AUTONOMY IN UK INTERNATIONAL JOINT VENTURES

by
Keith W. Glaister*
Rumy Husan**
Peter J. Buckley***

 

* Professor of International Strategic Management,
Leeds University Business School,
University of Leeds,
Leeds,
UK.

** Lecturer,
Leeds University Business School,
University of Leeds,
Leeds,
UK.

*** Professor of International Business and Director,
Centre for International Business University of Leeds (CIBUL),
Leeds University Business School,
University of Leeds,
Leeds,
UK.

 

 

Address for correspondence
Prof. Keith W. Glaister
Leeds University Business School
University of Leeds
Leeds
LS2 9JT
United Kingdom

Tel: 0113 233 2633
Fax: 0113 233 2640

e-mail: kwg@lubs.leeds.ac.uk

 

The work in this paper forms part of an ESRC project An Investigation of the Core Dimensions of International Joint Venture Activity with European Partners (R000236676).

 

AUTONOMY IN UK INTERNATIONAL JOINT VENTURES

Abstract

This paper provides evidence on the nature of autonomy in a sample of UK international joint ventures (IJVs) with partner firms from western Europe. The paper explores perception of IJV autonomy among partners and IJV management, and examines issues of strategic and operational autonomy. Findings show that there is a relatively high degree of autonomy, with no significant difference in the perception of autonomy between the partners or between each of the partners and the IJV management. Findings also show that there is a spectrum of autonomy across decision making areas, while IJV managers have a relatively high degree of operational autonomy they have relatively low levels of strategic autonomy in decision making. Further, operational decision making by IJV managers takes place within the context of a set of constraints established by the partners and decided through the board of the IJV. The limits within which the IJV mangers have autonomy are established within the context of the IJV’s business plan.

 

AUTONOMY IN UK INTERNATIONAL JOINT VENTURES INTRODUCTION

International joint ventures (IJVs) have become an increasingly common form of economic organisation (e.g. Gomes-Casseres, 1996; Glaister and Buckley, 1994, Glaister et al, 1998; Hagedoorn, 1996), that stand between the traditional economic co-ordination mechanisms of market and hierarchy. They provide a way of combining the strengths of different companies which is not available in market-oriented exchange relationships but without incurring the disadvantages of a merger or acquisition (Buckley and Casson, 1988; Buchel et al, 1998: 4). From an economic perspective, the existence of co-operative arrangements may be attributed to their superior efficiency when compared with either the market or hierarchy (Williamson, 1991). In practice, however, IJVs pose extremely difficult challenges to management. Co-operating with another company is a demanding and often unfamiliar task, which, inter alia, may be hindered by divergence between parent firms with respect to goals, strategies, culture, autonomy and control. In light of these potential problems it is increasingly recognised that that the real challenge of an IJV lies in its management.

While there are a number of issues regarding definitions of IJVs, an equity based joint venture, which constitutes the focus of this study, is defined as a JV with two or more partners of different nationality (Inkpen and Beamish, 1997: 178). IJVs thus involve two or more legally distinct organisations (the parents), each of which invests in the venture (the child) and actively participates in the decision making activities of the jointly owned entity (Shenkar and Zeira, 1987: 547).

The ‘parent-child relationship’ (Harrigan, 1986) emphasises the extent to which the IJV is dependant upon the partner firms. However, over time, the nature of the relationship between the partners and the IJV may change fundamentally. For instance as IJVs age they may gain more autonomy from the parent firms (Lorange and Roos, 1992). More generally, Harrigan (1986: 72) has argued that the IJV’s need for autonomy correlates positively with the speed with which it must react to environmental changes and the difference between the strategic gaols of the partners and those of the JV. In contrast the IJV’s need for autonomy correlates negatively with exchange of resources. Buchel et al (1998: 101) point out that the more dynamic the environment, the greater the need of the IJV to be able to react flexibly to change, however, it must continue to co-ordinate its actions with those of the partners in order to achieve the agreed objectives. In consequence, a tension exists between the need for autonomy and the need for co-ordination.

The issue of how much autonomy, if any, to grant an IJV has been identified as a major issue faced by both researchers and practitioners (Newburry and Zeira, 1999: 263). Research on IJV autonomy is a relatively neglected area in the examination of IJV activity. The purpose of this paper is to provide new evidence on the nature of autonomy in a sample of UK IJVs with partner firms from western Europe. Based on a multi-method research design utilising data from personal interviews and self-administered questionnaires, the paper explores perception of IJV autonomy among partners and IJV management, and examines issues of strategic and operational autonomy in IJVs. The rest of the paper is set out in the following way: literature relating to IJV autonomy and propositions of the study are discussed in the following section. The research methods are set out in section three. The fourth section presents the results and discussion of the findings. A summary and conclusions are in the final section.

 

LITERATURE REVIEW AND PROPOSITIONS

Once it is founded, the partners must exert control over the IJV, to make sure their goals are realised, while granting it enough autonomy to survive in the market (Harrigan, 1986). For an JV autonomy means the freedom to make and implement decisions independently of the partners. The greater the autonomy of the IJV, the more important it is to ensure that its decisions are made in accordance with the superordinate goal system of the partners. This presupposes goal congruence, which in turn reduces the need for co-ordination. Decisions on autonomy are then based on the costs of co-ordination and those of independence. Important indirect costs also arise from the detrimental effects that inappropriate control can have on the motivation and flexibility of subordinate units. Several contributions to Bleeke and Ernst (1993) warn that over-control by parent companies may inhibit the flexibility that their IJV needs in order to develop within it its own competitive environment. Buchel et al (1998: 98-99) conclude that the optimal level of autonomy is that at which objectives can be met while total costs are kept to a minimum. There is however, no consensus in the literature either for or against the granting of autonomy to IJV managers. (A survey of the arguments for and against autonomy in IJVs has been provided by Newburry and Zeira, 1999: 266-267.)

Drawing on work by Kumar and Seth (1994), Buchel et al (1998: 100) note that the pattern of control and autonomy depends on two variables: strategic interdependence and environmental uncertainty. Usually, the greater the strategic interdependence, i.e. the dependence of two organisations on each other’s inputs and outputs, the more control the partners exert over the IJV. The greater the environmental uncertainty, the higher the level of autonomy needed by the IJV to make independent adjustments to environmental changes.

Low autonomy needs exist when resources are shared and when the IJV makes an important contribution to the value-added chains of the partners. However, too much control by the partners reduces the IJV’s decision making efficiency and can damage its market competitiveness. In contrast, in highly competitive, dynamic industries, the JV needs considerable autonomy: it must be adaptable and flexible enough to hold its own in the market; and it must gain legitimacy as an independent organisation (Buchel et al, 1998: 102). Buchel et al (1988) conclude that the most important factor influencing the degree of control which the partners exercise over the IJV is the need for the JV to interact with the partners.

There in limited empirical evidence on autonomy in UK IJVs with partners from developed countries. In a study of UK IJVs Glaister (1995) found little evidence of IJV autonomy, however, many IJV managements had independent decision-making responsibility in a number of key areas. Glaister concluded that there is nothing particularly contradictory in this finding, rather it is an example of the way in which IJV control tends to be a complex and subtle phenomenon. Newburry and Zeira (1999) using data from 49 IJVs located in Britain found that permitting an IJV to develop local HRM policies and to implement business plans independently contribute to IJV effectiveness. They also found that IJVs which have the freedom to implement their strategic business plans independently are more effective than IJVs which lack the freedom to do so. They also demonstrated that autonomy is a multidimensional construct and suggested a model of relative recommended autonomy levels for different IJV activities.

The perspective from which an IJV should be viewed raises a number of concerns, largely because there are a number of different viewpoints on the venture, including the parent firms and the IJV management (assuming that the venture has a separate workforce, which is not necessarily the case). This means that there might be different views on aspects of autonomy which may vary between partners and between partners and IJV management. In principle therefore estimates of autonomy should incorporate multiple viewpoints. While there has been some attempt in the literature to develop a measure of IJV autonomy (e.g. Newburry and Zeira, 1999) in general studies have not relied on perceptual measures of autonomy. This is in contrast with the literature relating to IJV performance where due to concerns over the ability of financial and objective measures to effectively capture alliance performance, several researchers have turned to perceptual measures of a parent’s satisfaction with alliance performance (Killing, 1983; Schaan, 1983; Beamish, 1985; Inkpen and Birkenshaw, 1994; Lyles and Baird, 1994; Dussauge and Garrette, 1995). A perceptual measure of autonomy across the three elements of the IJV system provides information regarding the extent to which the IJV is viewed as autonomous by the respective parents and the IJV management. This represents a novel departure in the study of IJV autonomy. In order to explore the extent to which parent firms grant the IJV management autonomy we assume that there will be no difference in perception of the extent of autonomy between the elements of the IJV system. This leads to the first proposition of the study:

P1: Perceptions of IJV autonomy will not vary between the elements of the IJV system.

The literature has highlighted a distinction between strategic and operational control in IJVs. Child and Faulkner (1998: 190) point out that it is effective for IJV parents to exercise control selectively over those activities and decisions the parent regards as critical. Furthermore, Child et al (1997) point out that the transactions costs of managing some areas of IJV activity may be less for one partner because of its acquired competence and familiarity in so doing than for another partner. These considerations support ‘the notion of parent firms’ parsimonious and contingent usage of resources for controlling IJVs’ (Geringer and Hebert, 1989: 240). They imply that IJV owners may seek to concentrate on providing certain resources and on controlling certain decision areas and activities. Child and Faulkner (1998: 187) argue that a distinction that may inform this selection is that between strategic control and operational control (Yan and Gray, 1994, 1996). Extending this line of argument to the notion of autonomy, it is likely that parents will seek to exercise more control over issues relating to the strategic management of the IJV and grant autonomy to the IJV with respect to operational management. In order to establish this distinction the partners are likely to rely on the procedures established in the original documents drawing up the IJV and in the business plan and other planning documents. In this respect Buchel et al (1998: 83) emphasise that the joint production of a business plan is an important instrument of strategy development for the JV. The business plan specifies the common strategic guidelines and the planned development objectives for the IJV and it documents the outcome of the partners’ negotiations on strategy. They further contend that the joint development of a business plan offers significant opportunities for the cohesion of the IJV system.

This discussion leads to the following propositions:

P2: IJV managers will have autonomy in operational management but not in the strategic management of the IJV.

P3: The partners establish the parameters of decision making by IJV managers, usually formalised in the IJV’s business plan, and as long as the IJV managers keep within these parameters, they have decision making autonomy.

 

RESEARCH METHODS AND SAMPLE

The research propositions set out in the preceding section were examined using a sample of UK IJVs with partner firms from western Europe, formed between January 1990 and December 1996. A list of qualifying IJVs was obtained from the Financial Times Mergers and Acquisitions (FT M&A) File. This is an online database providing comprehensive details on international bid activity including mergers, acquisitions, share swaps, buyouts and buy-ins as well as joint ventures. The information is researched and collated on a daily basis from an array of major international newspapers and magazines, as well as press releases and corporate and stock market sources. It was assumed that this source represented a good approximation to the population of qualifying IJVs and that any selection biases would be minimal.

From this sample frame 20 UK IJVs with partners from western Europe were chosen at random. This sample size was chosen in order to achieve the aims of depth and coverage within the time-scale of the study. The decision to concentrate on ventures with partners from western Europe was driven by the need to keep the costs of the project relatively low. Recognising that autonomy data for very new IJVs might not be meaningful, it was decided to include only those IJVs that had been in existence for at least one year at the time of data collection. The average age of the IJVs is 3.92 years (SD = 1.86 years). The study only examines two partner IJVs because of difficulties associated with analysing multiple partner IJVs, which may demonstrate significant differences from IJVs with two partners (Geringer, 1991).

A multi-method personal interview and self-administered questionnaire approach was used to obtain data from each of the three elements of the IJV system (i.e. UK partner, western European partner, IJV management). Semi-structured interviews with a senior manager from each element of the IJV elucidated perspectives on autonomy in the IJVs. Other perspectives on this issue were solicited from each element of the IJV by means of self administered questionnaires completed by other senior managers. The personal interview schedule and self-administered questionnaire were developed from pilot interviews with two UK partners in IJVs with foreign firms that did not form part of the qualifying data set. Data derived from each of the elements of the IJV overcomes criticism in the prior literature levelled against studies that only gather data from one, or at best two, of the IJV elements (Osland and Cavusgil, 1998).

The sample size of 20 IJVs, therefore involves 60 elements of study: 20 UK parents, 20 foreign parents and 20 IJV managements, and correspondingly 60 in-depth interviews. Each personal interview lasted for approximately one hour. Open-ended questions and probes were used to elicit each participant’s views on a number of dimensions of IJV activity, as well as asking managers to rank a predetermined set of criteria for some dimensions of activity. Where acceptable to respondents the interviews were tape recorded. Only three respondents declined to be tape recorded. For these interviews copious notes were taken of the responses which were transcribed shortly after the interview. The intention of the interviews was to secure the views held by the most senior available manager in order to obtain a broad perspective over a range of management activities and decisions. In addition self-administered questionnaires were left with the organisations after each interview for other relevant managers to complete. A total of 63 self-administered questionnaires were returned. We are confident that these groups of respondents were able to present an overall perspective for each IJV. The characteristics of the sample are shown in Table 1.

Table 1: Characteristics of the Sample

Characteristic

No.

%

Characteristic

No.

%

Interview data

   

Questionnaire data

   

Responses

   

Responses

   

UK partners

20

33.3

UK partners

16

25.5

Foreign partners

20

33.3

Foreign partners

15

23.8

IJV managers

20

33.3

IJV managers

32

50.8

           

Total

60

100

Total

63

100

           

Nationality of partner

   

Nationality of partner

   

France

8

40

France

23

36.5

Germany

1

5

Germany

4

6.3

Holland

3

15

Holland

7

11.1

Italy

2

10

Italy

13

20.6

Norway

1

5

Norway

2

3.2

Spain

2

10

Spain

4

6.3

Sweden

3

15

Sweden

10

15.9

           

Total

20

100

Total

63

100

           

Industry of IJV

   

Industry of IJV

   

Agricultural production/distribution

2

10

Agricultural production/distribution

4

6.3

Aircraft ground handling

1

5

Aircraft ground handling

4

6.3

Aircraft parts manufacture

1

5

Aircraft parts manufacture

5

7.9

Chemicals production

2

10

Chemicals production

4

6.3

Defence Manufacture

3

15

Defence Manufacture

9

14.3

Electrical parts production

1

5

Electrical parts production

2

3.2

Explosives production

1

5

Explosives production

2

3.2

Film production

1

5

Film production

3

4.8

Food manufacture/distribution

1

5

Food manufacture/distribution

3

4.8

Motor parts production

2

10

Motor parts production

8

12.7

Motor vehicle production

1

5

Motor vehicle production

3

4.8

Steel processing and distribution

1

5

Steel processing and distribution

3

4.8

Telecommunications

1

5

Telecommunications

2

3.2

Textiles production

2

10

Textiles production

11

17.5

           

Total

20

100

Total

63

100

 

 

FINDINGS AND DISCUSSION

Proposition 1

Perceptions of IJV autonomy were gauged by asking interview respondents to indicate to what extent the IJV was autonomous on a five-point scale (from 1 ‘no autonomy’, to 5 ‘completely autonomous’). The mean responses are shown in Table 2. For each category of respondent the mean score is above the median measure indicating a fair degree of autonomy on the part of IJV managers. Tests of pairwise differences in means shows that there are no significant differences between the mean scores for each category of respondent. There is therefore strong support for Proposition 1, i.e. that perceptions of IJV autonomy do not vary between partners and they do not vary between each parent and the IJV management.

Table 2: Perception of IJV Autonomy: Interview Data

 

Mean

SD

UK Partners

3.35

1.18

European Partners

3.85

0.98

IJV Managers

3.55

0.88

The mean is the average on a sale of 1 (= no autonomy) to 5 (= complete autonomy).

SD = Standard deviation.

Proposition 2

The questionnaire survey obtained autonomy data on a broad spectrum of decision making autonomy. Respondents were asked to indicate on a five point scale (from 1 ‘no autonomy’, to 5 ‘completely autonomous’) the extent to which the IJV was autonomous in its decision making across a range of decisions. The mean responses for all categories of respondent are shown in Table 3. It is clear from Table 3 that the greatest level of IJV autonomy is in the day-to-day management of the IJV, with a mean score well above 4, indicating a relatively high level of IJV autonomy. It is instructive to compare the ‘day-to-day management’ measure of autonomy obtained from each category of questionnaire respondent with the perceptual measure of autonomy obtained from the interview data. For the ‘day-to-day management’ measure the mean responses were UK Partners 4.69; European partners 4.27; and IJV management 4.47. These mean scores are somewhat higher than the perceptual measure obtained from the interview data. Tests of pairwise differences in means shows that there are no significant differences between the mean scores for each category of respondent1, again indicating that perceptions of IJV autonomy do not vary between partners and they do not vary between each parent and the IJV management, lending incidental support to Proposition 1.

Table 3 also shows that five other decision making areas achieved a mean score above four, indicating a relatively high level of autonomy in hiring and firing of non-technical personnel and technical personnel, process technology, manufacturing and marketing. In contrast relatively little autonomy was reported in the decisions to locate the IJV, its financing, deciding capital expenditures, and hiring and firing senior IJV managers.

It is apparent from Table 3 that while there is a perception across respondents of a reasonable amount of autonomy in IJV decision making that there is a spectrum of autonomy across decision making areas. IJV managers have most autonomy in regard to daily management and ongoing operational issues and least autonomy in regard to longer term financial issues and senior management appointees. This indicates that IJV mangers have a relatively high degree of operational autonomy but relatively low levels of strategic autonomy in decision making, providing support for Proposition 2.

Table 3: IJV Decision-Making Autonomy: Questionnaire Data

 

Rank

Mean

SD

Day-to-day management

1

4.47

0.76

Hiring and firing non-technical personnel

2

4.23

1.05

Hiring and firing technical personnel

3

4.10

1.17

Process technology

4

4.07

1.20

Manufacturing

5

4.03

1.15

Marketing

6

4.01

1.26

Cost control

7

3.98

1.08

Distribution

8

3.90

1.38

Pricing

9

3.84

1.21

Technology & engineering of products

10

3.83

1.28

R&D

11

3.78

1.31

Patents & trademarks

12

3.65

1.29

Hiring and firing senior JV mangers

13=

2.57

1.17

Deciding capital expenditures

13=

2.57

1.19

Financing of JV

15

2.23

1.25

Location of JV

16

2.21

1.20

Mean is average on a scale of 1 (= no autonomy) to 5 (= complete autonomy).

This situation becomes even more apparent when considering the extent of joint decision making in the IJVs across a number of areas. Questionnaire respondents were asked to indicate on a five point scale the extent to which a set of decisions were taken jointly (from 1 ‘no extent’, to 5 ‘great extent’). The decisions ranked by mean score are shown in Table 4. Three decision areas have a mean score greater than the median measure indicating a relatively high extent of joint decision making, i.e. these decisons involve the parent companies as well as the IJV management. These decision areas relate to the budgetary process of the IJV, they are non-operational decision making areas and are concerned with medium term decisions of the IJV. In contrast the lowest ranked decision areas, each below the median measure, indicate a relatively low extent of joint decision making, i.e. these decisions tend to be taken by IJV management without the involvement of the parent companies. These decisions relate to operational matters. The findings reported in Table 4 clearly indicate that while the IJV management is concerned with operational decisions the partners tend not to be, but that the partners are involved with strategic decisions relating to the IJV. These findings add further support to proposition 2, i.e. that the IJV managers will have autonomy in operational management but not in the strategic management of the IJV.

Table 4: Extent of Joint Decision Making: Questionnaire Data

 

Rank

Mean

SD

Budget capital expenditures

1

3.92

0.94

Budget sales targets

2

3.79

1.01

Budget cost targets

3

3.66

1.04

Replacing a functional manager

4

2.73

1.22

Product pricing

5

2.60

1.47

Quality standards

6

2.46

1.32

Product design

7

2.36

1.39

Production process

8

2.28

1.21

Mean is average on a scale of 1 (= no extent) to 5 (= great extent).

Aspects of decision making autonomy were also directly explored in the personal interviews by asking respondents whether IJV partners, the IJV management, or combinations of partners and IJV management were responsible for decision-making and in particular those decisions relating to pricing and quality. A summary table of the interview responses is available from the authors (constraints on space prohibit reproduction of the table here).

Analysis of the interview data shows that there is a large measure of agreement between the three elements of each IJV system on the locus of decision making with regard to pricing and quality issues. Although there is not complete agreement across the three categories of respondent as to the nature of decision making within each of the IJVs, it is the case that in about three-quarters of the IJVs there is such agreement. Moreover, even where there is disagreement over the locus of decision making with regard to pricing and quality there is general agreement that daily operating decisions lie with the IJV management within the constraints set by the partners and that strategic decisions lie with the partners. The responses clearly indicate the separation of strategic control and operational control between partners and IJV managers. A division of control that was emphasised by Child and Faulkner (1998) in the context of considering the focus of control.

Findings from this study confirm the view that there is a risk of IJV autonomy becoming a rather fuzzy concept unless the distinction is drawn between strategic autonomy and operational autonomy. In the former case there is practically no autonomy for this sample of IJVs, in the latter case there is a high level of autonomy. The areas where IJV mangers have no autonomy are in the location of the IJV which is largely predetermined, and the hiring and firing of senior managers. Partners also generally control the raising of finance and capital expenditure by being closely involved in the approval process for significant levels of investment. In most other areas IJV management run the venture as if it were their own operation. This position was neatly encapsulated by an IJV manger from IJV 18, a telecommunications JV between a UK partner and a Dutch partner, who reported that although the partners may query the ‘how’ of what the IJV management is doing, the IJV management is still expected to come up with the ‘how’, and not to be told ‘how’.

In summary, the interview responses clearly indicate that there is a recognition that IJV managers have operational autonomy, which in large part, extends to issues of pricing and quality. However, if the IJV management wanted to develop strategic initiatives, such as, develop new markets, or invest above a certain level they have to go to the IJV board to seek approval from the parents. The findings of the interview data add further support to Proposition 2.

Proposition 3

Further analysis of the personal interviews leads to the conclusion that operational decision making by IJV managers takes place within the context of a set of constraints established by the partners and decided though the board of the IJV. These constraints are set out particularly in terms of budget limits and limits to capital expenditure. The limits within which the IJV managers have autonomy are established within the context of the IJV’s business plan. Provided that IJV managers’ decisions are within the acceptable boundaries of the business plan then partners allow IJV managers decision making autonomy. The findings of the personal interviews provide support for Proposition 3.

The interview data reveals that the overall strategy for the IJV is determined by the partners. Further, in order to ensue that IJV mangers work to the goals set for the IJV, the parameters of the venture are defined by the business plan and agreed by the partners. Once the plan has been agreed on an annual basis with a budget, then the IJV management are expected to deliver and the IJV management’s performance is monitored through the board. As long as IJV mangers work within the parameters established in the business plan they have a fair degree of autonomy. Autonomy allows IJV managers to choose what it is they want to do. Clearly, it is not in their interests to ignore all of the wishes of the partners, but autonomy allows the IJV managers to choose whether or not they want to follow the wishes of the partners fully, and in general terms the IJV management is free to work within the business plan assumptions. To a large extent then, the parameters have little impact on the IJV management, the biggest impact probably being on capital expenditure decisions. In this regard, however, IJV management tends to be no more circumscribed than are the managements of subsidiary firms, who would have to go to their respective company boards for permission to spend beyond agreed levels of investment. There is thus a hands-off approach by the partners to the operational management of the IJV. The IJV managers are knowledgeable of what they are required to do to run the business and to satisfy the partners. Providing they provide the necessary information through the board and they act in the way they are expected, they are allowed a relatively high degree of operational autonomy. The operational control very much belongs to the joint venture. Problems arise, however, when the IJV mangers brush up against the boundary of what is established in the business plan.

The managers then have the freedom to work the business knowing what both partners want. It is necessary of course for partners to clearly communicate what they want to IJV managers and for IJV mangers to be aware of the partners’ goals for the IJV, which points up the relevance of the planning and budgeting process and in particular the importance of the business plan agreed through the board. At the same time IJV management has to conform to reasonably rigorous reporting to the partners. This process is likely to lead to a clear understanding between the elements of the IJV system and lead to an amicable and appropriate working environment.

The interview responses indicate the importance of the business plan as a mechanism of IJV control. For example, the IJV manager in IJV 8 observed: The plan is very important, very crucial …. The business plan establishes the ground rules but in general it is not dictated by the partners to the IJV management, it is an agreed process. For example, the UK partner respondent in IJV 14 reported:

So the IJV management know what the game plan is basically, and they have to work to that and they have a degree of autonomy within the game plan. And those ground rules are set by the partners in conjunction with discussion with management, it's not just handed to the management of the joint venture, it's very much a discussion with the management.

This indicates that the business plan is not necessarily ‘handed down’ to the IJV management from the partners, but may be developed by the IJV management and ‘sold’ to the partners. This is exemplified by the European partner in IJV 14 who reported:

They [the IJV management] come to the partners with the plan, maybe partners have passed on a few messages as to what should be in the plan but basically the initiative comes from the joint venture. So they have to sell their strategic plan to the partners. Essentially they are running the company. They come to the shareholders and make the presentations, so in that sense there is a degree of autonomy providing the shareholders agree.

Giving an IJV management enough autonomy to genuinely run an independent business, but at the same time making sure that major strategic decisions are taken by equity partners, is a delicate task. On the one hand it is necessary for the IJV management not to feel emasculated, but at same time the partners should feel sufficiently confident that they have control over major issues. This is recognised by respondents as a difficult balance in practice.

It is apparent from the responses to the questions relating to decision making processes and IJV autonomy that it is necessary to recognise the dynamic evolutionary nature of IJV control systems. In this sense autonomy is not a static concept but the nature of the autonomy extended to the IJV management is likely to change over the evolution of the IJV. For instance, in IJV 13, an IJV between a UK partner and a German partner engaged in textiles production, there were decision areas that were found to be too restrictive on the IJV management, for example, the provision of credit levels to suppliers, with approval required from the supervisory board recognised as being too impractical in terms of running the business. Arguments from the UK partner were advanced in order to relax this condition to provide greater operational autonomy to the IJV management. Examples from other IJVs include the move form one to two IJV General Managers, and the evolution of management between partners to eliminate dual responsibility in the IJV.

It is further recognised by respondents that IJV management autonomy is not guaranteed, but is largely a function of performance. Responses from the personal interviews indicate that if the IJV is performing well then the IJV management will be afforded a high level of autonomy, however, if the IJV is performing poorly then the autonomy of the IJV management is curtailed through the frequent and direct intervention of the partner firms. Deviation from the budget, for example, tends to cause debate and possible further direction to be provided to the IJV management. If the business is not achieving its budgetary targets it is likely to come under a far greater degree of control from the board of directors. So for many IJVs the budget setting and the target setting is key to the level of autonomy that the IJV management is allowed. The IJV management will achieve more autonomy the closer it is to budget, and the closer it is to delivering the targets that the board of directors set. The UK partner in IJV 15, for example, reported that the business was not performing too well, so there was a high degree of intervention from the board of directors and consequent loss of autonomy on the part of the IJV management.

A key finding from this study is that in general IJV autonomy is closely related to IJV performance. It appears that partners allow IJV management autonomy as long as performance is acceptable to them. If performance deteriorates, or is below what is expected, then there tends to be greater parent involvement and intervention in the operational running of the IJV and in the IJV decision making processes. This curtailment of autonomy implies a mindset on the part of the parent companies that assumes they will be able to intervene successfully in the management of the IJV and to have sufficient impact to cause IJV performance to improve. In a sense, however, this assumed belief of the parent companies is counterintuitive. The logic of IJV formation is that the partners have formed a joint venture because they each believe that they are more likely to be successful in the business with a partner than undertaking the venture on their own. The partners then appoint IJV mangers to run the business on their behalf. Collectively the IJV managers, because of their presumed expertise in running the venture and because they are simply closer to the business than are the partners, should know more about the operational management of the business and have a greater competence in running the business than do the partners. Yet as indicated, there is a presumption by the partners that when performance is inadequate they will be able to improve the situation by greater operational intervention and consequent withdrawal of autonomy. Put simply, the partners tend to believe that when IJV performance is poor, the situation can be best rectified by direct intervention on their part and withdrawal of autonomy, rather than by allowing the IJV management to continue working to address the situation without further parent intervention and with the level of autonomy maintained. This clearly implies a degree of arrogance of ability to operate the IJV on behalf of the partners which may not be warranted.

CONCLUSIONS

This is one of the first studies to report a perceptual measure of autonomy across the three elements of an IJV. For the sample in this study the perceptual measure shows that there is a relatively high degree of autonomy, with no significant difference in the perception of autonomy between the partners or between each of the partners and the IJV management, supporting Proposition 1. The findings of the study show that there is a spectrum of autonomy across decision making areas. IJV managers have a relatively high degree of operational autonomy but relatively low levels of strategic autonomy in decision making, supporting Proposition 2. The findings of the study further show that operational decision making by IJV managers takes place within the context of a set of constraints established by the partners and decided through the board of the IJV. The limits within which the IJV mangers have autonomy are established within the context of the IJV’s business plan, supporting Proposition 3.

IJV autonomy may risk becoming a rather fuzzy concept unless the distinction is drawn between strategic autonomy and operational autonomy. Giving an IJV management enough autonomy to genuinely run an independent business, but at the same time making sure that major strategic decisions are taken by equity partners, is a delicate task. The difficulty of this task is compounded by the dynamic evolutionary nature of the partner-management relationship over the life cycle of the IJV. Further, IJV management autonomy is not guaranteed but is conditional on IJV performance satisfying partner goals.

There are several future research issues concerning IJV autonomy that suggest themselves. First, the identification of the stage of the life cycle of the IJV at which increasing levels of autonomy are granted by the parents. Second, identification of the variables that conditions the granting or withdrawal of IJV autonomy by parents. Third, the nature of the relationship between autonomy and the dimensions of management control in IJVs. Third, the relationship between autonomy and effectiveness of the IJV, an issue which has been begun to be addressed by Newburry and Zeira (1999).

Notes

1. Care must be taken when comparing means for the self-administered questionnaire data, which is not as uniform as the personal interview data. With the latter there are data from matching interviews across each element of the IJV, i.e. 20 UK parents, matched with 20 European parents, matched with 20 IJV managers. With the self-administered questionnaires, although the data is drawn from the same 20 IJVs as the interview data, there are not 20 matching sets of responses. This is because for several IJVs one or more elements of the IJV have not responded. Hence when comparing category of respondent for the questionnaire data the discussion should be couched in terms of UK firms, European firms and IJV management, because of the inexact matching of the data set.

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