R&D intensity and international joint venture performance in an emerging market: moderating effects of market focus and ownership structure

Abstract

In this study we examine the contingent relationship between R&D intensity and performance of international joint ventures (IJVs) in an emerging market context. Based on Teece's (1986) arguments regarding the appropriability of innovation, we identify two types of appropriability hazard related to IJVs’ R&D activities in this context: local-market-related and local-partner-related hazards. We argue that a positive relationship between R&D intensity and IJV performance is more likely to occur if these appropriability hazard can be mitigated. Results using a sample of manufacturing IJVs in China provide support for these arguments. We find that R&D intensity is positively related to performance in export market-focused IJVs but not in local market-focused IJVs. In addition, using a configuration approach, we find that R&D intensity is positively related to performance in IJVs that have an export market focus and in which the multinational companies (MNCs) have a majority ownership, but not in other market focus-ownership structure configurations. These findings contribute to our knowledge of R&D activities of MNCs’ overseas subsidiaries. Journal of International Business Studies (2007) 38, 944–960. doi:10.1057/palgrave.jibs.8400301

Impact of ownership types on R&D intensity and innovation performance—evidence from transitional China

“…R&D intensity is measured by R&D expenditures divided by total sales; and innovation performance is measured by new product sales divided by total sales. A large number of studies have used R&D expenditures divided by firm sales as a measure of R&D intensity that can be viewed as the input of firms' R&D activities (Lee and O'Neill 2003;Zhang et al 2007). Sales of new product sales has been used as an innovation performance measure (Berchicci 2013;Cassiman and Veugelers 2006;Escribano et al 2009;Love et al 2009;Kafouros et al 2015;Tsai 2009;Zhou et al 2016) because it represents the success of new or significantly improved products in the market.…”

“…Unlike managers who will be reluctant to invest in long-term and risky R&D because their compensation and career are conditioned by short-term financial performance, large shareholders have a long-term interest and hence tend to support R&D (Wright et al 1996). For example, Zhang et al (2007) stated that foreign investors tend to support R&D activities when they have a majority ownership in international joint ventures in emerging economies. Choi et al (2011) suggested that large shareholders in Chinese listed firms prefer long-term investment projects, such as R&D in order to enhance their stability in this country.…”

“…Our sample spans around 30 two-digit industries in manufacturing sector, such as food, beverage, textile, electronic products, transport equipment, ordinary machinery, and special purposes equipment, and all 31 provinces and municipalities in China. Recent studies have used the census data for business research in a variety of areas due to the quality of data (Zhang et al 2007;Zhou and Li 2008). We set up our sample in two steps.…”

Early internationalization patterns and export market persistence: a pseudo-panel data analysis

“…This categorization proportionately divides the export intensity variable into quartiles in order to facilitate comparison across standardized categories and follow the usual export intensity categorization. Because of the skewness of the distribution in export intensity across international firms, this quartile-based categorization is considered more illustrative as compared to the alternative binomial 'foreign market focus'-'domestic foreign focus' categorization also found in the literature, which uses a simple 50% cut-off (Vendrell-Herrero et al 2017;Zhang et al 2007). Following Deaton (1985), the OECD categorization is viewed as appropriate as it also allowed each category to surpass a minimum critical cohort size.…”

Governance of Hybrid Organizations

“…Given that detailed information on joint ventures' governance characteristics in secondary data sources is largely unavailable, opportunities exist to enrich the theory of boards of directors in joint ventures, but primary data collection efforts will be required. The use of broad indicators will no longer suffice as the alliance governance literature develops as these indicators can be associated with many other factors, such as partners' incentives, bargaining power, decision rights, contracts, managerial commitments, and so forth (e.g., Mjoen and Tallman, 1997;Dhanaraj and Beamish, 2004;Choi and Beamish, 2004;Barden et al, 2005;Zhang et al, 2007;Beamish and Lupton, 2009;Reuer et al, 2011). By neglecting the board of directors, JV research can even impede theory development and testing since these boards are featured in alliance contracts, provide opportunities for private ordering, and are structures that can shape cooperative norms and processes between firms (Reuer et al, 2011).…”