 15
2.1.3 Overall Satisfaction ........................................................................................................................ 16
2.1.4 Goal Achievement ............................................................................................................................ 17
2.1.5 Learning .............................................................................................................................................. 18
2.2 Literature Review on Factors Influencing IJVs’ Performance .......................................... 19
2.2.1 Control of the IJV ........................................................................................................................... 21
2.2.2 Trust ..................................................................................................................................................... 22
2.2.3 Cooperation and Commitment ................................................................................................... 24
2.2.4 National Culture and Corporate Culture Differences ...................................................... 26
2.2.5 Goal Compatibility ......................................................................................................................... 30
2.3 Conceptual Framework ..................................................................................................... 31
CHAPTER 3: RESEARCH METHODOLOGY .............................................................. 34
3.1 An overview of Research Approach and Research Design ............................................... 34
3.2 Case Study Method ............................................................................................................ 36
3.2.1 Secondary Research........................................................................................................................ 37


ii

3.2.2 Primary Research ............................................................................................................................ 37
CHAPTER 4: RESEARCH FINDINGS ......................................................................... 47
4.1 The Current Status of IJVs’ Performance in the Telecommunication Industry in Laos .... 47
4.1.1 The Telecommunication Industryin Laos ................................................................................ 47
4.1.2 Performance of the IJVs in the Telecoms Industry in Laos .............................................. 65
4.2 Factors Influencing IJVs’ Performance in the Telecommunication Industry in Laos ....... 73

4.2.1. Identification of Factors Influencing IJVs’Performance.................................................. 73
4.2.2 The Impact of Several Factors on IJVs’ Performance - Regression Findings from
Individuals’Perception ............................................................................................................ 86
CHAPTER 5: CONCLUSIONS AND DISCUSION ....................................................... 96
5.1 Conclusions ........................................................................................................................ 96
5.2 Discussion .......................................................................................................................... 97
5.2.1 Research Implications .................................................................................................................... 98
5.2.2 Limitations and Future Research Directions ...................................................................... 103
REFERENCES ................................................................................................................. 106
APPENDICES ................................................................................................................ 121
Appendix 1: Information about all key service providers in telecom industry in Laos122
Appendix 2: GUIDELINE FOR IN-DEPTH INTERVIEWS ........................................... 124
Appendix 3: QUESTIONAIRE ...................................................................................... 125


iii

Acronyms
ADSL

Asymmetric Digital Subscriber Line

ADB

Asia Development Bank

ASEAN

Association of South East Asian Nations

ARPU

Average Revenue Per User

BMI

Business Monitor Investment

BTA

Bilateral Trade Agreement

BTS

Base Transceiver Station

CDMA

Code Division Multiple Access

EDGE

Enhanced Data Rates for GSM

ETL

Enterprise of Telecommunication Laos

FDI

Foreign Direct Investment

GDP

Gross Domestic Product

GMS

Greater Mekong sub-region

GPRS

General Packet Radio Service (GSM)

GSM

Global System for Mobile Communications

GOL

Government of Laos

ICT

Information and Communication Technologies

IJVs

International Joint Ventures

ISPs

Internet Services Providers

ITU

International Telecommunications Union

Lao PDR

Lao People’s Democratic Republic

LANIC

Lao National Internet Committee

LAK

Laotian Kip

LTE

Long term Evolution


iv

LTC

Lao Telecommunication Corporation Limited

MCTPC

Ministry of Communication Transport Post and Construction

MDGs

Millennium Development Goals

MNEs

Multiple National Enterprises

MIC

Ministry of Information and Culture

MPT

Ministry of Post and Telecommunications

NAPT

National Authority on Post and Telecommunications

PCs

Personal Computers

PM

Decree Prime Minister Decree

PSTN

Public Switched Telephone Network

ROI

Return on investment

ROE

Return on equity

ROA

Return on assets

SIM

Subscriber Identification Module

SMS

Short Message Service

STL

Star Telecom

USAID

United States Agency for International Development

VoIP

Voice over Internet Protocol

WLL

Wireless Local Loop

WiMAX

An air interface standard for fixed broadband wireless access
(BWA) systems employing a point-to-multipoint architecture


v

Table of Figures
Figure 1: A Conceptual Model for Studying Factors influencing International Joint
Ventures’ Performance ................................................................................................................. 33
Figure 2. Research Design............................................................................................................ 35
Figure 3: Secondary Data and their sources ........................................................................... 38
Figure 4: Laos Mobile Sector 2010 – 2017 ............................................................................ 50
Figure 5: Laos Mobile ARPU 2010 – 2017 ........................................................................... 52
Figure 6: Laos Fixed-Line Sector 2010 – 2017 .................................................................... 56
Figure 7: Laos Broadband sector 2010 – 2017 ..................................................................... 59

Figure 8: Laos internet Market growth 2003 – 2011 .......................................................... 61
Figure 9: Laos Broadband Market growth 2005 – 2011 .................................................... 62


vi

List of Tables
Table 1: Interview summary ........................................................................................................ 41
Table 2: Demographic Profile of Respondents ..................................................................... 44
Table 3: Telecoms sector in Laos – Historical Data and Forecasts ............................... 49
Table 4: Key players in Laos’ telecoms sector ..................................................................... 66
Table 5: Perception of performance of LTC (N = 31) ........................................................ 67
Table 6: Perception of performance of Unitel (N = 26) ..................................................... 69
Table 7: Financial performance of Tigo/Beeline in the period 2010-2013 ......... 71
Table 8: Perception of performance of Beeline (N = 30) .................................................. 72
Table 9: Perception of performance of the 3 IJVs (N = 87) ............................................. 73
Table 10: Perception of control mechanism at the 3 IJVs (N = 87) .............................. 75
Table 11: Perception of Trust at the 3 IJVs (N = 87) .......................................................... 78
Table 12: Perception of cooperation and commitment at the 3 IJVs (N = 87) .......... 79
Table 13: Perception of goal compatibility at the 3 IJVs (N = 87) ................................ 82
Table 14: Perception of cultural differences at the 3 IJVs (N = 87) .............................. 85
Table 15: Summary of descriptive statistics of 3 IJVs and ANOVA results………86
Table 16: Performance measures and factor loading results (N = 87) .......................... 88
Table 17: IDVs’ measures and factor loading results (N = 87) ....................................... 90
Table 18: Descriptive Statistics and Correlations (N = 87) ........................................... 922
Table 19: Regression results (N = 87) DV: Financial Performance .............................. 93
Table 20: Regression results (N = 87) DV: Overall Satisfaction.................................... 93
Table 21: Regression results (N = 87) DV: Goal Achievement ...................................... 94
Table 22: Regression results (N = 87) DV: Learnings ....................................................... 95

1

CHAPTER 1: INTRODUCTION
1.1

Research Motivation

1.1.1 International Joint Ventures (IJVs) in Telecommunication
industry in Laos
Lao People Democratic Republic (Lao PDR) is located in the central part
of the Indochina peninsula. The country covers about 236,800 KM2 and has a
population of just over 6.5 million (2012 census). Lao PDR shares borders with 5
countries: Vietnam to the East, China to the North, Union of Myanmar to the
Northwest, Thailand to the West, and Cambodia to the South. Since 1986 when
the new Economic mechanism was adopted, the government of Lao People’s
Democratic Republic (Lao P.D.R) has been promoting social and economic
development under the policy of a market oriented economic. During 2001-2005,
Lao PDR had an average annual GDP growth rate of 6.2 percent, and it has
increased to 8.1% in 2012.During 2006 – 2008 he average GDP per capita was
approximately USD 700, and in 2011 it grew to over USD 1,300 (World Bank
2012). The service sector contributed to 26 percent of Laos’ GDP. In 2008, the
telecommunications sector accounted for approximately 1.6 percent of the total
GDP and is considered one of the fastest growing sectors in Laos. For example,
since 2000, competition in the telecommunications boosted investment in the
sector dramatically. Investment per year jumped from USD 19 million in 2000 to
USD 154.9 million in 2008 (USAID, 2009)
Telecommunication technology plays a significant role for the flow of
information. It is an extremely useful tool to spread knowledge and new ideas,
which can reduce infrastructure development gap between people in rural and

urban area. Furthermore, it can improve education, health care services, and
encourage business activities. In addition, it also plays the crucial role to the
national economic development, especially to the developing country like Laos.
Therefore, telecommunication technology development is one way that Lao
government uses to generate revenue and create job opportunity for people. In
addition, Lao government aims to improve people living standard and increase


2

the ability to compete in global trade of Lao business by giving priority to the
development of telecommunication technology with the intention to promote
sustainable development of the nation.
In line with the new Economic mechanism, the Telecommunication sector
in Laos was privatized at the year 1996 as a joint venture with a Thai investor
(Shinawana International Public Company Limited). However, this telecom
privatization policy has been revised due to the importance of a national
telecommunication development strategy which is able to resolve keen issues
such as digital divide among regions and the frequent telephonic traffic
congestion caused by a deficiency in the nation-wide telecommunication
facilities (eg. switching and telephone line capacity and human resources)
(MCTPC, 1982; MCTPC, 1990 &1995; MCTPC, 1990 – 2007).
Besides, Lao P.D.R has a responsible position for promoting telecom
development programs planned for the Greater Mekong sub-region (GMS). This
development concept of GMS proposed by Asia Development Bank (ADB) and
is applied to an area or regional development approach to GMS, promoting
networks among the six Mekong riparian countries, including supporting
activities for a common standard of telecom services availability which is
increasing in Laos. Telecommunication increased steadily from 2007 to 2011
(MCTPC, 2007 – 2011).

There are some communication policy studies undertaken by scholars and
media and political organization, but research on International Joint Ventures
(IJVs) in Telecommunication industry in Laos has been limited. Especially, it
seems that very modest attention has been given to investigateIJVs’ performance
and factors influencing it in the industry in Laos. Thus, these issues will be the
focus of this research.
Regarding telecommunication service policies in Laos, National Authority
of Posts and Telecommunication (NAPT) was established on 22nd October 2007
by the PM Decree No: 375/PM. NAPT is an organization under the Prime
Minister office, dealing with policy, strategy and its implementation and


3

administrative issues on Posts and Telecommunication sector and the
Information and CommunicationTechnologies (ICT) in Laos. NAPT is
responsible for both the policy making and regulatory function for
Telecommunication and ICT sectors. On 15th June 2011, NAPT has been
upgraded to Ministry of Posts and Telecommunications (MPT) (MCTPC, 1990 –
2007; MCTPC, 2011). Moreover, Telecommunication Act was passed and
entered into force in 2011. Telecom sector policy 2004 of Laos government has
stake in all the operators. Based on ASEAN framework agreement on science,
for value addedservicesthe new entry can only take place into Laos through a
joint venture with Lao’s service provider or acquisition of existing operators.
Under BTA with America, Laos has made commitments to provide unrestricted
market access and full national treatment for the whole range of basic fixed and
mobile (on the facilities basic or by resale, through any mean of technology, as
value-added telecommunication service) (MCTPC, 2004).
Related to telecommunication providers in Lao P.D.R, there are five
authorized enterprises which are providing fixed and mobile telecommunication

services in Laos. All these providers have the government ownerships, including:
Lao Telecommunication Corporation Limited (LTC) with Government of Laos
(GOL) and Shinawatra (Thailand) share 51% and 49% of possession
respectively; Enterprise of Telecommunication Laos (ETL) with GOL 100% but
currently become to ETL public; Star Telecom (STL): GOL 51% and Viettel
Global 49% (now has been renamed to Unitel); Milliom international cellular SA
(now has been transferred to Vimpelcom Russia (Beeline): GOL 22% and
Vimpelcom 78%; and SKY communication Laos (SKY) withGOL 100% (since
2010). (before 2010 – foreign private owner)
The number of internet service providers (ISPs) has grown from two in
1990s to about seven after nearly 15 years. They are ETL internet, Lao telecom
Planet online, Lane Xang internet, Sky telecom KPL and Mill com. The entry of
Milliom and Sky, the large shareholding by Shincorp, the operation of Planet and
prevalence of Voice Over Internet Protocol (VOIP) operators show that private


4

investors are willing to invest in Laos even under the current policies and
regulatory regime. However, such investors are still primarily focus on central of
Vientiane and major urban center. Therefore, adjustments are necessary to be
added to current policies and regulatory framework in order to further develop
the telecom sector through these strong private investors (MPT, 2011).
1.1.2 Factors influencing IJVs’ Performance in Telecommunication
Industry in Laos
Many scholars and practitioners have conducted research about what
factors affecting the performance of IJVs. However, their research has mainly
conducted in the context ofthe developed countries (Ren et al., 2009). Many
previous studies (e.g., Hoang & Rothaermel, 2005; Isobe, Makino, &
Montgomery, 2000; Luo, 2001; and Tong et al., 2008) have examined IJVs

performance, which enhanced human beings’ knowledge about this attractive
topic. However, the conceptualization of IJV performance and factors
influencing it remains an often-debated issue in IJV research (Reus & Ritchie,
2004).
In recent years, more researchattention hasbeen given to studyIJVs
performance and factors influencing IJVs performance in the context of
developing countries (e.g. Phan & Ngo, 2009; Phan et al., 2006; Cao, 2012) but
it seems that very modest research attention has been given to investigate the
impact of these factors in the context of Laos, especially no study has examined
the issue in the Telecommunication industry in Laos. In other words, this
attractive topic has not been investigated adequately in the context of Laos,
especially in the telecommunication sector.
The telecommunication technology in Lao PDR is at the infant stage in
terms of development in comparison with other countries in the ASEAN region.
It is due to the low percentage of consumption and the limited use of only in big
cities. The main cause of low consumption may be due to the population lack of
purchasing power and awareness of the important of telecommunication


5

technology. In addition, Laos is inadequate in telecommunication technology
experts. There are only few schools in the country offering courses concerning
ICT. Moreover, they still have not met international standard yet. However,
nowadays telecommunication technologies in Laos are changing very fast. So, all
telecommunication service providers need to pay great attention to keep an eye
to the latest technologies.
In order to survive in the market that has very high degree of competition
especially, competition on the price, new technology, and quality services, many
communication companies are rushing to find out new things to offer to the

market for their customers. In the recent years, the price of SIM card has been
dumping down gradually in order to help companies to gain more market share.
In contrast the quality of the service has been increased annually. Every
company tries to improve its signal and expand its network system as much as
possible. Moreover, there are more functions in mobile phone such as download
ring tone, logos, Short Message Service (SMS), and voice massages.
International callscan be conducted through using phone cardsor the internet
service with very cheap rate comparing to common ways of phone calls. The
price charge for the internet service is also considerably cheaper as there are
more and more ISPsentering into the industry such as LaoTel, LaneXang Internet
and many Internet companies, which has official ISP licenses from The MPT
(APT Regional Forum for ICT Experts in south-East Asia Jakarta, 4-5 February
2004) (BMI, 2012).
The telecoms industry in Laos is receptive to foreign investment. With the
exception of the Enterprise of Telecommunications Lao, the remaining three
mobile operators are supported by foreign companies with telecoms knowledge.
However, according to BMI’s Risk Reward table, Laos is not as attractive as its
regional peers and a significant part of its low score to be attributed to its low
country risk score of 40.5.
Laos' long-term political outlook depends heavily on how well the country
balances between the need to spur economic growth to achieve its millennium


6

development goals and the need to address corruption in the country. Heavy
reliance on foreign aid and development assistance also means that the country's
policies will remain susceptible to the political and economic interests of its
much more powerful neighbours.
Addressing corruption is expected to remain top of the government's

agenda over the coming years. The Lao PDR's decision to devote most of its
attention and resources to achieving its Millennium Development Goals
(MDGs).
For facilitating the sustainable development and ensure the success of
IJVs in the important fields like the telecommunication industry in Laos, it is
very essential to have better understanding of the current status of the IJVs’
performance and investigate the determinants of the IJVs’ success or failure.
While focusing on the main objective of investigating the impact of
several factors on performance of the IJVs in telecommunication industry in
Laos, this study aims to answer the following questions:
1.

What is the overall picture of business performance of IJVs in

Lao’s telecommunication industry regarding different aspects of performance
based on the theoretical framework?
2.

What are the key factors influencing the performance of the IJVs in

the telecommunication industry in Laos and what are the impacts of these factors
on the IJVs’ performance?

In terms of the research scope, the data collected for this study mainly
from the three IJVs in the telecommunication industry in Laos. In terms of
timing, the collected data mainly cover recent three years (from 2010 to date).
The analyses focus on several aspects of IJV’s performance and the factors
influencing it. The primary data mainly focus on the perspective from Lao’s
partners in the IJVs.

7

1.2

Theoretical Background

This study employs the theoretical background regarding IJVs
performance and factors influencing their performance (e.g., Cao, 2012, Ren et
al., 2009, Bener & Glaister, 2010). On the basis of literature review, performance
of IJVs has been assessed through some measurement variables, such as:
survival, financial output, overall satisfaction, achievement of individual or joint
goals, and learning (Dhanaraj & Beamish, 2004; Gaur & Lu, 2007; Lu & Xu,
2006; Meschi & Riccio, 2008; Ren et al., 2009; and Steensma & Lyles, 2000).
In addition, many previous studies have identified that IJVs performance
has been influenced by many factors, including internal and external ones. These
factors include control of parent firms, trust, autonomy, national culture
differences, corporate culture differences (Bener & Glaister, 2010; cf., Ren et al.,
2009), commitment, bargaining power, justice, conflict, effectiveness of conflict
resolution, cooperation, and goal compatibility (cf., Ren et al., 2009).
1.3

Research Methodology

In this study, both secondary data and primary data were collected to
develop the three case studies in order to reflect IJVs’ performance and the
factors influencing their performance during the time of the research.
As this study mainly aims to analyze factors influencing FDI companies’
performance in the selected cases, multiple data collection methods were used to
increase credibility and validity. In this study, both secondary data and primary

data are useful to answer the research questions.
To serve the purpose of case study investigation, both qualitative and
quantitative data were collected. For each case study, the author first collected
qualitative data, and then collected qualitative data. The main purpose of
collecting qualitative data is to explore and discover the relevant concepts and
the interested relationships among them in the new context of Laos’
telecommunication industry. Specifically, the concepts of IJV’s performance and


8

its dimensions and the factors influencing IJVs’ performance were explored. The
relationships between the factors and the IJVs’ performance were also examined.
The survey data were collected to provide empirical findings regarding the
current status of the IJVs’ performance in the telecom industry in Laos and
empirical evidence on the impact of some factors influencing the IJVs’
performance.
Specific data collection methods used in this study include desk research
(for collecting secondary data), observation, interviews (both face-to-face and by
telephone), and survey (for collecting primary data).
1.4

Contribution of the Study

Theoretical contribution: As the global proliferation of IJVs continues
and the economic health of firms and societies becomes ever more dependent
upon the performance of these inter-organizational collaborations, the
importance of improving the less than stellar performance rates of IJVs becomes
accentuated. It is obvious that better understanding of factors influencing IJVs
performance is a means to improve these rates. Therefore. much more research

attentionshould be put forth theory on and empirically examined such factors.
The past research have rarely addressed the issue in the context of developing
countries, especially in Laos. Therefore, the answers for the research questions
raised in this dissertation have implications for the advancement of organization
theory, strategic management, and enrich international business knowledge.
The findings of this study also help to enrich the knowledge about IJVs by
investigating simultaneously the key dimensions of IJV performance.
Specifically, all five performance dimensions were examined in the context of
the telecommunication industry in Laos, including Survival and Longevity of the
IJV, Financial Performance/financial output measures, Overall Satisfaction,
IJV’s Goal Achievement, and Learning.
This study also explored the main factors influencing IJV performance
and empirically tested the impact of these factors in four regression models. In


9

addition, with the case study method used in this study, multiple data sources
were employed. This method was useful and necessary to obtain better
understanding of the research issues.
This dissertation also has the potential to benefit executives, managers,
their firms, and policymakers. If cooperation is to become part of the strategic
repertoire of organizations and not just an operational convenience, then
executives, strategists and policymakers must understand the key factors
influencing IJV performance in telecommunication industry in Laos.
Specifically, by illuminating the host country legal environment, relationships
between the local partners and foreign partners, and other factors that could
affect IJV performance, this dissertation has the potential to provide insight that
may benefit:
For Corporate executives and managers: by providing them with

knowledge and insight that would improve their strategic partnering decisions,
and in turn the IJV and firm performance. Executives who better understand the
dynamic roles played by institutional factors in partner selection, and the impact
these factors have on IJV performance, would be better able to take advantage of
the various opportunities that exist in the global arena.
For IJVs: By providing knowledge that may serve to enhance their
performance. To adapt and perform effectively in a host country, firms must
comprehend and appreciate those factors that affect their partner selection
decision and venture’s performance. For foreign partners, especially who are
multiple national enterprises (MNEs), an understanding of how the host
country’s legal environment influences top management’s concerns, its
behaviors and IJV performance is central to decisions on entry and expansion.
Such an understanding would certainly enable foreign partners to improve their
partnering success rate, and in turn to enhance firm performance.
For Policymakers and trade organizations: By providing them with an
understanding of international partnering policy makers may enable the
construction of appropriate laws and regulations that better serve international


10

inter-firm collaboration. A better understanding of how the host country legal
environment

affects

cross-national

partnering

activities

would

assist

governmental entities in anticipating the probable impact of alternative policy
options available to them. Such anticipation may lead to the establishment of
policies that facilitate free and open trade and investment. In particular, such
insight may promote the importance of transparency, stability and cooperation
which would enable sustainable growth, equitable development and national
stability.
For Scholars and researchers: By providing the review of IJVs
performance and the main factors influencing them in one of the developing
countries like Laos, this dissertation could motivate future similar research in the
context of other developing nations, especially in Asian area. If researchers have
the reference case study about one of typical nation in Asia, they could build up
suitable analysis which help foreign companies make right decisions before
investing in this area.
1.5

Organization of the Study

The organization of this dissertation is based upon the objectives that it
sets out to serve, and includes five chapters. The first chapter is brief
introductory chapter which is followed by Chapter 2 where readers can find the
reviews of literature related to IJVs performance and the factors affecting it.
Chapter 2 also provides the conceptual framework which is used to explore the
impact of several facfors on Laos’ IJV performance in the telecommunication
sector. The next chapter (Chapter 3) presents the research methodology which

refers to the research approach, research design and specific methods used to
collect data and analyze them in order to investigate the three cases, IJVs in Laos
telecommunication industry. Chapter 4 reports the main research findings in the
context of Laos IJVs in the telecommunication industry. The final chapter
(Chapter 5) concludes the dissertation by providing a summary of the findings
and a discussion of the research implications, an outline of the study’s


11

limitations, and a roadmap for future research directions.


12

CHAPTER 2: LITERATURE REVIEW AND CONCEPTUAL
FRAMEWORK
This chapter reviews the literature on IJVs’ performance and the factors
influencing it. In the first section of the chapter, the literature on IJVs’
performance is reviewed. Specifically, the detailed reviews of five common
measures of IJV performance were provided. In the second section, the author
reviews the key factors that are proposed to have significant impact on IJV
performance. Finally, the proposed conceptual framework is presented.

2.1 Literature Review on International Joint Ventures’ Performance
The topic on international joint venture and its performance has attracted
much research interest from many scholars and practitioners. There have been
numerous research examining IJVs since the first critique of the literature on
international joint ventures (IJVs)of Yan and Zeng (1999). These studies have
greatly enhanced our understanding of IJV operations (e.g., Cao, 2012; Hoang &

Rothaermel, 2005; Isobe, Makino, & Montgomery, 2000; Luo, 2001; Tong,
Reuer, & Peng, 2008).
Many researchers define IJVs as jointly owned organizational entities by
two or more legally distinct organizations, in which the headquarters of at least
one is located outside the country of operation of the entity, following Shenkar
and Zeira (1992). Based on this definition, their view is specifically limited to
equity IJVs. In addition, they primarily focus on those studies that directly and
empirically examined IJV performance, and some studies did not cover those
ones whose dependent variable is not performance (e.g., IJV formation,
employee commitment, employee turnover). Cao (2012, p. 72) noted that
although the term IJV has many different meanings, the most common definition
of IJV is “a separately legal business venture that involves two or more entities


13

with differentnationalities working together to achieve mutually agreed on
business objectives” (Fogler & Reichert, 2002).
Despite extensive past research, the conceptualization of IJV performance
and its determinants remains an often-debated issue in IJV research (Reus &
Ritchie, 2004). IJV performance has been known as broad constructs with
different dimensions such as survival, financial outputs (e.g., return on
investment/ROI, return on equity/ROE, return on asset/ROA, and market share),
overall satisfaction, achievement of individual or joint goals, and learning.
However, there has been considerable disagreement about the validity and
reliability of these performance measures (Krishnan, Martin, & Noorderhaven,
2006).
In addition, even if researchers could agree on how to conceptualize and
measure IJV performance, it is still difficult for them to be consentaneous about
what drives performance. Few researchers use the same constructs to investigate

IJV performance. Numerous but conflicting models have proliferated (e.g.,
Dhanaraj & Beamish, 2004; Gong, Shenkar, Luo, & Nyaw, 2005; Lu & Xu,
2006; Luo, 2002a, 2002b; Steensma & Lyles, 2000; Yan & Gray, 2001b; and
Zeng & Chen, 2003).
Ren et al. (2009) reviewedmany previousstudies on IJV performance
published in 12 reputable journals in the field of management and international
business. The journals selected are a subset of those reported in DuBois and
Reeb’s (2000) list of the top 30 international business journals and Pisani’s list of
20 influential management journals. Their review suggested five common IJV
performance measures that have been employed in the literature, including
Survival, Financial Output Measures, Overall Satisfaction, IJV’s goal
achievement, and Learning. The five main measures of IJVs performance are
presented in more details in the following.


14

2.1.1 Survival and Longevity
It is noted that IJV’s performance reflects how partners of the IJV have
been effectively working together (Nguyen, 2011). The number of years working
together, therefore, should be an important signal of IJVs’ performance. In
literature, many previous studies have used Survival or Longevity as one
indicator of IJV performance (e.g., Dhanaraj & Beamish, 2004; Gaur & Lu,
2007; Lu & Xu, 2006; Meschi & Riccio, 2008; Steensma & Lyles, 2000). The
reason for using this indicator of IJV performance is that the longer the IJV
survives, the more successful it is.An IJV is expected to be sustainable only as
long as it represents the most efficient organization mode. In other words,long
time of survival is a sign of IJV success and termination is a sign of IJV failure
(cf., Ren et al., 2009).
The above argument, however, may not betrue in all cases. Rent et al.

(2009) argued that relying on only the information of IJV age, it is impossible to
conclude that the 10-year IJV has a better performance than the 5-year IJV (see
Lyles & Baird, 1994 also). The information of an IJV’s longevity although may
beuseful information regarding the IJV’s performance this information could
provide an insufficient basis for comparing its performance with other IJVs.
On the other hand, it is also argued that using termination of the IJV as a
measure of its failure may cope with some problems when concluding that all
terminated IJVs are unsuccessful. In practice, there are various reasons leading to
an IJV’stermination. Even, an IJV termination may actually signal its success
because IJVs may be terminated once participants have successfully
accomplished their initial objectives (Gomes-Casseres, 1987; Kumar, 2005; cf.,
Ren et al., 2009). Therefore, in some cases, employingLongevity as a sign of
failure would be inappropriate (Yan & Zeng, 1999).
In order to respond to the above potential of performance measure
limitations when using Survival and Longevity as an indicator of IJV


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performance, previous studies have shown effort to enhance the validity of this
measure in different ways. For example, this measure of Survival and Longevity
can be used together with other measures such as sales growth (e.g., Lu & Xu,
2006), or investigate the motivation underlysing an IJV’s termination to see
whether it was intended or unintended termination (Makino, et al.,2007; Reuer &
Tong, 2005). If the reasons for termination is found out that is for growth and
expansion opportunity, such termination can be considered as a success (Kumar,
2005; cf., Ren et al., 2009 as well).
In this study, Survival or Longevity are used together with other measures
to evaluate the IJVs’performance.

2.1.2 Financial Output Measures
Among many indicators of IJVs’ performance, in the literature the
researchers’ interest in employing financial output measures such as profitability
measures (e.g., ROI, ROA) and market performance measures (e.g., market
share) have been increasing (e.g., Lu & Xu, 2006; Luo, 2002a, 2002b, 2005,
2007a, 2008; Robins et al., 2002; Zhang et al., 2007; see Ren et al. as well).
In the context of Vietnam, a developing country in Asia, IJV outcomes
including financial ones are also considered to be useful to determine the success
or failure of an IJV (Cao, 2012). According to Cao (2012), when an IJV is
operating well, its overall performance is assessed by IJV outcomes. The most
notable outcome measurements are considered to include profitability, growth,
and market share (Kauser & Shaw, 2004). These financial measurements can
help quantify IJV performance. However, these measures have received criticim
due to the unavailablility of the data and because in many cases it is very difficult
to access this kind of information from the interested organizations.
Inspite of the problems associated with the financial output measures,


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these objective measures of performance are still desirable (e.g., Luo, 2002a,
2002b, 2007a). Moreover, it is preferable when financial measures can be used
together with subjective measures and it can help to validate the subjective
performance measures. In literature, high correlation between subjective (e,g.,
satisfaction with IJV performance) and objective performance measures (e.g.,
return on assets and return on sales) has been consistently found (e.g., Choi &
Beamish, 2004; Isobe et al., 2000). Therefore, many previous studies have
simultaneously employed both subjective and objective measures (e.g., Dhanaraj,
Lyles, Steensma, & Tihanyi, 2004; Luo, 2001). Such integration can increase the
measurement validity and makes the research results more robust. In this study,

the author decided to employ both objective and subjective measures of IJV
performance.
2.1.3 Overall Satisfaction
Many previous studies have used managers’ subjective evaluations of the
IJV’s overall performance (e.g., Boateng & Glaigster, 2002; Cao, 2012;
Demirbag & Mirza, 2000; Kwon, 2008; Li & Hambrick, 2005; Luo & Park,
2004; Nakos & Brouthers, 2008; Yeheskel, Zeira, Shenkar, & Newburry, 2001).
In this line, the IJVs’ performance has been measured based on the perception of
how partners and the parent firm are satisfied with the IJV’s performance and
how they are satisfied with the co-operation and partnership in the IJV.
Although overall satisfactionhas been a commonly used performance
measure for IJVs, several limitations associated with this measure are noted as
follows.
• According to Cao (2012), the levels of satisfaction on the part of all
participating firms may be quite individualized because the local partners
may concern more about some issues while the international partners may
not really concern about these issues.


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• In terms of sampling issues, different respondents in the survey may
perceive satisfaction differently. These sampling differences may affect
the validity of the measure of overall satisfaction (Ren et al., 2009). For
instance, the criteria that a local partner uses to judge satisfaction may be
different from those criteria used by a foreign partner. Similarly, the
criteria used by the IJV’s partners may be different from those used by
the IJV’s parents.
Past research has provided some suggestions to overcome the above
limitations. For instance, to avoide the limitation associated with sampling issues,

researchers can use simultaneously different groups of respondents, including
managers of both partners in the IJV and those in the parents companies (e.g.,
Dhanaraj et al., 2004; Fey & Beamish, 2001; Lane et al., 2001). In addition,
overall satisfaction is a subjective measure. Some previous studies

have

employed also other objective measures of performance such as financial
outcomes (e.g., Cao, 2012).

2.1.4 Goal Achievement
In literature, achievement of individual and/or joint goals of an IJV has
been used as a measure of the IJV performance (e.g., Phan et al., 2006; Lyles &
Salk, 1996). It is noted that IJV’s goal achievement might be among the most
commonly used performance measures (e.g., Fryxell, Dooley, & Vryza, 2002;
Robson, Katsikeas, & Bello, 2008).Compared to other measures such as IJV
survival, financial outcomes, and IJV overall satisfaction, achievement of
individual or joint goals can be measured from each of the partner firm’s
perspectives and also from IJV as a whole’s perspective.
This measure is important because it is assumed that the partners of an IJV
join the IJV to achieve their strategic goals by complementing each other’s