Value Creation on Bilateral Cross-Border Joint Ventures: Evidence from India

Strat. Change 22: 307–326 (2013)Published online in Wiley Online Library(wileyonlinelibrary.com) DOI: 10.1002/jsc.1942 RESEARCH ARTICLE

Copyright © 2013 John Wiley & Sons, Ltd.Strategic Change: Briefi ngs in Entrepreneurial Finance

Strategic Change DOI: 10.1002/jsc.1942

Value Creation on Bilateral Cross-Border Joint Ventures:

Evidence from India1

Sanjay DhirChandragupt Institute of Management Patna, India

Amita MitalIndian Institute of Management Lucknow, India

Introduction

Cross-border joint ventures (CBJVs) create value for partner fi rms (Anand and Khanna, 2000; Chan et al., 1997; Lavie, 2007; McConnell and Nantel, 1985). However, authors and practitioners have recognized that there is an inherent dif-fi culty to this value creation process, as most of the CBJVs fail to create value (Culpan, 2009; Kogut, 1989). Furthermore, most prior studies on joint ventures have focused on developed countries (Anand and Khanna, 2000; Doz and Hamel, 1998; Glaister and Buckley, 1994; Gulati, 1999; Gulati and Singh, 1998; Gulati et al., 2008; Hagedoorn, 2002; Hamel, 1991; Hennart, 1988; Parkhe, 1991). Despite the growing importance of joint ventures in developing nations, little research has been conducted to analyze the mechanism of value creation in CBJVs of developing nations (Kale and Anand, 2006; Mattos et al., 2002). Moreover, fi ndings of studies in CBJVs from developed nations have not been tested in a developing nations context (Kale and Anand, 2006). Th erefore, existing CBJV frameworks and models for CBJV value creation may not be applicable outside a developed-to-developed and developed-to-developing nation context.

Extant literature from the developed world presents a number of theoretical perspectives to explore and establish the CBJV value creation process, ranging from a mainstream economics orientation (Contractor, 1991), to a transaction cost approach (Gulati and Singh, 1998; Hennart, 1988), resource dependency (Pfeff er and Salancik, 1978), organizational learning (Anand and Khanna, 2000; Hamel, 1991), network theory (Goerzen and Beamish, 2005; Gulati, 1998; Jing and Beamish, 2006), strategic positioning (Contractor and Woodley, 2009; Harrigan, 1985, 1988), game theory (Parkhe, 1993), and real options theory

Cross-border joint venture (CBJV)

fi rms with asymmetric motives

and perceived value criteria have

task-related partner selection

criteria, higher absorptive

capacity, and higher bargaining

power which results in greater

value creation.

Partner selection criteria,

absorptive capacity, and

bargaining power partially

mediate the relationship between

CBJV motives, CBJV perceived

value criteria, and CBJV value

creation.

Partner selection criteria, absorptive capacity, and bargaining power explain the

relationship between motives, perceived value criteria, and value creation of

cross-border joint ventures.

1 JEL classifi cation codes: M10, M11.

308 Sanjay Dhir and Amita Mital

Copyright © 2013 John Wiley & Sons, Ltd. Strategic Change DOI: 10.1002/jsc

(Stuart, 2000). While prior studies have identifi ed impor-tant antecedents and correlates of CBJV value creation from diff erent theoretical lenses, the ‘mechanism’ through which CBJV motives, partner selection criteria, and other CBJV-specifi c factors infl uence CBJV value creation is noticeably absent. Furthermore, authors have recognized these lacunae of neglected mediation mechanisms (Con-tractor and Woodley, 2009; Hull et al., 1988; Madhok and Tallman, 1998; Parkhe, 1990; Plambeck and Taylor, 2004) in recent studies of CBJV value creation and sug-gested that future work on CBJV value creation needs to identify the important intervening processes that can mediate the relationship between CBJV motives, per-ceived value criteria, and CBJV value creation (Das and Teng, 2002). Accordingly, our study seeks to address these gaps in the literature by examining the mediating eff ect of partner selection criteria, absorptive capacity, and

bargaining power for the relationship between CBJV motives, CBJV perceived value criteria, and CBJV value creation in a developing nation context. We focus on these potential mediators because of their established impor-tance in the CBJV literature (Das, 2006; Doz et al., 2000; Dyer and Singh, 1998; Emerson, 1962; Hitt et al., 2000; Osborn and Hagedoorn, 1997). Partner selection is important, since accessing or learning new skills from partners is a prevalent motive for forming CBJVs (Doz and Hamel, 1998; Hagedoorn, 2002), which is detrimen-tal for value creation in CBJVs (Luo, 1997). Furthermore, to realize knowledge transfer successfully in a CBJV, the interplay of absorptive capacity and bargaining power is essential as they facilitate motive accomplishment and realization of perceived value benefi t for partner fi rms, thus leading to CBJV value creation (Doz, 1998). Our approach is to develop a conceptual model (see Figure 1

H1

H6a

H8a

H7a

H5b, H5c, H6b

H5a

H4a

H3b,

H3c,

H4b

H3aAsymmetric

Motive

Perceived

Value

Criteria

Bargaining

Power

Absorptive

Capacity

Partner

Selection

Criteria

Value

Creation

H2

H7b,

H7c,

H8b

Figure 1. Conceptual model for the mediating role of partner selection criteria, absorptive capacity, and bargaining power partially for the relationship between CBJV motives, CBJV perceived value criteria, and CBJV value creation. [Control variables (industry ROA, industry, vertical/horizontal CBJV, age, and relative size) are not shown for ease of presentation.]

Value Creation in Bilateral CBJVs: Evidence from India 309


later) that examines various hypotheses on the mediating eff ect of partner selection criteria, absorptive capacity, and bargaining power for the relationship between CBJV motives, CBJV perceived value criteria, and CBJV value creation in a developing nation context and subsequently test the same on a sample of 201 Indian CBJVs with G7 nations over the period 2001–2010.

In this paper, we review the literature briefl y, develop testable hypotheses, describe the quantitative methods used, and subsequently discuss the implications of our statistical fi ndings. We conclude with implications for practitioners and scholars.

Theory and hypotheses

Asymmetric motive and value creation in CBJVs

Partner motives in a CBJV determine the relational mech-anism among partners, such as relation-specifi c invest-ments (Anand and Khanna, 2000; Das and Teng, 2003), knowledge sharing (Inkpen and Beamish, 1997), and complementary partner resource contributions to the CBJV (Dyer and Singh, 1998; Glaister and Buckley, 1997). Th is relational mechanism explains the goal of private/common benefi ts which the partners expect from the CBJV (Kale and Singh, 2007; Kale et al., 2002; Khanna et al., 1998; Lorenzoni and Lipparini, 1999). Moreover, CBJV value creation has been established to be signifi cantly related to the degree of accomplishment of partners’ common or private motives (Das and Teng, 1998, 2001; Khanna et al., 1998; Parkhe, 1993). Some of the motives analyzed for a developed nation fi rm entering into a developing nation include: faster entry into markets (Beamish, 1993; Khanna and Rivkin, 2001); interna-tional expansion (Glaister and Wang, 1993); conforming to host government policy (Contractor, 1991); access to local know-how/low-cost sourcing (Anand and Khanna, 2000); risk sharing (Das and Teng, 1998), and utilizing excess cash (Varadharajan and Cunningham, 2001). In contrast, the motives of developing nation fi rms to form

a CBJV with developed nation fi rms include: to upgrade technology (Beamish, 1993); earn a profi t (Shenkar, 1990); learn managerial skills (Yan and Gray, 1994); expand market share (Khanna and Rivkin, 2001); and associate with a reputed MNC (Beladi et al., 2009).

While the above studies further our knowledge about CBJV motives and value creation in developing nations, from one partner’s viewpoint, they do not explicitly recognize the diff erence in motives from both partners’ perspectives. As partner fi rms of CBJVs in developing nations often have diff erent motives, it becomes pertinent to explore the impact of asymmetries in motives among partners on value creation for a CBJV. Th us, we hypothesize:

H1: A greater asymmetric motive among partner fi rms in CBJVs enhances the value creation for the CBJV.

Perceived value criteria and value creation in CBJVs

Extant studies have established that CBJV ‘perceived value criteria’ — co-option, co-specialization, and learn-ing — aff ect the functional scope of the CBJV and critical tasks aligned by inter-/intra-industry CBJVs (Doz, 1996; Varadharajan and Cunningham, 2001). Th e terms of cooperation in a CBJV are dictated by complementary product, substitute industry, and leader/follower relation among partner fi rms (Pfeff er and Salancik, 1978). Per-ceived value criteria have been detrimental for the coop-eration dynamics among partners of a CBJV (Khanna, 1998). Th is dynamics evolved to determine the control of partners in a CBJV (Lee and Cavusgil, 2006), incentive structures (Khanna and Rivkin, 1999), fl exibility in a CBJV (Gulati, 1998), confl ict/points of tension among partners (Peterson and Behfar, 2003), and cost of operat-ing in a CBJV (Teng, 2003). Furthermore, perceived value criteria become more pertinent in developing nation CBJVs due to the culture, management, and technologi-cal diff erences with developed nation partner fi rms (Fang, 1999; Hennart and Zeng, 2002; Hergert and Morris, 1988). Th ese arguments suggest that perceived value



criteria by partners of a CBJV will infl uence value creation of the CBJV and thus we hypothesize:

H2: Perceived value criteria of partner fi rms in a CBJV enhance the value creation for the CBJV.

Mediating role of partner selection criteria in a CBJV

Extant studies have established that a task/partner selec-tion criterion for fi rms is determined by the strategic motives for a CBJV (Glaister and Buckley, 1997; Klijn et al., 2010). Partner fi rms with diff erent resources and strengths have diff erent criteria when selecting CBJV part-ners (Dacin et al., 1997; Davlin and Bleackley, 1988), which can fi ll voids with regard to certain skills and resources, and with distinctive sets of capabilities. Emerg-ing market fi rms especially have diff erent strategic motives and seek diff erent types of partners to achieve the per-ceived benefi ts of CBJV formation (Glaister and Wang, 1993).

Prior studies have examined the relationship between partner selection criteria and CBJV value creation mea-sures. Th e characteristics of CBJV partners have been found to be more important than the absolute number of CBJVs (Hagedoorn and Schakenraad, 1994). Task-related partner selection criteria help partner fi rms innovate and achieve higher growth rates (Stuart, 2000). In contrast, partner-related selection criteria in terms of industry, country background, and reputation have a U-shaped relationship with CBJV performance (Goerzen and Beamish, 2005).

In summary, partner selection criteria are perhaps the most important step in creating a successful CBJV (Elmuti and Kathawala, 2001). Th e choice of a particular partner by the fi rm infl uences CBJV value creation (Harrigan, 1988; Killing, 1983; Mohr and Spekman, 1994; Park and Ungson, 1997; Parkhe, 1991) because it aff ects the mix of skills and resources contributed to the CBJV and the ability of the CBJV to achieve its strategic objectives (Geringer, 1991). Extant studies have found that the success of CBJVs in emerging markets is determined by

compatibility between partners’ task-related selection cri-teria (Dong and Glaister, 2007; Harrigan, 1988; Killing, 1983; Mohr and Spekman, 1994; Park and Ungson, 1997; Parkhe, 1991). Th us, we hypothesize:

H3a: Asymmetric motives of partner fi rms in CBJVs will be positively related to task-related partner selection criteria in the CBJV.

H3b: Task-related partner selection criteria in CBJVs will be positively related to value creation in the CBJV.

H3c: Task-related partner selection criteria in CBJVs will mediate the relationship of asymmetric motives and value creation in the CBJV.

H4a: Perceived value criteria of partner fi rms in CBJVs will be positively related to task-related partner selection criteria in the CBJV.

H4b: Task-related partner selection criteria in CBJVs will mediate the relationship of perceived value criteria and value creation in the CBJV.

Mediating role of absorptive capacity in CBJVs

Extant research establishes that inter-fi rm cooperation with external partners fosters the competitive advantage and performance of a company (Porter, 1987), but research on strategic alliances shows that almost half of all alliances fail (Dyer et al., 2001). Th e challenge in such cooperation lies in the transfer of knowledge from one company to another (Szulanski, 1996). To realize this knowledge transfer successfully in a CBJV, the interplay of absorptive capacity, partner motives, perceived value criteria, and value creation is essential (Kauser and Vivi-enne, 2004). Absorptive capacity is related to inter-orga-nizational relationships and formalized communication routines between diff erent parties, and thus enhances per-formance of a CBJV (Krishnan et al., 2006; March, 1991; Sirmon et al., 2007). Absorptive capacity focuses on



knowledge acquisition (Cohen and Levinthal, 1990; Lane et al., 2006; Makri et al., 2009; Mowery et al., 1996) and exploratory learning for improvement (Lane et al., 2006; Tsai, 2001; Zahra and George, 2002). Absorptive capacity enhances know-how (Lichtenthaler, 2009), tacit knowl-edge (Noteboom et al., 2005), technological transfer (Bergh and Lim, 2008), skill set adoption (Lavie and Rosenkopf, 2006), and private benefi ts from joint ventures (Wassmer and Dussauge, 2011). Furthermore, absorptive capacity enables a company to identify the value of its partner’s external knowledge to fulfi ll the fi rm’s motive for CBJV formation (Lane et al., 2001). In the context of emerging markets, CBJVs are a useful means to expand a company’s knowledge base quickly and cost-effi ciently, because risks and costs are shared with the CBJV partner (Baird et al., 1990; Chung and Beamish, 2005). Several scholars have analyzed the positive eff ect of absorptive capacity on fi rm performance (Lane et al., 2001; Lichtenthaler, 2009; Tsai, 2001), as well as the positive infl uence of absorptive capacity on the success of strategic alliances (Chen, 2004; Lavie and Rosenkopf, 2006; Noteboom et al., 2005). Additionally, diff erent studies show that learning capabilities drive the perceived value derived from CBJVs by partner fi rms (Emden et al., 2005). Furthermore, the literature states that the strategic motives of CBJV partners infl uence the relative absorptive capacity and dynamic capabilities of CBJV fi rms (Kim, 2004). However, the literature on dynamic capabilities implies that a mediated relationship between CBJV char-acteristics, dynamic capabilities, and performance out-comes is likely to exist (Ahuja and Katila, 2001; Koza and Lewin, 1998; Mowery et al., 1996). We suggest that it is useful to adopt an interactional strategy (Snyder and Ickes, 1985) and to explicitly test the two possibilities of mediation eff ect of absorptive capacity as a third variable. To our knowledge, there is no previous study fi lling this gap. We thus hypothesize for the mediating role of absorptive capacity on CBJV value creation. Hence, the degree of absorptive capacity is likely to be infl uenced by asymmetric motives and perceived value criteria of

partner fi rms and thus lead to better value creation for the CBJV.

H5a: Asymmetric motives of partner fi rms in CBJVs will be positively related to absorptive capacity of fi rms in the CBJV.

H5b: Absorptive capacity of fi rms in CBJVs will be positively related to value creation in the CBJV.

H5c: Absorptive capacity of fi rms in CBJVs will mediate the relationship of asymmetric motives and value creation in the CBJV.

H6a: Perceived value criteria of partner fi rms in CBJVs will be positively related to absorptive capacity of fi rms in the CBJV.

H6b: Absorptive capacity of fi rms in CBJVs will mediate the relationship of perceived value criteria and value creation in the CBJV.

Mediating role of bargaining power in CBJVs

Bargaining power is defi ned as the ability to favorably change the terms of agreements, to obtain accommoda-tions from partners (Tung, 1988), and to infl uence out-comes by managing and controlling the CBJV (Coff , 2010; Hamel, 1991; Yan and Gray, 1994). Alternatives available to partner fi rms in a CBJV specify the extent to which they can choose diff erent arrangements for achiev-ing the fi rm’s motives sought in the CBJV. Th us, avail-ability of alternatives to fulfi ll a fi rm’s motive is positively related to bargaining power (Cook, 1977; Hardy and Phillips, 1998; Tomkins, 2001; Zaheer et al., 1998). However, resource dependence theory (Pfeff er and Salan-cick, 1978) suggests that the possession or control of critical resources constitutes power in CBJV relations. Th us, the relative bargaining power of potential CBJV partners is determined by who brings what and how much to the venture (Harrigan, 1985). Furthermore, the form of CBJV governance conveys organizational power impli-cations (Inkpen and Beamish, 1997).



Studies of the relationship between bargaining power and performance have produced ambiguous results (Bachmann and Inkpen, 2011; Geringer and Hebert, 1989). In developed nation studies, CBJVs with one dominant parent outperformed those with shared man-agement, and the relationship between power and perfor-mance was U-shaped (Killing, 1983; Park and Gerardo, 1997). In contrast, in a developing nation context, domi-nant control by foreign fi rms was negatively related to performance (Beamish, 1993). However, when local part-ners dominated CBJVs, no such relationship was found. Authors therefore suggest that the type of economy in which a CBJV operates may play a role in the bargaining power and CBJV performance relationship.

We argue that additional research is needed to under-stand the role of bargaining power in CBJV value cre-ation, especially in a developing nation context. Bargaining power has been noticed to infl uence control over CBJV operations (Coff , 2010), distribution rents (Hamel, 1991), common/private benefi ts (Khanna et al., 1998), interde-pendence of fi rms (Pfeff er and Salancik, 1978), and opportunism and competitive behavior (Brandenburger and Nalebuff , 1996). However, no study has explicitly studied the mediating mechanism of bargaining power with CBJV motives, perceived value criteria, and value creation in CBJV. Th us we hypothesize:

H7a: Asymmetric motives of partner fi rms in CBJVs will be positively related to bargaining power of fi rms in a CBJV.

H7b: Bargaining power of fi rms in CBJVs will be positively related to the value creation in a CBJV.

H7c: Bargaining power of fi rms in CBJVs will mediate the relationship of asymmetric motives and value creation in a CBJV.

H8a: Perceived value criteria of partner fi rms in CBJVs will be positively related to bargaining power of fi rms in a CBJV.

H8b: Bargaining power of fi rms in CBJVs will mediate the relationship of perceived value criteria and value creation in a CBJV.

Methods

Description of data, statistical approach, and

conceptual model

We utilize the SDC Platinum database, which has been drawn upon heavily by research papers published in leading journals like the Academy of Management Journal, Administrative Science Quarterly, Management Science, Organization Science, British Journal of Management, and Strategic Management Journal (Schilling, 2009), to select all JVs formed in India with one of the partners an Indian fi rm between fi scal year April 2000 and March 2010. Of these, 76 were domestic and 361 were CBJVs. However, 54 CBJVs had been terminated, renegotiated, had mul-tiple partners, or provided inadequate data, so the popula-tion of CBJVs was reduced to 307. Th is consisted of 201 CBJVs from super-advanced nations (G7), 66 CBJVs from other developed nations, and 40 from developing nations. Since the G7 nations (USA, UK, Japan, France, Germany, Italy, and Canada) contributed more than 65% of the total CBJVs, we redefi ned the scope of the study to analyze Indian CBJVs with G7 partners only during the 10-year period specifi ed above.

We used a latent variable structural equation model-ing (SEM) approach on the fi nal sample of 201 CBJVs. We chose a SEM approach as it is a powerful generaliza-tion of earlier statistical approaches, with the key virtue of having a less restrictive assumption of measurement error (Goerzen, 2007). In contrast to OLS regression, for example, which is based on the assumption that variables are measured perfectly, SEM is based on the assumption that each explanatory and dependent variable is associated with measurement error (Bollen, 1989). In addition, SEM allows for multiple indicators of latent variables, which are a more realistic representation of the variables under



study (Figure 1). Furthermore, we conducted a Sobel test adapted for dichotomous mediators (MacKinnon and Dwer, 1993) to test our mediation hypotheses.

Latent variable measures

Value creation (VC)

We considered the following measure for CBJV value creation. Th e measure was recorded as logarithmic diff erence of market value for the Indian partner in a CBJV over 2 years of CBJV formation:

VC = ±log(diff erence in market value of parent fi rm over 2 years)

Asymmetric motive (AM)

To measure the asymmetric motive of partners in a CBJV, we identifi ed 10 motives that had been identifi ed in the literature and used exhaustively in developed and develop-ing nation CBJV studies. We used Blau’s index (1977) to measure the diversity of asymmetric motives in a CBJV. Blau’s index incorporates information on qualitative and category diff erences as variety. Th e measure is as follows:

AM(i) = 1 − ∑ (Pk)2

where P represents the proportion belonging to a given category and k is the number of diff erent categories.

Perceived value criteria (PVC)

Th e perceived value criteria were measured as a categorical variable with co-option, co-specialization, and learning as the three categories. Th us, we transform the variables into two dummy variables (n — 1 dummies for n cate-gories to avoid the dummy trap) for co-option and co-specialization.

Partner selection criteria (PS)

Following Geringer (1991), twofold typology of partner selection was used involving task-related and partner-related selection criteria; 12 sub-criteria each were

identifi ed based on the extant literature (Geringer, 1991; Glaister and Buckley, 1997) and a count of sub-criteria was considered for both partner-related and task-related criteria.

Absorptive capacity (AC)

We operationalized the absorptive capacity by measuring relative partner fi rms’ market know-how (MKH). Th is proxy is established in the literature on organizational learning of joint ventures. Market know-how of fi rms determines the exploratory learning of fi rms from its existing knowledge base (Lane et al., 2006).

Bargaining power (BP)

Bargaining power was measured by the ratio of percentage equity contributed by the Indian fi rm to that by the foreign partner.

Control variables

Industry profi tability (IROA)

We controlled for CBJV industry profi tability at the time of CBJV formation. Industry profi tability was measured as the average operating return on assets (ROA) of fi rms operating in the industry.

Industry (IND)

We controlled for CBJV industry by coding into 4-digit SIC codes.

Relative fi rm size (RFS)

Since the relative fi rm size of partner fi rms has been shown to decrease asymmetrically in CBJVs (Chang and Th omas, 1989), it is important to control for this variable — which we defi ne as the natural logarithm of the ratio of total sales of the Indian fi rm to total sales of the foreign partner.

Age of CBJV (AGE)

Since the relative age of a CBJV has been shown to aff ect bargaining power shifts in the CBJV, and thus aff ect the



relational quality and asymmetric motives, it is important to control for this variable. To account for these eff ects, we measured the age of the CBJV in years since its forma-tion date.

Vertical/horizontal CBJV (VH)

We added a dummy variable for two types of CBJV: 0 for vertical and 1 for horizontal.

Results

Summary statistics and analysis of model validity

and reliability

Th e summary of CBJV formation in India with G7 nations is summarized in Table 1. While CBJVs with the USA form the largest sample (38%), CBJVs with the UK and Germany follow (17% and 13%, respectively). Fur-thermore, CBJVs formed for service purposes in India is the largest group (38%), followed by production purposes (23%) and production and marketing purposes (18%).

As summarized in Table 2, the majority of inter-item correlations between variables that were argued to be part of diff erent latent variables are all low, generally falling between 0.01 and 0.13. In contrast, the within-construct correlations are low to moderate as required by SEM. Th ese are indications that the constructs are convergent and uni-dimensional and that there exists, as a result, good construct validity. Further, as indicated in the explained variance of observed measures on their latent constructs in Table 3, all manifest variables have high to moderate R2 values, suggesting acceptable reliability.

Th e fi gures in Table 4 provide evidence of good sepa-ration between the latent variables found in the latent variable correlation matrix. In this matrix, the indepen-dent variables are correlated at low to moderate levels which do not threaten their discriminant validity.

Once the measurement model has been determined to be satisfactory, the next stage of evaluation is to deter-mine the extent to which the hypothesized model ‘fi ts’ the T

able

1.

Indi

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Fran

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theoretical model. Th e traditional measure of model fi t is the χ2 value and its associated confi dence level; it has long been observed, however, that this measure is excessively conservative and is biased against large samples (Bollen, 1989). While no consensus exists on the suffi ciency of a single index to defi ne model quality, there are a great many indicators available that are considered — when several are used together — to be an accurate refl ection of overall model fi t (Bollen, 1989; Kaplan, 2000). Th ere-fore, several disparate indices were used, as suggested by Tanaka (1993), to converge on an overall assess-ment — including the root mean squared error of approx-imation (RMSEA) (as discussed by Steiger, 1990), non-normed fi t index (Bentler and Bonett, 1980), incre-mental fi t index (Bollen, 1989), comparative fi t index (Bentler, 1990), and goodness-of-fi t index (Joreskog and Sorbom, 1981). As summarized in Table 4, the hypoth-esized model holds up well when tested against the sample of 201 CBJVs. Th e χ2 value of 29.13 is statistically insig-nifi cant (p = 0.176) with 23 degrees of freedom. More-over, the RMSEA is 0.037, suggesting a very good fi t, given that it is well below the critical threshold of 0.08 as suggested by Browne and Cudeck (1989). Further, the normed fi t index, comparative fi t index, incremental fi t index, and goodness-of-fi t index are all between 0.91 and 0.98 (0.90 is usually considered the hurdle) and the root mean squared residual is less than 0.05, suggesting that the research model fi ts the observed data very well. As a further robustness check of the model, the residual matri-ces as well as the path and error covariance modifi cation indices were examined to see whether simple alterations could be made to ‘improve’ the model without threaten-ing its theoretical integrity. An examination of these indices indicated that there are no changes that would signifi cantly improve the model fi t.

Once the fi t between the hypothesized model and the observed data is found to be acceptable, as shown, indi-vidual paths and mediation tests can then be interpreted to evaluate the strength and signifi cance of these relation-ships — as discussed in detail below.T

able

2.

Man

ifest

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ble

biva

riate

cor

rela

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Mea

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.VC

AM

PS

LEA

RN

CO

SPS

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OP

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IRO

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AG

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VC

0.77

0.14

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0.18

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)1

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163(

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137

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0.60

0.49

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−0.

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)1

CO

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0.75

0.44

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0.17

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−0.

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228(

**)

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106

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0.44

0.50

0.15

4(*)

0.07

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0.49

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319(

**)

−0.

114

0.32

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0.08

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IND

0.35

0.48

−0.

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059

−0.

050

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038

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126

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30.

059

0.05

91

VH

0.83

0.38

−0.

201(

**)

−0.

359(

**)

−0.

015

−0.

106

−0.

083

0.06

4−

0.09

7−

0.10

40.

228(

**)

0.03

31

AGE

3.89

2.82

0.03

0−

0.15

4(*)

−0.

032

−0.

003

0.02

2−

0.05

1−

0.05

1−

0.11

9−

0.12

70.

174(

**)

−0.

004

1R

FS8.

652.

770.

013

−0.

037

−0.

132

−0.

175(

*)−

0.04

60.

112

0.04

4−

0.02

00.

116

−0.

096

0.09

3−

0.01

01

** C

orre

latio

n is

signi

fi can

t at t

he 0

.01

leve

l (2-

taile

d).

* Cor

rela

tion

is sig

nifi c

ant a

t the

0.0

5 le

vel (

2-ta

iled)

.



Path analysis and mediation test

As shown in Table 5, the structural path from asymmetric to value creation in a CBJV is positive and statistically signifi cant (γ = 0.16, p < 0.05). Th is result provides support for hypothesis H1. Perceived value criteria have a positive and signifi cant association with value creation (γ = 0.69, p < 0.01), thus providing support for hypoth-esis H2. Partner selection criteria (γ = 0.96, p < 0.01), absorptive capacity (γ = 0.76, p < 0.01), and bargaining power (γ = 0.17, p < 0.05) have a positive and signifi cant association with value creation. Th erefore, an Indian CBJV partner with task-related partner selection criteria, greater absorptive capacity and bargaining power creates a greater value in the CBJV. Th ese results provide support for hypotheses H3b, H5b, and H7b.

Asymmetric motives were found to have a positive and signifi cant infl uence on partner selection criteria (γ = 0.16, p < 0.05), absorptive capacity (γ = 0.54, p < 0.05), and bargaining power (γ = 0.15, p < 0.05), thus providing support for hypotheses H3a, H5a, and H7a and also for the mediation hypotheses H3c, H5c, and H7c, confi rming that asymmetric motives of Indian CBJV part-ners with CBJV fi rms decides the type of partner selected, absorptive capacity, and bargaining power in the CBJV, which in turn infl uences the value creation of an Indian CBJV with a G7 nation. Furthermore, perceived value criteria were also found to have a positive and signifi cant infl uence on all mediators — i.e., partner selection crite-ria (γ = 0.62, p < 0.01), absorptive capacity (γ = 0.5, p < 0.05), and bargaining power (γ = −0.12, p < 0.05),

Table 3. Manifest variable validity and reliability

Unstandardized Coeffi cients

S.E. Critical Ratio

R2

Asymmetric MotiveAM 6.23 0.312 19.46 1Value CreationVC 4.14 0.24 17.14 1Partner Selection CriteriaPS 3.5 0.043 81.1 1Perceived Value CriteriaLEARN 1.24 0.13 9.49 0.32COSPS 0.13 0.22 0.6 0.07COOPT −3.21 0.15 −21.4 0.54Absorptive CapacityAC 6.67 0.21 31.67 1Bargaining PowerEQ 5.78 0.34 16.89 1Industry ROAIROA 13.42 0.67 19.96 1IndustryIND 4.48 0.054 82.91 1Vertical/HorizontalVH 3.5 0.096 36.38 1AgeAGE 7.82 0.199 39.17 1SizeRFS 4.77 0.161 29.62 1



Tab

le 4

. La

tent

var

iabl

e re

liabi

lity,

valid

ity, a

nd m

odel

fi t m

easu

res*

Val

ue

Cre

atio

nA

sym

met

ric

Moti

vePa

rtner

Sel

ecti

on

Perc

eive

d

Val

ue

Cri

teri

a

Abso

rpti

ve

Cap

acit

yBar

gai

nin

g

Pow

erIn

dust

ry

RO

AIn

dust

ryVer

tica

l/H

ori

zonta

lA

ge

Rel

ativ

e Fi

rm

Siz

e

Valu

e C

reat

ion

1.00

Asym

met

ric M

otiv

e0.

181.

00Pa

rtne

r Sel

ectio

n C

riter

ia−

0.07

0.14

1.00

Perc

eive

d Va

lue

Crit

eria

−0.

01−

0.34

0.01

1.00

Abso

rptiv

e C

apac

ity−

0.07

0.07

0.01

−0.

071.

00Ba

rgai

ning

Pow

er0.

040.

190.

02−

0.17

0.02

1.00

Indu

stry

ROA

0.05

0.19

−0.

01−

0.59

0.04

0.10

1.00

Indu

stry

−0.

020.

150.

020.

010.

010.

020.

061.

00Ve

rtic

al/H

orizo

ntal

−0.

20−

0.36

−0.

07−

0.16

−0.

01−

0.04

0.23

0.03

1.00

Age

0.03

−0.

15−

0.02

0.06

−0.

01−

0.03

−0.

13−

0.19

0.01

1.00

Size

0.01

−0.

04−

0.02

−0.

270.

010.

030.

12−

0.10

0.09

−0.

011.

00

MO

DEL

FIT

MEA

SURE

SD

egre

es o

f Fre

edom

23χ

229

.13

Root

Mea

n Sq

uare

d Er

ror o

f App

roxi

mat

ion

0.03

7p-

valu

e0.

176

Nor

med

Fit

Inde

x0.

91C

ompa

rativ

e Fi

t Ind

ex0.

96In

crem

enta

l Fit

Inde

x0.

97G

oodn

ess-

of-F

it In

dex

0.98

Root

Mea

n Sq

uare

Res

idua

l0.

047



thus providing support for hypotheses H4a, H6a, and H7a and also for the mediation hypotheses H4b, H6b, and H8b. Th e eff ect of perceived value criteria was found to be negatively associated with bargaining power of fi rms in a CBJV, thus confi rming the results of extant studies on bargaining power.

Th e age of CBJV and relative size of partners had a positive and signifi cant impact on value creation (γ = 0.58, p < 0.05 and γ = 0.44, p < 0.05, respectively). In contrast, industry ROA and vertical/horizontal CBJV were found to be signifi cantly negatively associated with value creation in a CBJV (γ = −0.25, p < 0.05 and γ = −0.16, p < 0.05, respectively); the model as a whole explained 38% of the variance in the value creation of CBJVs in our sample.

Although published empirical studies often do not go beyond establishing goodness of fi t (Kaplan, 2000), an important practice in SEM evaluation is the detailed interpretation of structural coeffi cients. While direct paths from independent observed measures to dependent observed measures cannot be decomposed (the observed measures of both independent and dependent measures are endogenous to their associated latent variables, making the decomposition of the paths from indepen-dent to dependent measures technically inappropriate), an examination of the relationships between the inde-pendent latent variable measures in terms of both stan-dardized regression weights and variances explained can still yield some interesting qualitative insights. Referring again to Table 3, for example, perceived value criteria are refl ected most strongly in co-option value criteria with an unstandardized weight of –3.21. Th is fi gure is somewhat higher than the other observed measures asso-ciated with perceived value criteria: learning (unstan-dardized weight 1.24) and co-specialization criteria (unstandardized weight 0.13). Th is suggests that a key driver of the negative relationship between perceived value criteria and bargaining power in a CBJV is the co-option criteria the partners adopt in an Indian CBJV with G7 nations.T

able

5.

Stru

ctur

al m

odel

: Par

amet

er e

stim

ates

Part

ner

Sel

ecti

on C

rite

ria

Abso

rpti

ve C

apac

ity

Bar

gai

nin

g P

ow

erVal

ue

Cre

atio

n

Est

imat

ed

Coef

fi ci

ent

Err

or

p-V

alue

Est

imat

ed

Coef

fi ci

ent

Err

or

p-V

alue

Est

imat

ed

Coef

fi ci

ent

Err

or

p-V

alue

Est

imat

ed

Coef

fi ci

ent

Err

or

p-V

alue

Asym

met

ric M

otiv

e0.

160.

078

<0.

050.

540.

078

<0.

050.

150.

077

<0.

050.

160.

096

<0.

05Pa

rtne

r Sel

ectio

n0.

960.

069

<0.

01Pe

rcei

ved

Valu

e0.

620.

097

<0.

010.

50.

098

<0.

05−

0.12

0.09

6<

0.05

0.69

0.17

<0.

01Ab

sorp

tive

Cap

acity

0.76

0.06

8<

0.01

Barg

aini

ng P

ower

0.17

0.07

<0.

05In

dustr

y RO

A0.

480.

11<

0.05

0.11

0.11

<0.

05−

0.11

0.13

<0.

050.

10.

11<

0.05

Indu

stry

−0.

110.

073

<0.

050.

120.

074

<0.

050.

50.

077

<0.

05−

0.25

0.07

1<

0.05

Vert

ical

/Hor

izont

al0.

740.

085

<0.

01−

0.14

0.08

6<

0.05

−0.

130.

091

<0.

05−

0.16

0.08

2<

0.05

Age

−0.

230.

072

<0.

05−

0.27

0.07

3<

0.05

0.11

0.07

6<

0.05

0.58

0.07

1<

0.05

Size

−0.

120.

079

<0.

050.

350.

08<

0.05

0.89

0.08

6<

0.01

0.44

0.07

8<

0.05

R2

0.5

10

.38

0.1

10

.38



A similar conclusion can be drawn through examina-tion of the independent observed measure variances explained (also in Table 3). In this table, the co-option criteria are shown to be the key element of perceived value criteria, with an R2 of 0.54. Th e alternative measures of perceived value criteria refl ect the latent variable with clear validity and reliability, but with a slightly lesser impact than the combined measure.

Th e results of a more common and recommended test (the Sobel test) for mediation analysis is shown in Table 6. Th e Z-score (>1.96) of the adapted Sobel test for dichotomous mediators (MacKinnon and Dwer, 1993) between asymmetric motives, perceived value criteria, and value creation is signifi cant at p < 0.05. Th is confi rms our hypotheses for mediation provided above.

Discussion, limitations, and future work

Th e fi ndings of this study on Indian CBJVs with G7 nations indicate that value creation in a CBJV enhances with greater asymmetric motive, absorptive capacity, and bargaining power of the Indian partner in the CBJV. Moreover, task-related partner selection criteria and co-option in the CBJV increase the value created in the CBJV, thus providing strong support for the respective hypothesis H1a, H1b, and H2c. Moreover, strong support for partner selection criteria, absorptive capacity, and bar-gaining power as a mediating role between asymmetric

motive, perceived value criteria, and value creation is established. While asymmetric motives positively aff ect the mediators, co-option value criteria negatively aff ect bargaining power as mediator. Th is may be attributed to the fact that greater competition within the Indian CBJV with a G7 nation decreases the bargaining power of the Indian partner in the CBJV.

Th is research includes CBJVs from varied industries (Gulati, 1995) as well as CBJVs in India, which is a fast-growing economy and has an important stature in world business aff airs (Krishnan et al., 2006). In addition, the focus of this study was on G7 nations, given that these countries are very infl uential in the international social, political, and economic arenas and yet their CBJVs in developing nations are little understood. Th e results of this study also provide a new perspective that industry and the vertical/horizontal divide in CBJVs have a negative and signifi cant eff ect on value creation in Indian CBJVs with G7 nations. Previous studies have stated that a partner selection criterion in a CBJV is related to value creation in the CBJV. Yet, extant studies do not empiri-cally address the impact of partner selection criteria as a mediator between motive and value creation in CBJVs. Our fi ndings reinforce the conclusions reached by authors who propose that motive in a CBJV decides the partner selection criteria in the CBJV, which yields signifi cant benefi ts for value creation in the CBJV.

Th e fi ndings of this study have several practical con-sequences in developing nations. By focusing on the

Table 6. Mediating infl uence of partner selection criteria, absorptive capacity, and bargaining power

Initia Variabe Mediating Variabe Outcome Variable Z Value (Sobel Test) p-value

Asymmetric Motive Partner Selection Criteria Value Creation 2.029344349 <0.05Asymmetric Motive Absorptive Capacity Value Creation 5.885435181 <0.05Asymmetric Motive Bargaining Power Value Creation 2.291659762 <0.05Perceived Value Criteria Partner Selection Criteria Value Creation 5.808152669 <0.05Perceived Value Criteria Absorptive Capacity Value Creation 5.548483405 <0.05Perceived Value Criteria Bargaining Power Value Creation 2.270223433 <0.05



mediation mechanism for motive, value criteria, and value creation in CBJVs, the authors have highlighted the role of partner selection criteria, absorptive capacity, and bar-gaining power of the Indian partner in a CBJV as impor-tant parameters deciding the value created in an Indian CBJV over time. Moreover, our study indicates that task-related partner selection criteria create more value for CBJV partners in the Indian context, which has not been the fi nding from extant studies of developed nation CBJVs. Th is study fi nds that co-option value creation criteria in CBJVs diminish the bargaining power of the Indian partner in a CBJV. Th e empirical fi ndings also indicate that industry and vertical CBJVs reduce the value created in Indian CBJVs. It should further be noted that the major industry in which CBJVs were studied in this research was the service industry (see Table 1), and thus the fi ndings of this study suggest that most CBJVs in the service sector in India with G7 nations create lesser value.

Our fi ndings are subject to a number of limitations. Th e scope and results observed in this study may be expanded to include CBJVs within particular nations, non-Indian CBJVs, less formal relationships, and diff erent types of alliances, which may yield new insights into the mediating role of partner selection criteria, absorptive capacity, and bargaining power between asymmetric motives, perceived value criteria, and value created in a CBJV. Th e fi ndings in this paper suggest additional ques-tions for future research. Further studies could explore how partner fi rms with greater asymmetric motives in a CBJV could overcome the inherent challenges in weaving together the disparate resources, goals, and motives within partners to create greater value for the CBJV. While prior research has indicated that fi rms are becoming adept at collaborating with diverse partners (Powell et al., 1996) and the challenge of going global is to take advantage of ideas (Birkinshaw and Hood, 2001), part of the answer may have been reported by Dyer (1996, 1997), who found that synergy among partner fi rms can result from deeper and more carefully coordinated relationships.

Another factor infl uencing value creation in a CBJV may be the fi rm’s CBJV experience and the presence of a dedi-cated CBJV function (Kale et al., 2002). Further, if the ability to capture common benefi ts is more partner-spe-cifi c than the ability to derive private benefi ts and a CBJV with a dissimilar partner has a higher level of common benefi ts associated with it (Khanna, 1998), future research could confi rm the implication of our fi ndings. Another signifi cant analysis which could be conducted in future studies is to explore other mediators which play a role in value creation in a CBJV, such as trust between partners and risk associated with the CBJV.

Conclusion

While previous studies have considered only the correlates of CBJV value creation from either partner’s viewpoint, our focus in this research has been to determine the mech-anism of value creation in a CBJV by considering the mediators from both partners’ relative viewpoints. Although a focus on individual partner fi rms is an appro-priate unit of analysis within the study of CBJVs, a view of relative partner characteristics appears to be impor-tant — as discussed by several scholars. Th is study builds on resource-dependent and power-dependent theory that the relative partner fi rm’s context in which a CBJV is embedded infl uences the value creation in the CBJV. Researchers have generally overlooked the question of relative comparison in their analyses of CBJV value cre-ation and moreover relied only on event studies, which neglect the performance of fi rms over time. Th is paper provides some insight into the mechanism between asym-metric motives, perceived value criteria, and value cre-ation in CBJVs by exploring the causal relationships which translate the benefi t of initial variables to the outcome variables by mediators. Th us, this paper shows how an examination of an overall mechanism that is more sensitive to relative partner fi rm analysis can make a contribution to our understanding of value creation in CBJVs.



Acknowledgments

Th e authors thank Professor Nicholas O’Regan and Pro-fessor Carlo Milana for their support and guidance in preparing this paper.

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BIOGRAPHICAL NOTES

Sanjay Dhir is Assistant Professor, Chandragupt Institute of Management Patna in the Strategic Management Area. He is a fellow of the Indian Institute of Management Lucknow. Prior to this, he completed his Bachelor of Engineering (B.E.) at the Institute of Technical Education and Research, Bhubaneswar. He worked at Mahindra and Mahindra Ltd (automotive division), R&D department, Nasik for three years. He has published in leading journals and several conference proceedings internationally.

* Correspondence to:

Sanjay Dhir

E-286, Sector 2, HEC Ltd

Ranchi-834004, Jharkhand

India

email: [email protected]

Amita Mital has a doctoral degree in management, specializing in strategic management. She has 25+ years of experience in industry and academia. She has authored text and case books in strategic management and has published several papers and case studies in leading journals. Presently a faculty member at the Indian Institute of Management Lucknow, her teaching and research interests are in strategic management, strategic alliances, strategic change, and management of innovation.

Documents

Value Creation on Bilateral Cross-Border Joint Ventures: Evidence from India