Determinants of duration in marketing versus manufacturing international joint ventures

Shilpa Lele-Pingle, Purdue University

Abstract

International expansion is no longer driven solely by a desire to access cheap labor to produce goods for export; the new view focuses on market access and the building of consumption networks in fast growing countries through partnerships. The objective of this study is to examine the role marketing plays as firms expand globally. In particular, we focus on joint venture relationships between U.S. and non-U.S. partners—how they evolve over time, which ones terminate, and for those that do terminate whether they are acquired or disbanded. Previous studies have often sought explanations for termination at the venture industry or host country level without addressing the critical aspect of the motivations of the firms involved. Our conceptual model suggests that the reason a firm enters into a joint venture has a bearing on how long the venture survives, and whether it is acquired or disbanded. We also test for the effect of international factors such as cultural distance and political risk on termination. We develop a multi-state duration model to test our hypotheses. The empirical application examines international joint venture activities over the period 1985–1995. Data from two industries are used to seek convergent validity for our hypotheses. We find that marketing joint ventures are more likely to be acquired and manufacturing joint ventures to be disbanded. Political risk in, and cultural distance from, the host country decrease the probability of termination. An equal equity distribution and greater number of partners aid stability of the venture. Also, a firm with prior international joint ventures is more likely to acquire its marketing joint venture. This study has important implications for managers seeking to expand their international activities and wanting to predict the outcome of their choices. Managers can relate their venture motivations to probable outcomes and instigate changes over time to achieve their immediate and longer-term objectives. Contributions to research include consideration of different termination modes from the point of view of the firm, relating formation motives to termination modes, incorporation of time-varying variables, and possible stimulation of future research into evolution and adaptation of other marketing alliances.

Degree

Ph.D.

Advisors

Bowman, Purdue University.

Subject Area

Marketing|Management

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