Post‐Formation Inter‐Partner Equity Transfers in International Joint Ventures: The Role of Experience

Abstract

Under what conditions is an IJV partner likely to acquire its counterpart's equity stake upon a market cue of more opportunities; or sell its own equity stake to the counterpart upon a market cue of fewer opportunities? The puzzle springs from the premise that, upon a market cue, both the MNE partner and the local IJV partner are motivated to appropriate value in a manner consistent with the direction of the market cue. However, only one partner can change the ownership share in its favor. Building on the real options logic and the experiential learning perspective, we suggest that the local partner is more likely to realign ownership share in its own favor, all else equal. However, an MNE's cumulative operational experience overturns this. Our model is supported by data on Japanese automotive supplier IJV equity changes over an 18‐year period.

Distance Costs and The Degree of Inter‐Partner Involvement in International Relational‐Based Technology Alliances

“…This study shows the effect of specific institutional and distance cost issues on the preference of the inter‐partner involvement in international relational‐based technology alliances. However, the degree of the involvement of partners can also change over time due to their learning and experience of the partners (Iriyama and Madhavan, , this issue). To increase our understanding of preference of the degree of involvement of allied partners, the dynamics of the relational‐based alliances should be included in further research.…”

On the future of international joint venture research

“…Not only management consultants have suggested the need to analyze documented negotiation outcomes (contracts) to better understand subsequent organizational decisions and performance of IJVs (Ruggeri, Armstrong, Gala, & Fennessey, 2016). Reviewing the recently increasing number of research studies that make use of JV and alliance contracts (Chi & Zhao, 2014;van Kranenburg, Hagedoorn, & Lorenz-Orlean, 2014;Merchant, 2014;Perkins, Morck, & Yeung, 2014;Iriyama & Madhavan, 2014), Contractor and Reuer (2014) argue for linking objectives and task characteristics with different kinds of contract provisions. In particular, they raise the question ''what contract clauses are appropriate for different types of alliances?''…”

Structuring and Governing Alliances: New Directions for Research

“…Like Perkins et al . (, this issue), the final article in this special issue— Post‐formation inter‐partner equity transfers in international joint ventures: the role of experience (Iriyama and Madhavan, , this issue—considers the post‐formation dynamics of international joint ventures. This article complements two of the other articles that focus on the initial ownership stakes of partners, and it does so by investigating the transfer of equity between the partners during the execution of the joint venture.…”

“…Kogut's () seminal application of real options theory to joint ventures suggested that a partner can exercise the option to expand when a favorable demand cue emerges and can hold the option open otherwise. Iriyama and Madhavan (, this issue) shift the unit of analysis from the joint venture to the parent firm level, enabling the authors to pursue the question of who acquires equity from whom, rather than whether or not equity is acquired by one of the partners. They argue that local partners will generally be in a better position to spot more (or worse) growth opportunities and act accordingly, but foreign partners can develop such abilities with experience accumulated in the host country.…”