Joint venture longevity in southern and eastern mediterranean countries

Abstract

Companies from mature economies have considerably developed their investments in emerging markets during the recent period (Hadjikhani et al. 2012; Mayrhofer 2013; UNCTAD 2014). These investments frequently take the form of international joint ventures (IJVs) signed with local partners. IJVs are defined as organizational entities managed jointly by two or more independent parents from different countries, who invest in a company’s capital to obtain strategic objectives (Shenkar and Zeira 1987). They can be created from scratch (greenfield IJVs) or through a partial acquisition of equity in an existing firm (Hennart et al. 1998; Hennart 2009). According to Meschi (2009), four main reasons explain the proliferation of international joint ventures: (1) achieving economies of scale and critical size; (2) learning and transferring competence and knowledge; (3) refocusing and restructuring a business portfolio; and (4) entering new risky markets. Despite their numerous advantages, joint ventures are often characterized by a high degree of instability (Park and Ungson 2001) and poor performance (Killing 1983; Geringer 1986). Empirical studies on IJV survival in emerging countries show that between 30% and 50% are sold off, bought out, or dissolved by the partners during the first five years of existence (Meschi 2005; Meschi and Riccio 2008; Prange and Mayrhofer 2014). Recent studies have been conducted in Hungary (Steensma et al. 2008), Brazil (Meschi and Riccio 2008), China (Duan and Juma 2007; Puck et al. 2009; Ott et al. 2014), and Russia (Prévot and Guallino 2012).