A Resource-Based Study of Bargaining Power in U.S. - Foreign Equity Joint Ventures (United States).

Abstract

This study focuses on the bargaining relationship between partner firms in joint ventures between United States and foreign corporations. A firm's bargaining strength, it is argued, depends to a large degree on the resource that it contributes to the joint venture. A resource readily absorbed by a partner has less value for the company that contributes it; a resource not readily learned supplies the contributor important leverage in a partnership. The study identifies five resources commonly contributed to a joint venture: market access (the leverage possessed by a host-country government that restricts foreign investment); technology; knowledge of a local economy and /or marketing skill; control of intrasystem transfers; and financing. It ranks the resources, in the order listed above, according to the bargaining power that they supply and develops hypotheses that predict which partner will be dominant if certain resources are paired in a joint venture. The empirical tests employed data that were drawn from published sources: announcement literature and company 10-K reports. The sample included joint ventures that operate in this country as well as ones that operate overseas. Tests of the hypotheses used both cross-sectional and longitudinal methods. In the cross-sectional tests, frequency analysis showed that possession of a resource hypothesized to be dominant is associated with a majority share of equity in the original joint venture contract. It further showed that possession of a dominant resource is associated with a tendency to increase equity share later on. In the longitudinal tests, estimation of an Event History model demonstrated that several factors magnify joint venture instability, i.e., they increase the risk that a joint venture contract will be renegotiated: unequal division of equity, operation in a host country that does not restrict inward foreign investment, and occurrence of prior renegotiations. The findings have implications both for companies operating in restrictive business environments overseas and for companies that bring in high-technology partners from abroad to establish operations in the United States.