Performance implications of capability exploitation and upgrading in international joint ventures

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Authors: Wu Zhan and Yadong Luo
Date: Apr. 2008
From: Management International Review(Vol. 48, Issue 2)
Publisher: Gabler Verlag
Document Type: Survey
Length: 11,043 words
Lexile Measure: 1590L

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Abstract and Key Results

* This study investigates (l) how capability exploitation and capability upgrading are associated with IJVs' financial and competitive outcomes in an emerging market, and (2) how environmental dynamism (the key construct characterizing an emerging market) and interpartner cooperation (the key construct describing an IJV) moderate the effect of capability exploitation and upgrading on IJV performance.

* Results suggest that IJVs in a foreign emerging market tend to perform better in both financial and competitive terms when they possess greater abilities to exploit current resources contributed by foreign and local partners and to continuously upgrade and develop new capabilities.

* The contribution of capability exploitation and upgrading to IJV performance is stronger when IJVs operate in a more dynamic environment. When interpartner cooperation is superior, capability exploitation plays a bigger role in improving performance.

Key Words

Capability Exploitation * Capability Upgrading * Dynamic Capability * Organizational Learning * International Joint Venture * China

Introduction

In recent years, the rate of IJV (international joint venture) formation' has continued to increase steadily, particularly in emerging markets located in Asia, Eastern Europe and Latin America. These emerging markets account for about seventy percent of all IJV entries by multinational corporations (UNCTAD 2004). However, in spite of the popularity of IJV as a foreign market entry mode and as a strategic means for competing in core markets, many IJVs in these markets have failed in financial and competitive terms. Much research has been conducted to determine the reasons behind the success and failure of these IJVs; and to this end, diverse theoretical perspectives, such as transaction cost economics, agency theory, resource-based view, organizational learning logic, knowledge-based paradigm, and social exchange theory, have been used to explore these underlying reasons and determinants. Among them, resource-based view and knowledge-based view have recently emerged as two major perspectives on IJV. Resource-based view focuses on the issue that IJVs form to create bundle of strategic and social resources that serve as source of competitive advantages and superior performance while knowledge-based view focuses on IJVs as conduit through which firms can obtain tacit organizational knowledge embedded in others. In particular, resource-based and knowledge-based views hold that an IJV's resource acquisition, or its capabilities, is/are critical to IJV success (Inkpen/ Beamish 1997, Lyles/Salk 1996).

Evidently, these perspectives and related empirical efforts have offered rich insights into the importance of resource possession (including interpartner sharing) for IJVs. The paper on knowledge acquisition from foreign parents in IJVs by Lyles and Salk (1996) is recently granted the JIBS decade award. However, one gap still remains: Most previous studies have investigated knowledge or resources transfer/acquisition between partners (i.e., capability acquisition or possession) but have not yet systematically explored the importance of how acquired or shared resources and capabilities are further exploited in IJVs (capability exploitation) and how new resources and capabilities are upgraded and built (capability upgrading). From the dynamic capability perspective, capability exploitation is essential because it converts an IJV's capability possession into its financial and competitive outcomes. Compared to other entry...

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Gale Document Number: GALE|A179533479