This chapter provides a literature review with the discussion of main theories of the areas researched in this thesis. The process of creating an international joint venture and the aspects of corporate social responsibility are discussed, as well as the model of sustainable interntational joint ventures which was developed by the thesis authors and will be the theoretical base of these research
The process of international joint venture creation
From a general perspective, the process of creating an international joint venture is a spe-cial case of venture creation. Therefore, some research literature does not focus especially on the creation of international joint ventures, but instead on the creation of international cooperative ventures. Since the international joint venture is the most common representa-tive within this group, the findings of those researchers can help the understanding of in-ternational joint venture creation and therefore, will also be discussed in greater detail with-in this section (Tallman & Shenkar, 1993).
Therefore, this section will start with giving an overview of international venture creation in general and then focus on literature that especially focuses on international joint venture creation
General approaches on venture creation
Important learnings about the establishment of joint ventures can be found in the more general literature about the formation of cooperative ventures, of which the international joint venture is one specific type (e.g. Fornell, Lorange & Roos, 1990). Thereby, the follow-ing definition applies: “New venture creation is the organizing (in the Weickian sense) of new organizations.” (Gartner, 1985).
In general, the models developed to describe the process of international cooperative ven-tures can be grouped in two different categories: the oligopoly models and the internaliza-tion models.
Models that follow the basic assumption that multinational enterprises (MNEs) develop in-ternational cooperative ventures in less developed countries in order to strengthen their market power at home, are oligopoly models. In this sense, one of the major drivers for the creation of an international corporate venture are the lower costs in the host country. Fur-thermore, certain factors, like the structure of the industry, the competition and govern-mental policies, can leave no other option of entry mode for the MNE. However, in gen-eral, within oligopoly models ICVs are considered to be a temporary solution of market en-try (Tallman & Shenkar, 1993).
In contrary, internalization models assume that international corporate ventures are created to address imperfections within markets of intermediate goods (e.g. knowledge skills). In this case, the main drivers of international corporate venture creation is the cost reduction of transaction and governance. Since both models, the oligopoly as well as the internaliza-tion model, consider non-equity cooperative ventures as pure market transaction, they fo-cus on equity joint ventures (Tallman & Shenkar, 1993).
Another approach of cooperative venture creation is discussed by Fornell, Lorange & Roos (1990) who in this context emphasize the importance of three theoretical constructs:
- internal push: individuals within the company drive the decision of foreign market entry
- analytical scope: decision-makers analysing the intended project before its ac-ceptance
- stakeholder strength: acknowledging the importance of stakeholders, identifying and analysing the relevant stakeholders
Fornell et al. (1990) connect those three constructs and emphasize their interdependence as well as their influence on the performance of the created cooperative venture.
To explain the new venture creation Gartner (1985) is connecting four dimensions (seeFig.2-1):
- environment – the context surrounding and impacting the new venture
- individuals – people participating in creating a new venture
- process – the stages of creating a new venture
- organization – the venture that was created
Another approach to the establishment of an ICV is the one developed by Tallmann and Shenkar (1993), named “the ICV tree” (see Appendix 1). Although the model focuses on multinational companies, it has important implications for any type of company that seeks to enter a foreign market. Thereby, the process of the ICV tree follows three major stages (Tallmann and Shenkar, 1993) :
- Stage 1: To cooperate or to not cooperate?
- Stage 2: Contract or Equity?
- Stage 3: Specifying the terms of the relationship
At the beginning of the ICV creation process is the question whether a company wants to enter a foreign market and if yes, which entry mode they will choose. These decisions are addressed in the first stage of the ICV tree by the decision makers of the company. Their personal preferences for target markets will influence the choice as much as the company`s strategy, culture, politics, the commonly used entry mode of the company, the perceived resource constraints and the participating stakeholders (Tallmann and Shenkar, 1993).
After the decisions makers have chosen the entry mode (in the case of this thesis the inter-national joint venture), they have to start the partner selection process which is an interme-diate step between stage 1 and 2. The stage 2 then starts with the decision whether the company wants to do a contractual or an equity joint venture. Thereby the main difference is that the contractual joint venture is more specific in terms of duration and purpose. Within the second stage the main concerns are the resource considerations, trust formation, international strategy and structure of the venture partners, organizational cultures of the partners and the national culture of the partners. The last stage of the ICV tree fo-cuses on the distribution of ownership shares and the specific issues the partners commit to (Tallmann and Shenkar, 1993)
Approaches on international joint venture creation
The establishment of an international joint venture is a managerial, multi -step decision pro-cess (Tallmann and Shenkar, 1993). This process can be conceived as a stage process (e.g. Tallmann and Shenkar, 1993) or as an interrelation between certain core elements (e.g. Luo, 1999). Thereby some research literature does not stick to the establishment of international joint venture as such but instead describes the whole process from the establishment to the liquidation (e.g. Buchel, 2000). Furthermore, some authors focus on research about very specific issues concerning the establishment process of IJV, like the negotiation process of agreements (e.g. Sarkar, 2010, Luo, 1999) or the establishment of trust between the part-ners (e.g. Muller, 2009).
Within the process of joint venture development, Buchel (2000) describes the initial stage of a joint venture as the formation stage which ends with the signing of the joint venture agreement. The next stage is called adjustment stage and ends with the evaluation of the process. After the evaluation stage another adjustment stage starts, which in turn lasts until the next evaluation. This way the adjustment and evaluation stage create a circle which is broken when the joint venture is liquidated. The pattern of the joint venture development is illustrated in Appendix. 2 (Buchel 2000).
Luo (1999) defines antecedents, concurrent and consequent factors as important elements of international joint venture creation. Environmental, organizational and individual ante-cedents thereby influence the concurrent factors, namly specificity, issue diversity, contrac-tual obligability, to a degree that depends on the individual relation. The concurrent factors in turn have an impact on the consequent factors which are sequential and include the in-ternational joint venture formation (immediate consequence), the international joint ven-ture process performance (intermediate consequence) and the international joint venture overall performance (ultimate consequence). The described antecedents and factors influ-ence each other and are thereby interrelated on a complex and multidimensional way (Luo, 1999)
Corporate Social Responsibility (CSR)
For this thesis’ purpose, the authors will consider the definition of CSR as “the firm’s considera-tion of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm. It means that social responsibility begins where the law ends. A firm is not being socially responsible if it merely complies with the minimum requirements of the law, because this is what any good citizen would do” (Davis, 1973, p.312).
CSR has brought challenges to the business regarding its commitment to engage in activi-ties that go beyond the legal compliance, and assume roles that were previously occupied by the public sector such as education support and community governance, in order to cre-ate a positive impact in society (Jenkis, 2009).
According to Carroll (1991), CSR should be addressed from a multidimensional perspective composed by four kind of social responsibilities that business need to approach: economic, legal, ethical and philanthropic. This is known as “The pyramid of CSR model” (see Fig.2-2).
- Economic responsibilities: Business organizations were created as an economic entity that provide goods and services to the society. The profit motive is their base.
- Legal responsibilities: Society does not expect that companies operate only ac-cording to the profit motive, but it is also expects the compliance with the laws and regulations of the context in which the companies operate. Firms needs to pursue their economic purpose within the framework of the law.
- Ethical responsibilities: Composed by the standards, norms and expectations that reflect a concern for what is considered by the different stakeholders as fair, just or respectful with the stakeholders’ moral rights. This responsibility pushes the legal responsibility to expand while at the same time placing higher expectations on business persons to operate in levels above than the required by law.
- Philanthropic responsibilities: Relate to the corporate actions that are in re-sponse to society’s expectations that businesses be good corporate citizens. The main difference between philanthropic and ethical responsibilities is that the former is not expected in a ethical or moral sense.
These dimensions are also contemplated in the main theories of corporate social responsi-bility -CSR
Theories on CSR
According to Garriga and Melé (2004) the different approaches focus on one of the follow-ing aspects of social reality: economics, politics, social integration and ethics. Hence, these authors group the theories in four groups: instrumental, political, integrative and ethical theories, which are explain in Table 2.1
1.2 Problem statement
1.4 Research questions
2 Theoretical framework
2.1 The process of international joint venture creation
2.2 Corporate Social Responsibility (CSR)
2.3 Sustainable International Joint Ventures
2.4 Challenges for sustainable international joint ventures
3 Research methodology
3.1 Research strategy
3.2 Data collection
3.3 Data analysis
3.4 Case study
4 Empirical findings
4.1 Sustainable International Joint Ventures
5.5 CSR awareness
6.1 Future research
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