Explaining alternative termination modes of international joint ventures

Konara, Palitha, Stone, Zita and Mohr, Alex (2020) Explaining alternative termination modes of international joint ventures. International Marketing Review. ISSN 0265-1335

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Abstract

Purpose
The authors combine options logic with transaction cost economics to explain why firms maintain, divest or buy out their international joint ventures (IJVs). It is suggested that a decline in environmental risk and higher partner-related risk makes a firm more likely to acquire an IJV but less likely to divest an IJV. The study also investigates how IJV age moderates the effects of a decline in environmental risk and higher partner-related risk.

Design/methodology/approach
The study employs competing risks analyses to examine the drivers of different termination outcomes using a dataset consisting of 459 IJVs in the People's Republic of China, of which 110 were either acquired or divested by their foreign parent.

Findings
The study finds that changes in environmental risk and partner-related risk affect how firms terminate their IJVs in the People's Republic of China. Specifically, the authors find that the effect of exogenous and endogenous risk are more pronounced for the acquisition of IJVs than for the divestment of IJVs.

Research limitations/implications
The study contributes to international marketing research by complementing options logic with transaction cost economics to provide a theoretical explanation of the different ways in which IJVs in the People's Republic of China are terminated.

Practical implications
IJVs continue to be an important yet often unstable method to serve international markets. Our findings increase managers' awareness of the effect that two important sources of risk may have on the termination of IJVs in the People's Republic of China.

Originality/value
The study provides novel insights into the effect that changes in exogenous and endogenous risk have on a firm's choice of termination mode drawing on novel data on the different ways in which foreign firms have terminated their IJVs in the Peoples' Republic of China.

Item Type: Article
Schools and Departments: University of Sussex Business School > Strategy and Marketing
Research Centres and Groups: International Business
Subjects: H Social Sciences > HG Finance > HG4501 Investment, capital formation, speculation > HG4538 Foreign investments
Depositing User: Palitha Konara
Date Deposited: 15 May 2020 06:54
Last Modified: 02 Jun 2020 15:15
URI: http://sro.sussex.ac.uk/id/eprint/91272

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