Assessment of IJV Performance

Previous research has produced considerable disagreement in respect of the measurement of IJV performance. A number of researchers (Venkatraman and Ramanujam, 1986; Chowdhury, 1992; Geringer and Hebert, 1991; Parkhe, 1993; Park and Ungson, 1997) point out that no consensus has yet been reached among researchers on an appropriate definition and measure of this. Early studies used a variety of financial indicators such as profitability (Tomlinson, 1970; Artisien and Buckley, 1985; Lecraw, 1984); or growth and cost position (Tomlinson, 1970; Lecraw, 1984; Artisien and Buckley, 1985). Others have used objective measures of performance such as the elementary survival of the IJV (Franko, 1971; Stopford and Wells, 1972; Killing, 1983), its duration (Harrigan, 1986; Kogut, 1988), instability of (significant changes in) its ownership (Franko, 1971; Gomes- Casseres, 1987, 1989; Blodgett, 1991a; Chowdhury, 1992); renegotiation of the IJV

contract (Blodgett, 1991a), failure (Reynold, 1984; Simiar, 1983), and dissolution (Chowdhury, 1992).

However, financial and objective measures have limitations which are potentially critical for the evaluation of IJV performance. True financial data is often not reported for private firms and conglomerates (Dess and Robinson, 1984). IJV parents commonly generate financial returns through mechanisms other than dividends, including supply contracts, management fees, technology licensing fees, royalties and transfer pricing. If available at all, these figures are seldom incorporated in calculations of IJV financial performance (Geringer and Hebert, 1991).

Financial and objective measures may also fail to adequately reflect the extent to which an IJV has achieved its short and long term objectives (Killing, 1983; Artisien and Buckley, 1985). IJVs may be formed to pursue a variety of objectives, from technology transfer and joint research to access to materials, new markets or economies of scale (Porter and Fuller, 1986; Contractor and Lorange, 1988). Many IJVs also operate in contexts where measures of short term financial performance might suggest that the venture is performing poorly and create an inaccurate picture of performance versus objectives (e.g., new technologies of superconductors or bio-engineered pharmaceuticals; or new markets, such as the People’s Republic of China).

Anderson (1990) points out the limitation of using objective measures, such as duration, liquidation, and so forth. If adopting duration or liquidation as a measure, one will implicitly regard all those IJVs which were terminated or liquidated as failures. This conclusion, however, can be challenged, because termination can signal success or change, as well as failure. Sometimes, the intended purpose of the joint ventures is from the outset temporary and short-term in scope (Fayerweather, 1981; Davidson, 1982; Porter, 1990). According to Harrigan (1986: 193), “Joint ventures are a transitional form of management—an intermediate step on the way to something else”. As soon as the IJV’s strategic mission has been successfully achieved (e.g., a successful transfer of technology, or the accomplishment of a specific joint research project), the venture is no longer needed.

In these cases, the dissolution of a joint venture should be recorded as a success rather than a failure.

Killing’s (1983) use of reorganisation of the IJV as a measure of failure is also questionable. Over its lifetime, an IJV is likely to encounter changes in the relative bargaining power of its parents and in its industry which affect its stability. Gray and Yan (1994) argue that these changes may necessitate adaptations in the IJV’s structure, since the adjustment or redefinition of ownership, pay-off patterns, and management personnel may not signify failure, but rather contribute to the stability and continuing success of the venture.

Many researchers (Killing, 1983; Schaan, 1988; Beamish, 1985) use a single perceptual measure of a parent’s satisfaction as the criterion for assessing an IJV’s performance. The main advantage of this kind of measure is its ability to provide information regarding the extent to which the IJV has achieved its overall objectives. Anderson (1990) additionally asserts that, for mature IJVs, performance measurement using traditional financial indicators (e.g., profitability or cash flow) may be appropriate. However, other methods for assessing the performance of less mature IJVs, which may not generate positive financial outcomes in their early years, are also needed. Hence, during the early period of operation, it is necessary to rely on subjective measurement of an IJV’s successful or unsuccessful performance. This is particularly applicable to developing country joint ventures. IJVs formed in these countries may not be able to generate financial profits for a long time because of the difficulty of cross-cultural management and related factors (Anderson, 1990). However, subjective measures are exposed to serious limitations and biases. Many research methods, such as those based on archival or other secondary data sources, do not permit collection of data of this kind, instead requiring the use of objective performance measures (Geringer and Herbert, 1991).

The next approach is a composite measure, adopted by many IJV researchers (Lecraw, 1984; Osland, 1994; Yan and Gray, 1994; Artisien and Buckley, 1985; Hu and Chen, 1996; Luo, 1997; Lin and Germain, 1998; Glaister and Buckley, 1998; Lasserre, 1999; Liu et

Gray, 2001; Luo, 2002; Pothukuchi et al., 2002). Such measures combine objective and perceptual variables. They are customarily based on judgements where respondents are asked to self-rate performance and give their views on various aspects. For instance, in assessing IJV performance, Sim and Ali (1998) rely on their respondents’ assessment of the satisfaction of the parent firms with the degree to which numerous IJV goals have been achieved: sales growth, market share, profits and dividends, local and foreign market development, training and acquisition of marketing, manufacturing and other skills.

Because of the limitations of each individual method, this study has adopted an eclectic approach to measuring IJV performance in the context of Thailand as an ASEAN member country. This includes:

1) objective measurement (assessment of stability, duration, and survival);

2) subjective measurement (a single perceptual assessment of the degree of satisfaction); and

3) composite measurement (multi-perceptual assessment).