Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
Host Country Perspectives on Partner Selection Criteria for the
Success of International Joint Ventures: An Empirical Survey of
Korean Firms
Jae Hoon Hyun* and Sun Yeop Ahn
This study examines hosting country firms' perspective on how their
choice of partner selection criteria affects the transitional variables and
the performance of international joint ventures with particular reference to
Korean firms. This approach contributes to the relatively under-explored
research area of partner selection criteria with narrowly confined to the
perspective of home country firms. The findings of this study show that
task-related and partner-related criteria are both positively related to trust
and commitment to international joint venture relationships, but the result
concerning task-related criteria repudiates the existing views that less
developed hosting country firms select foreign partners based on
partners' attributes. This study provides the practical implication that
hosting firms should revise their partner selection criteria which will
eventually lead to the more desirable performance of international joint
ventures.
Key Words: International Joint Venture, Partner Selection Criteria, Task-related Criteria,
Partner-related Criteria, Joint Venture Performance
Introduction
The last few decades have witnessed the dynamic development of global strategic alliances
and international joint ventures between both cooperative and competitive firms so as to cope
with dynamic and challenging global business environments. Many studies have attempted to
address this strategic dimension of global business (Faulkner & Rond, 2001) with the main
focus having been placed on the formation of strategic alliances (Gulati, 1995), relational
dependency (Harrigan, 1988), and the factors contributing the success of alliances (Murphy
and Kok, 2000). However, there are fewer studies in the area of partner selection.
Early studies examined the characteristics of joint ventures and performance as a result of
selection decisions in the manufacturing sector (Tomlinson, 1970; Daniels, 1971). In the
1980s, the scope of studies expanded to consider partner selection criteria in more general
strategic alliances (Awadzi, 1987; Beamish, 1987; Geringer and Herbert, 1991; Kumar, 1995).
These studies sketched common partner selection criteria and highlighted the importance of
selecting an appropriate partner for the success of international joint ventures and strategic
alliances. However, these studies had limitations in that they were carried out the
perspectives of firms from developed home countries. Several studies have attempted to
examine the perspectives of firms from host countries, but comprehensive work in this area
*Corresponding Author Jae Hoon Hyun, Hankuk University of Foreign Studies, Korea. email: jhyun@hufs.ac.kr
Sun Yeop Ahn, Hankuk University of Foreign Studies, Korea.
Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
continues to be required (see: Geringer and Herbert, 1991; Beamish, 1993, Arino et al., 1997;
Wang et al., 1999, Al-Khalifan and Peterson, 1999).
This study aims to identify how partner selection is carried out and its relation to the success
of joint ventures from a host country perspective, drawing from examples of Korean
companies. The findings of this study will help understand how different types of partner
selection criteria are related to the success of joint ventures, which may provide implications
for host country firms in terms of their partner selection and its impact on the success of the
partnership. The following sections present the research frame and hypotheses derived from
a theoretical review, the methodology and the results of empirical analysis and discussion,
which are then followed by the conclusion.
Literature Review
The selection of a particular partner determines the configuration of the proprietary resources
and technology to which a firm has access and significantly affects the success of its strategic
investment objectives (Harrigan, 1985, Tomlinson 1970). It is therefore critical for firms to
understand the process of partner selection and the factors affecting this process (Geringer
and Herbert, 1991).
Tomlinson (1970) forms the starting point of research into partner selection criteria, with his
study based on evidence collected from 50 British firms with investments in India and
Pakistan. The author suggested favorable cooperative relations, resource compatibility, and
the location of the partner as critical among the factors affecting the joint venture process. He
also found that the profitability of joint ventures seemed to be inversely related to the size of
the foreign parent company and to its predilection for control over a joint operation. Daniels
(1971) analyzed the foreign direct investment of US manufacturing firms and suggested the
commensurate size of the partner firm as the most important criterion for partner selection in
order to secure impartial cooperation between partner firms. This view was also supported by
Adler and Halavacek (1976), which pointed out that partner firms being different sized may
facilitate complementarity in their cooperation in customized marketing, technology, human
resources, and financial resources.
In the 1980s, the span of research on partner selection moved beyond simple joint ventures
to also consider strategic alliances, which was paralleled by the increasing number of
strategic partnerships among competitive firms (Awadzi, 1987; Beamish, 1987). Many studies
advanced the discussion of partner selection criteria with attempts to identify the indirect
factors involved, such as partnership experience, length of partnership, and performance of
previous alliances as well as the direct complementarity of proprietary resources. These
studies provided comprehensive lists for optimum partner selection but had limitations due to
their lack of categorization, incurring ambiguity and duplications.
Indeed, Geringer and Herbert (1991) argued that previous studies suffered from this lack of
appropriate classification and for the first time suggested two groups of partner selection
criteria. The first comprised task-related criteria, including operational capacities and the
resources required for the success of a joint venture such as technological know-how,
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
financial resources, experienced human resources, marketing capabilities, and distribution
channels (Glaister and Buckley, 1997; Nielsen, 2003; Tatoglu, 2000). Partner-related criteria
formed the second category, connoting the cooperative elements between partners that can
ensure the efficiency and effectiveness of a partnership, as derived from experience with a
particular partner. These factors are related to the company’s character, reputation, culture
(including nationality), the culture of the partner country and corporation, favorable partnership
experience, trust, organizational dimensions and structure (Geringer and Herbert, 1991).
Subsequent studies in the 1990s placed emphasis on the various circumstances in which
partner selection categories are applied. Host country perspectives were considered in
understanding the different criteria for partner selection in countries with different economic
and business environments (Beamish, 1993). For instance, Wang et al. (1991) analyzed local
firms in Singapore, and Arino et al. (1997) examined Russian companies, with another study
examining cases of indigenous corporations in Bahrain (Al-Khalifan and Peterson, 1999).
Evidence was also found in an earlier study that compared Mexican and Canadian companies.
Here, the selection criteria for Mexican companies on the part of Canadian firms consisted of
their technology and experience, together with their reputation in terms of their
complementarity, common objectives, and favorable relationships with local government
(Tomlinson and Thompson, 1977).
Recent studies also confirmed that there are discrepancies in partner selection criteria
between firms from developed and developing countries, with the complementary capabilities
of partners to enable the efficient utilization of proprietary resources being considered as
partner selection criteria for firms from developed countries while companies from developing
countries, due to a lack of financial resources, select partners based on the accessibility of
financial capabilities (Hitt et al., 2000). Dong and Glaister (2006) surveyed 203 Chinese
companies involved in international alliances and analyzed the results based on the
assumption that their partner selection criteria might be different from those of their foreign
partners. The authors employed four task-related and two partner-related criteria and found
that the Chinese firms had a tendency to select their partners based on task-related criteria,
which positively affected strategic motives. The authors argued that a majority of previous
studies on the international joint ventures of Chinese firms had been carried out from the
viewpoint of foreign partners and thus suffered from a lack of comprehensive understanding
of the strategic contours of joint ventures and alliances. The following table summarizes the
partner selection criteria, categorized into partner-related and task-related criteria, which have
most frequently been adopted in studies since the 1990s. This table also reflects the
perspective that home and host country firms may have different partner selection criteria.
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
Table 1: Previous Studies on Partner Selection Criteria
Sub
Criteria
Factors
Previous Studies
Criteria
Patent
Kumar (1995), Geringer and
Technological Know- Herbert (1991), Tomlinson and
Asset
How
Thompson (1977), Tomlinson
Financial Resources
(1970)
Experienced
Kumar (1995), Adler and
Human
Manager(s)
Halavacek (1976), Cavusgil and
Resources
Skilled Workforce
Evirgen (1997)
TaskMarketing
related
Kumar (1995), Geringer and
Capabilities
Market
Herbert (1991), Beamish (1993),
Distribution Channel
Access
Killing (1983), Adler and
Market Access
Halavacek (1976)
Market Share
General Business
Beamish (1993), Geringer and
Knowledge Knowledge
Herbert (1991)
Management Skill
Span and Structure of Tomlinson (1970), Daniels (1971),
Network
Organization
Awadzi (1987), Geringer and
Partner Experience
Herbert (1991), Kumar (1995)
Reputation
Saxton (1997), Geringer and
Social
Brand recognition
Herbert (1991), Arino et al. (1997),
PartnerStatus
Nationality
Glaister and Buckley (1997)
related
Organizational
Similarity
Tomlinson (1970), Daniels (1971),
Culture
Management System Awadzi (1987), Geringer and
Management Policy
Herbert (1991), Kumar (1995)
Shared Values
As the focus of this study is on how firms determine partner selection criteria, and how this
eventually impacts on the performance of joint ventures and alliances, it is necessary to first
define what is understood to represent successful cooperation between firms. The success of
joint ventures and alliances can be evaluated by their stability and the length of cooperation
(Harrigan, 1988; Parkhe, 1991). This approach is widely accepted, but the end of an alliance
does not necessarily signal its failure, but may simply indicate that the objectives of the
alliance have been achieved (Gulati, 1998; Inkpen and Beamish, 997). Neither can the
subsistence of an alliance automatically be considered as representing success, as firms may
have to maintain partnerships because termination would incur high exit costs (Gulati, 1998).
Financial outcomes such as revenue and profit are commonly employed as objective
methods of assessing the performance of cooperation (Cullen et al., 2000). It is, however,
difficult to evaluate the outcomes of some of the strategic and organizational motives for
cooperation, as factors such as access to new markets and knowledge transfer cannot be
easily quantified. Due to the limitations of the above methods, subjective assessment of the
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
degree of satisfaction is frequently used to determine whether the comprehensive goals of
cooperation have been achieved (Cullen et al., 2000; Parkhe, 1991).
A number of studies have utilized commitment and trust as the mediating variables affecting
the successful performance of alliances (Cullen et al., 2000; Inkpen and Beamish, 1997;
Madhok, 1995). Madhok (1995) particularly focused on commitment and satisfaction with the
partnership as positively affected by the variables as the necessary mechanism to control
undesirable instances derived from partnership. Sarkar, Cavusgil and Evirgen (1997)
examined international joint ventures in the construction industry and found that commitment
and trust resulted in positive effects in terms of project efficiency and strategic benefits. Cullen
et al. (1995) also identified positive correlations between commitment, satisfaction and
financial achievement in Japanese joint ventures with foreign firms. Under uncertain
conditions of alliance, trust between partners precipitates desirable behaviors and this
significantly reduces the risks of alliances (Madhok, 1995). Shapiro (1989) and Ganesan
(1994) suggested that trust is a more decisive factor than is the complementarity between
partner firms for long-term success and adjustment to dynamic business environments. Trust
and commitment have also been considered to be critical mechanisms in the control and
coordination that lead to cooperative behavior and harness opportunistic motivations (Burt,
1997; Das and Teng, 1998).
Hypotheses Development
In this study, the framework of Geringer and Herbert (1991), who grouped selection criteria
into task-related and partner-related, is applied. Firms that select partners based on taskrelated criteria, coupled with strategic resources and technologies that can provide
competitive advantage, will consider the complementarities of proprietary resources as a
crucial factor in cooperative success (Luo, 1997; Chowdhury, 1989). Once a firm selects its
partner based on resource complementarity, this subsequently induces a commitment to the
partnership so that mutual access to proprietary resources can be interpreted as reflecting
partners’ commitment to the success of their IJV (Madhok, 1995; Das and Teng 1998; Dong
and Glaister, 2006).
In the case of firms that choose partner firms by employing partner-related criteria such as
social status, corporate culture and reputation within the industrial network involved, such
firms will consider organizational conformity as a critical success factor (Gansesan, 1994).
The formation of an alliance in this context will be concerned with the cooperative relationship
that enables shared decision-making and operation, which cannot be accomplished without
trust (Burt, 1997).
Hypothesis 1-1: The degree of commitment to the alliance relationships of Korean firms
will be positively affected by the type of partner selection decision that places more
emphasis on task-related criteria.
Hypothesis 1-2: The degree of trust in the alliance relationships of Korean firms will be
positively affected by the type of partner selection decision that places more emphasis
on task-related criteria.
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
Hypothesis 2-1: Commitment to the alliance relationships of Korean firms will be
positively affected by the type of partner selection decision that places more emphasis
on partner-related criteria.
Hypothesis 2-2: Trust in the alliance relationships of Korean firms will be positively
affected by the type of partner selection decision that places more emphasis on
partner-related criteria.
Commitment to an international joint venture or strategic alliance between partnering firms will
positively encourage participants to invest time, energy, and other managerial resources so
as to sustain the cooperative relationship, which will eventually result in a desirable
partnership and performance (De la Sierra, 1995).
A trust-based relationship is considered to have positive effects on a partnership due to
minimizing the time and cost required for control and coordination and to increasing the
flexibility that is needed for prompt decision making in dynamic business environments, thus
eventually leading to improved firm performance (Doz and Hamel, 1998).
Hypothesis 3-1: A higher degree of commitment to the alliance relationships of Korean
firms will positively affect performance.
Hypothesis 3-2: Trust in the alliance relationships of Korean firms will positively affect
performance.
As suggested, the correlations between the selection of task-related and partner-related
criteria and the commitment to, trust in, and performance of, an IJV will differ among firms
from host and home countries (Cullen et al., 1985). This study is particularly interested in
which selection criteria are utilized by Korean firms in successful alliance relationships. The
survey result of this study show which criteria are employed by a majority of Korean firms
when selecting partners for alliances and joint ventures, and will further indicate how such
selection criteria can effectively lead to the successful performance of alliances and joint
ventures. This work provides policy implications for firms in alliances in Korea in terms of
which partner selection criteria they should use to optimize their performance.
To take this further, the selection of an appropriate partner is known to be a decisive direct
variable that determines both the proprietary resources to which a firm can have access and
the successful achievement of the objectives of an alliance (Tomlinson, 1970; Killing, 1983;
Harrigan, 1985; Mohr and Spekman, 1994). That is, the process of selecting partners decides
the resource mix a firm will have as well as whether its strategic objectives can be achieved
(Harrigan, 1995; Killing, 1983). Studies from China, and Singapore that have examined host
country perspectives on IJV have suggested that there is a correlation between selecting
partners based on task-related criteria and the performance of firms (Wang et al., 1999; Dong
and Glaister, 2006). Case studies from Russia and Bahrain showed that firms that select
partners with more emphasis on partner-related criteria tend to achieve better performance
(Arino et al., 1997; Al-Khalifan and Peterson, 1999).
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
Hypothesis 4-1: The selection of partner firms based on task-related criteria will
positively affect the performance of international joint ventures in Korea.
Hypothesis 4-2: The selection of partner firms based on partner-related criteria will
positively affect the performance of international joint ventures in Korea.
Based on the literature review and hypotheses development as given in the previous sections,
a research model (Figure 1) is established to examine how the sub-factors under each type of
partner selection criteria can be properly categorized so as to verify the significance of each
factor. In this model, commitment and trust are mediators that eventually lead to the positive
performance of international joint ventures in Korea.
Figure 1 Research Model
Research Methods and Variables
A series of surveys were administered to sample firms acquired from 1,100 joint ventures as
registered in the KIS VALUE database by the end of 2010. Firms with less than 10% and over
90% of foreign share were excluded as these were not considered to be in an appropriate
cooperative relationship for the study purposes. A structural equation model was employed for
statistical examination of the hypotheses. The benefits of this method are that a path analysis
showing both the direct and indirect effects and the effects of the moderating variables can be
more easily assessed compared to the case for multiple regression methods. Based on
previous studies, the dependent, moderating and independent variables were established
based on respondents’ opinions as given on 7-point Likert scales. The questionnaires were
gathered between December 2011 and March 2012 and 221 samples were finally collected.
The sub variables and factors for the partner selection criteria were determined by referring
to the variables commonly utilized in previous studies (Geringer and Herbert, 1991; Dong and
Glaister, 2006; Kumar, 1995; Luo, 1997). Patents, technological know-hows, financial
resources, experienced management, human resources, marketing, distribution channels,
market accessibility, market share, general business knowledge and management skills were
used as the task-related partner selection variables. The partner-related criteria included subvariables such as the size and structure of the organization, previous joint venture experience,
reputation, brand recognition, nationality, organizational similarity, management system,
management policy, and shared values.
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Proceedings of 24th International Business Research Conference
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Table 2: Variables and the structure of the survey questionnaire
Variables
Measured Variable
Previous Studies
Scale
Taskrelated
Patent and Technological
Know-How
Financial Resources
Experienced Management
Human Resources
Marketing Capabilities
Distribution Channel
Market Accessibility
Market Share
General Business Knowledge
Management Skill
Geringer and
Herbert (1991),
Kumar (1995),
Adler and
Halavacek (1976),
Cavusgil and
Evirgen (1997),
Beamish (1993),
Killing (1983)
7-point
Likert
scale
Partnerrelated
Size and Structure of
Organization, Previous
Alliance Experience
Reputation
Brand Recognition
Nationality
Organizational Similarity
Management System
Management Policy
Shared Values
Partner
selection
Criteria
Commitment
Trust
International JV
Performance
General Information
Geringer & Herbert
(1991), Dong and
Glaister
(2006),
Luo
(1997), Daniels
(1971), Awadzi
(1987), Saxton
(1997), Glaister
and Buckely (1997)
Intention to Provide Resources
Provision of Human
Cavusgil & Evigen
Resources
(1997)
Johnson et
Concern for the Future of
al (1996)
Partner
Discretional Participation to
Solve Problems
Overall Trust
Trust in Contract and
Agreement
Trust in Information
Fair Practice
Honesty
Achievement of strategic goals
Improvement of
Competitiveness and
Competency
Satisfaction with Financial
Performance
Overall Satisfaction with
Performance
Intention to Maintain and
Develop Partnership
Status, Length of Service,
Industry, Length of Alliance
8
7-point
Likert
scale
7-point
Likert
scale
Parkhe (1991)
Young-Ybarra &
Wiersema (1999)
Geringer & Herbert
(1991) Parkhe
(1991)
Saxton
(1997)
7-point
Likert
scale
Nominal
Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
Statistical Analysis
Initially, the factorability of the 20 items under the partner selection criteria was examined. Ten
of the twenty items correlated to at least a primary factor loading of .4, suggesting reasonable
factorability. Items with factor loadings of less than .4 were suppressed. The Kaiser-MeyerOlkin measure of sampling adequacy was .824, which was above the recommended value
of .6, and Bartlett’s test of sphericity showed significance (x2=1138.165, p<.00). The initial
Eigen values indicated that task-related criteria explained 42.263% of the variance and
partner-related criteria 22.511% of the variance, with 64.744% of the variance explained in
total. The internal consistency for each of the scales was examined using Cronbach’s alpha,
with values of .843 and .876 for each criterion.
Table 3: Factor Loadings, Sampling Adequacy, and Internal Consistency for the Partner
Selection Criteria.
Factor
Eigen
Variance Internal
Factor Items
Loadings Value
Explained Consistency
Patent and Technological
.816
Know-How
Experienced
.873
Task-related
Management
selection
4.226
42.263% 0.843
Human Resources
.808
criteria
Distribution Channel
.635
General Business
.656
Knowledge
Nationality
.703
PartnerOrganizational Similarity
.890
related
Management System
.910
2.251
22.511% 0.876
selection
Management Policy
.856
criteria
Shared Values
.657
The examination of the factorability of the nine items related to commitment and trust showed
that six of these correlated to at least a primary factor loading of .4, suggesting reasonable
factorability. Items with factor loadings of less than .4 were suppressed. The Kaiser-MeyerOlkin measure of sampling adequacy was .756, above the recommended value of .6, and
Bartlett’s test of sphericity showed significance (x2=574.376, p<.00). The Eigen values
indicated that commitment explained 17.350% of the variance and trust 55.308% of the
variance, with 72.658% of the variance being explained in total. The internal consistency for
each of the scales was examined using Cronbach’s alpha with respective values of .813
and .840 for each criterion.
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Proceedings of 24th International Business Research Conference
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Table 4: Factor Loadings, Sampling Adequacy, and the Internal Consistency for
Commitment and Trust.
Factor
Eigen
Variance
Internal
Factor Items
Loadings
Value
Explained
Consistency
Intention to Provide
.900
Resources
Commitment
1.041
17.350%
0.813
Provision of Human
.874
Resources
Overall Trust
.871
Trust over Contract and
.855
Agreement
Trust
3.318
55.308%
0.840
Fair Practice
.648
Honesty
.567
The factor analysis for IJV performance showed that all five items correlated to at least a
primary factor loading of .4, suggesting reasonable factorability. Items with factor loadings of
less than .4 were suppressed. The Kaiser-Meyer-Olkin measure of sampling adequacy was
at .862, above the recommended value of .6, and Bartlett’s test of sphericity showed
significance (x2=700.705, p<.00). The Eigen values indicated that commitment explained
72.108% of the variance and the internal consistency, using Cronbach’s alpha, was .899,
above the recommended value of .6.
Table 5: Factor Loadings, Sampling Adequacy, and the Internal Consistency for IJV
Performance.
Factor
Eigen
Variance
Internal
Factor Items
Loadings
Value
Explained
Consistency
Achievement of
.865
Strategic Goals
Improvement of
Competitiveness and
.888
Competency
IJV
Satisfaction over
.852
3.605
72.108%
.899
Performance Financial Performance
Overall Satisfaction
.888
with Performance
Intention to Maintain
and Develop
.745
Partnership
The model fit analysis showed a CMIN value of 437.823 and DF at 179. The overall model fit
can be defined by a value for CMIN/DF of less than 3. The CMIN/DF(Q) value in this study
was 2.446, which can thus be considered to be appropriate. The RMSEA coefficient, which is
used to substitute for Chi-square in the case of a large number of samples, was 0.08, which is
also within the acceptable level.
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Measurement
Table 6: Model Fitness Analysis.
Absolute Fit Index
x2
df
P
RMSEA
GFI
(>.08)
(>.9)
437.823 179
0.000
0.08
0.837
Incremental Fit Index
IFI
CFI
(>.9)
(>.9)
0.904
0.903
The GFI (Goodness-of-Fit Index), which is used to show how well designed a model is for
explaining all variables and components, was measured as 0.837, which is less than the
acceptable level. However, the other commonly used fit indexes of the IFI and CFI were at
0.904 and 0.903, which may indicate that the overall fitness of the research model was
acceptable for analysis. The correlation analysis using aggregate measures, as shown in
Table 7, showed the variables were appropriate in terms of their discriminant validity and
predictive validity.
1. Task-Related Criteria
2. Partner-Related
Criteria
3. Trust
4. Commitment
5. Performance
** p <.01.
Table 7: Correlation Analysis.
1
2
3
.292**
-
.393**
.396**
.374**
.316**
.256**
.262**
.521**
.662**
4
5
.478**
-
Table 8 shows the results of hypothesis testing based on the coefficients among variables.
Firstly, the causal relationship between the importance of task-related criteria and
commitment to international joint ventures in Korea (Hypothesis 1-1) was found to be
significant as the regression coefficient was 0.629 and the CR (Critical Ratio) was 4.789, thus
acceptable at 99% reliability. The result for the effect of the task-related criteria on trust
(Hypothesis 1-2) showed a regression coefficient of .585 and a CR of 4.994, acceptable at 99%
reliability.
Secondly, the causal relationship between the importance of partner-related criteria and
commitment (Hypothesis 2-1) was found to be significant with a regression coefficient of
0.162 and a CR of 2.083, acceptable at 95% reliability. The test result for the effect of partnerrelated criteria on trust (Hypothesis 2-2) showed a regression coefficient of .154 and a CR of
2.336, acceptable at 95% reliability.
Thirdly, the effect of commitment between partners on the performance of international joint
ventures (Hypothesis 3-1) was found to be insignificant (Regression coefficient 0.092,
CR=1.223). By contrast, performance was significantly affected by the degree of trust
(Hypothesis 3-2) with 99% reliability (0.775, CR=6.681). These results generally coincide with
previous findings (Sarkar et al., 1997; Doz and Hamel, 1998; Dong and Glaister, 2006).
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Proceedings of 24th International Business Research Conference
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Path
Table 8: Test Results of Hypotheses.
Hypothesis Path
Standard
Coefficient Error
H 1-1
.629***
.131
Task-Related Criteria –
Commitment
Task-Related Criteria – Trust
Partner-Related Criteria –
Commitment
Partner-Related Criteria – Trust
Commitment – JV Performance
Trust – JV Performance
Task-Related Criteria –
Performance
Partner-Related Criteria –
Performance
*** p<.01, ** p<.05
t-value
4.798
Test
Result
Accept
H 1-2
H 2-1
.585***
.162**
.117
.078
4.994
2.083
Accept
Accept
H 2-2
H 3-1
H 3-2
H 4-1
.154**
.092
.775***
-.011
.066
.075
.116
.098
2.336
1.223
6.681
-.116
Accept
Reject
Accept
Reject
H 4-2
0.006
0.057
0.097
Reject
Finally, the test results for the direct effects of partner selection criteria on the performance of
international joint ventures showed that neither task-related nor partner-related criteria
(Hypothesis 4-1, 4-2) had statistically significant causal relations. This result is not compatible
with those of previous studies (e.g., Saxton, 1997; Geringer and Herbert, 1991; Arino et al.,
1997; Glaister and Buckely, 1997).
Discussion
Based on previous studies, it can be suggested that the selection of partner firms according to
task-related criteria ultimately leads to a higher degree of commitment and performance in
international joint ventures. The findings of this study indicate that Korean firms searching for
partners for international joint ventures employ task-related criteria but the contents of these
criteria seem somewhat different from those of foreign partners. The factor analysis showed
that the significant variables with factor loading values above 0.4 were technology, human
resources, distribution channel, and management skills. From the Korean firms’ point of view,
financial resources, marketing capabilities, market access and market share were considered
to be less significant criteria in selecting foreign partners.
Secondly, the results of the factor analysis for the partner-related criteria indicated that
Korean firms seeking partnership with foreign firms considered nationality, compatibility
between organizations, management policy, and shared values as being the selection criteria
that positively affected the trust relationship and the performance of their international joint
ventures. This finding implies that from the Korean firms’ point of view, cultural similarities and
organizational compatibilities are considered to be important for the success of international
joint ventures. In depth understanding of partner firms and their corporate culture will enable
Korean firms to develop desirable partnerships with foreign partners, which in turn is likely to
lead to the success of the partnership and its better performance. In other words, this finding
implies that cultural misunderstanding and organizational incompatibilities in the early stage of
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partner selection will eventually hamper the creation of a desirable relationship and the
success of international joint ventures. Thus, Korean firms at the initial stages of international
joint ventures may be able to learn from this finding so that cooperation can be made more
successful through appropriate understanding of the cultural context of partner firms.
Thirdly, the examination of the effects of different criteria for partner selection on
commitment and trust showed a path coefficient of 0.629 for task-related selection and
commitment (p<0.01) and 0.154 for partner-related selection and trust (p<0.05). This result
indicates that Korean firms consider task-related selection to be far more important than is
partner-related selection in terms of its favorable effect on the commitment to international
joint ventures. This finding implies that for Korean firms the intrinsic motivation for
international joint ventures at the early stage is focused on business and task factors rather
than relationships and benefits acquired from the reputation of foreign partners. This also
shows that Korean firms share a fairly equitable relationship with partner firms.
Fourthly, as was previously noted, the path coefficient for commitment was greater than that
for trust, which implies that the task-related selection and commitment path is believed to
represent an appropriate partnership from the Korean firms’ point of view. However, the
critical variable affecting the performance of international joint ventures was found to be trust,
rather than commitment. This result suggests that Korean firms select foreign partners
according to the criteria that affect positive commitment, which is found to be less relevant to
positive performance and meeting strategic objectives. It is necessary for Korean firms to
consider making alterations to their selection decisions and revising their selection criteria so
as to enhance the trust shared with foreign partners, which will eventually result in the more
desirable performance of international joint ventures.
Lastly, selecting a partner neither by partner-related criteria nor by task-related criteria
shows direct relevance to the positive performance of joint ventures from the Korean firms’
point of view. Nevertheless, the indirect and total effects indicate a different picture (Table 4).
In every path, the indirect effect showed a higher value than did the direct effect. It is therefore
likely that partner selection by different criteria has little to do with the actual performance of
joint ventures; rather, its relevance is likely to increase through the impact of the moderating
variables, specifically trust.
Table 9: Direct, Indirect and Total Effect on Performance
Path
Direct Effect Indirect
Total Effect
Effect
Task – Commitment –
-0.011
0.058
0.047
Performance
Partner – Trust - Performance 0.006
0.119**
0.125**
**p<0.05
This result implies that the moderating variables suggested in this study function as valid
moderators and should be considered as natural corollaries established in partnership
relations and important elements that can provide integrated understanding of the process of
causal effects that occur based on the selection of partners and that influence the
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performance of international joint ventures. Hence, this result confirms that commitment and
trust are effective factors moderating the choice of partner selecting criteria and IJV
performance.
Conclusion
In dynamic business environments, competing firms attempt to acquire opportunities to
generate new revenue and to avoid risks by means of strategic alliances and joint ventures. It
is, however, a difficult task to identify and select appropriate partners and achieve the ultimate
goals of joint ventures and alliances. It is thus necessary to analyze and establish proper
partner selection criteria as the first step in developing successful partnerships that can
ultimately lead to enhanced firm performance.
Based on this background, this study empirically examined 221 Korean firms engaged in
international joint ventures with foreign firms, so as to identify their partner selections criteria
and to clarify the way in which they select foreign partners and how this affects their
commitment and trust in their cooperative relations and the performance of the international
joint venture.
The findings of this study show that task-related selection criteria, particularly technology,
human resources, distribution channel, and management skills, are significant factors that are
relevant to the degree of commitment in international joint ventures in Korea, different from
the task-related selection criteria usually suggested in previous studies. The nationality of the
foreign partner, the compatibilities of the corporate cultures, and organizational similarities as
the partner-related criteria were significantly related to the performance of the IJV, with
commitment and trust as moderating variables. This result generally coincides with those of
previous studies. Nevertheless, both task-related and partner-related criteria showed positive
correlations to the moderating variables, with the task-related criteria more significantly
related to both commitment and trust. This implies that the partner relationships of Korean
firms and their foreign partners are likely to be equitable, despite the general assumption that
Korean firms form IJV based on opportunistic motivations such as acquiring reputation or
building business networks with partner firms.
It is worth noting that the performance of international joint ventures showed a significant
correlation with trust rather than commitment. However, Korean firms tend to select partners
based on selection criteria that affect commitment so as to be less likely to affect IJV
performance. It therefore seems likely that any Korean firms pursuing successful IJV
performance should adopt partner selection criteria that enhance trust and mutual
understanding and focus on building trusting relationship with their foreign partners.
The study develops a theoretical background as well as forming practical implication for
firms at the early stage of international joint ventures by casting light on partner selection
criteria and their consequences for performance. Nevertheless, there are a few limitations of
this study. Firstly, the perspective of foreign partners is not considered. This is mainly
because this study attempted to identify the perspectives of Korean firms for the sake of
academic contribution. A comparative study incorporating both perspectives would provide a
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more comprehensive framework for understanding the dynamic mechanisms of partner
selection and performance in international joint ventures. Secondly, the static nature of this
study meant that it showed a limited understanding of the choice of partner selection criteria
and the performance of international joint ventures in Korea. Subsequent studies need to
employ a time factor when considering IJV, so as to examine the dynamic effects of partner
selection on commitment, trust and performance.
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