Decision‐making Autonomy in UK International Equity Joint Ventures
| Author | Peter J. Buckley,Rumy Husan,Keith W. Glaister |
| Published date | 01 December 2003 |
| DOI | http://doi.org/10.1111/j.1467-8551.2003.00381.x |
| Date | 01 December 2003 |
Decision-making Autonomy in UK
International Equity Joint Ventures
*
Keith W. Glaister, Rumy Husan and Peter J. Buckley
Leeds University Business School, Maurice Keyworth Building, University of Leeds, Leeds LS2 9JT
corresponding author e-mail: kwg@lubs.leeds.ac.uk
This paper investigates approaches to decision making in international joint ventures
(IJVs) from the perspectives of the transactions cost and resource-based theories of the
firm. In particular, the concept of autonomy in decision-making in a sample of UK-
European equity joint ventures is examined. The study adopts a multi-method personal
interview and self-administered questionnaire approach to examine managerial
perceptions of decision-making and autonomy in the parent firms and the joint venture.
The findings show that there are differences in the perception of autonomy between each
of the parent firms, and between the parent firms and the IJV management. When we
unpack the nature of autonomy in detail, it is found that IJV managers have greater
degrees of operational autonomy than strategic autonomy and that decision making by
IJV managers takes place within the context of constraints set within the IJV’s business
plan. This confirms the transaction cost theory which posits that key internal markets
(for management, technology and capital) will be under parent control and also supports
the resource based view that key capabilities are protected under the business plan
established by the parent firms. The influence on IJV autonomy of the moderating
variables IJV performance and IJV duration are also examined.
Introduction
The issue of how much decision-making auton-
omy, if any, to grant an international joint
venture (IJV) has been identified as a major issue
faced by both researchers and practitioners
(Newburry and Zeira, 1999, p. 263). In part this
is because IJVs pose extremely difficult challenges
to management. Cooperating with another com-
pany is a demanding and often unfamiliar task,
which may be hindered by the divergence between
parent firms with respect to goals, strategies,
culture, control and autonomy.
The achievement of the IJV’s aims depends on
linking the IJV closely with the parents to achieve
the requisite internal market and resource links
whilst allowing a certain degree of decision-
making freedom to the IJV managers who are
closest to its environment and internal capabil-
ities. This is the dilemma of ‘autonomy’ which we
seek to explore. After investigating the issue in
the round, we seek to identify the areas in which
the IJV is allowed autonomy in decision-making
by separating strategic from operational deci-
sions and by examining those areas of decision-
making which are formalized within the IJV’s
business plan from those which are excluded.
We approach decision-making in IJVs from
the perspectives of the transactions-cost and
resource-based theories of the firm. The transac-
tion cost approach identifies three inter-linked
motives (Buckley and Casson, 1988, following
Coase (1937) and Williamson (1975)). These are
(i) the existence of net benefits in one or more
intermediate markets between the joint venture
and the parties’ other operations, (ii) an element
of economic indivisibility which results in benefits
*
The work in this paper forms part of an ESRC project
An Investigation of the Core Dimensions of International
Joint Venture Activity with European Partners
(R000236676).
British Journal of Management, Vol. 14, 305–322 (2003)
r2003 British Academy of Management
from avoiding the splitting of the IJV into one or
more separately owned facilities and (iii) the exist-
ence of obstacles to merger. The resource-based
view (Barney, 1991; Grant, 1991; Wernerfelt,
1984) sees links between the internal capabilities
of the parent firms where each gains access to
others’ internal capabilities without the risk of
outright ownership (Doz, Hamel and Prahalad,
1989; Eisenhardt and Schoonhoven, 1996;
Glaister, 1996; Hamel, 1991). Thus capabilities
can be leveraged outside the firm in combination
with complementary capabilities or competencies
(Contractor and Lorange, 1988). IJVs and a
network of IJVs give firms the advantages of
flexibility in the face of a hostile and turbulent
global economy (Buckley and Casson, 1998). Our
expectation is that the key areas identified by the
theory above will be (a) defined as strategic rather
than operational and (b) included in the IJV’s
business plan. Thus our empirical investigation
can be seen to uncover the key theoretical drivers
of transaction-cost theory and the resource-based
view of the firm.
Research on the nature and meaning of IJV
autonomy is a relatively neglected area in the
examination of IJV activity. The purpose of this
paper is to provide new evidence on the nature of
autonomy in a sample of UK IJVs with partner
firms from western Europe. The rest of the paper
is set out in the following way: literature relating
to IJV autonomy and the research questions are
discussed in the following section. The research
methods are set out in the third section. The
fourth section presents a discussion of the find-
ings. Conclusions are in the final section.
Literature review
For an IJV, autonomy is defined as the freedom
to make and implement decisions independently
of the parents. It is clear that autonomy is a
concept that is capable of a number of interpre-
tations based on managers’ differing conceptual
understanding partially influenced by cultural
differences. This ‘native category’ problem
(Buckley and Chapman, 1998) was confronted
by a careful contextualistion during the interview
phase of the study, by leading managers through
an understanding of autonomy as defined above.
A perceptual measure of autonomy across the
IJV system provides information regarding the
extent to which the IJV is viewed as autonomous
by the respective parents and the IJV manage-
ment. This represents a novel departure in the
study of IJV autonomy.
IJV governance and autonomy
The primary meaning of governance is that the
decision takers in the firm must be responsible to
the ultimate owners for their actions (Buckley,
1997). Where equity IJVs are structured by the
ownership of their parent companies, governance
by owners is twice removed and concerns that
they act in accordance with the goals of these
owners is increased. This agency problem (Arrow,
1985; Jensen and Meckling, 1976) is exacerbated
by national and cultural distance in IJVs, so a
balance needs to be struck between excessive
control and laxity in supervision. This is the
context in which we investigate the elusive notion
of IJV autonomy.
Several contributions to Bleeke and Ernst
(1993) warn that over-control by parent compa-
nies may inhibit the flexibility that their IJV needs
in order to develop within it its own competitive
environment. Buchel et al. (1998, pp. 98–99)
conclude that the optimal level of autonomy is
that at which objectives can be met while total
costs are kept to a minimum. There is however,
no consensus in the literature either for or against
the granting of autonomy to IJV managers. As
Lyles and Reger (1993, p. 398) conclude: ‘The
desirability of less control for parents and more
autonomy for joint ventures has not been
explored’. (A survey of the arguments for and
against autonomy in IJVs has been provided by
Newburry and Zeira, 1999, pp. 266–267.)
Buchel et al. (1998, p. 100) note that the
pattern of control and autonomy depends on two
variables: strategic interdependence and environ-
mental uncertainty. Usually, the greater the
strategic interdependence, i.e. the dependence of
two organizations on each other’s inputs and
outputs, the more control the partners exert over
the IJV. The greater the environmental uncer-
tainty, the higher the level of autonomy needed
by the IJV to make independent adjustments to
environmental changes. Low autonomy needs
exist when resources are shared and when the
IJV makes an important contribution to the
value-added chains of the partners. However, too
much control by the partners reduces the IJV’s
306 K. W. Glaister, R. Husan and P. J. Buckley
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