Effect of Resource Diversity on Joint Venture Performance

Effect of Resource Diversity on Joint Venture Performance A STUDY OF RESOURCE BASED VIEW: HOW DOES RESOURCE DIVERSITY AND RESOURCE SHARING AFFECT INTERNATIONAL JOINT VENTURE (IJV) PERFORMANCE? ABSTRACT The study of resource based view (RBV) has transcended the limited focus of a single firm by arguing that RBV can be applied to the area of strategic alliance. As the most instrumental alliance form, IJVs are susceptible to the resource characteristics of parent firms. Albeit RBV has been used to explain research topics from IJV formation to performance measurement, more in-depth study is needed for exploring the association between resource characteristics and IJV performance. By analyzing data from 82 IJVs in China, the present research proposes that resource sharing mediates the positive relationship between Resource diversity and IJV performance. And cooperation effectiveness moderates the relationship between resource diversity and resource sharing. INTRODUCTION Barney (1991) believes that the resource based view (RBV) theory can be used to explain the relationship between firm resources and sustained competitive advantage in that valuable, rare, inimitable and unsubstituted resources have the potential to bring sustained competitive advantage to a firm. Transcending the limitations of excessive focus on the study of a single firm, Das and Teng (2000) further contend that resource based view can be applied to explain the entire mechanism of strategic alliance on a continuum from alliance formation to performance measurement. Their research takes RBV study to the next level by introducing more perspectives in studying strategic alliance which has been admitted as a critical device loading corporate strategy (Wassmer, 2010). As the most instrumental alliance form, international joint ventures (IJVs) combine both tangible and intangible characteristics of parent firms that allow resource sharing (including knowledge sharing and tangible resourc e sharing) to happen within the partnership because employees from the parent firms literally work together in IJVs (Kogut, 1988). It is critical for researchers and practitioners to understand how the characteristics and dynamics of two parent firms resources affect IJV performance. Why do firms form IJVs? Resource sharing and inter-organizational learning are the key reasons (Lane, Salk Lyles, 2001). By bringing diversified valuable resources into the IJV, both parent firms strive for a balance between protecting their own valuable resources and absorbing the partners resources (Das Teng, 2000). Therefore, the cooperation effectiveness of IJVs would inevitably affect the way resources are synthesized and shared between partners. However, when an IJV is formed, how are the resources of partner firms synthesized? How do both parties share their resources to maximize the IJV performance? These questions remain underexplored. The present research focuses on studying the dynamism of resource diversity, resource sharing and IJV performance and the moderating role that cooperation plays. Normally, an IJV is formed by two parties: a local firm and a foreign firm. These two parent firms possess different types of resources which are complementary to each other, so they could combine their resources to exploit mutual goals (Ren, Gray Kim, 2009). To contribute to IJV outcome, the resource of parent firms have to be dissimilar and complementary, and the utilization and similarity of resources should be considered synchronously (Das Teng, 2000). Extending their argument, the level of similarity and complementarity can be reflected by resource diversity, and how well the resources are utilized can be reflected by resource sharing. Moreover, to consider resource diversity and resource sharing synchronously, cooperation effectiveness plays an important role (Ren et al., 2009). As shown in figure 1, I propose that in an IJV, the resource diversity is positively related to IJV performance, the more resource diversity the partners have, the better IJV performance they are able to achieve. And resource sharing will mediate the association between resource diversity and IJV performance. Since two partners work in concert in an IJV, cooperation effectiveness inevitably moderates the relationship between resource diversity and resource sharing. Therefore, I put forth following hypotheses: The contribution of the present research is twofold. First, this research expand the resource based view theory by theorizing the model that tap into the relationship between resource diversity and IJV performance by examining the moderating effect of cooperation and the mediating effect of resource sharing. Second, this research also has managerial implications, it helps researchers and practitioners better understand the mechanism of resource diversity and sharing in an IJV, thus they can better deploy different types of resources and facilitate resource sharing accordingly. METHOD Data and Sample IJVs have played a critical role in helping China becoming the best player in the world absorbing foreign direct investment (FDI) (Fang Zou, 2009; Yao, Yang, Fisher, Ma Fang, 2013). Therefore, I draw samples of 200 IJVs in Guangdong Province because it is known as the economic engine of China partly by virtue of its capacity in attracting foreign investment. In their prior studies, Fang and Zou (2009), has adopted IJV sampling in a similar region Jiangsu Province. As suggested by prior researches, considering the validity requirement, solely rely on secondary data is not acceptable, a method combining both survey and secondary data here would be more accurate (Das Teng, 2000). Therefore, I administer surveys and draw on archival data for this research. Data are collected from IJV managers representing both parent firms. I measure IJV performance (the dependent variable) by using archival data. I also measure resource diversity (the independent variable), cooperation effectiveness (the moderating variable) and resource sharing (the mediating variable) by using survey data of CEOs, board members and senior managers from both parent firms to eliminate bias. Measures Resource diversity (the independent variable).As suggested by Das and Teng (2009), I assess the resource diversity by administering survey on IJV senior managers representing different parent firms to gather the response on the degree to which each parent firm brings different types of resources such as: financial resources, physical resources, human resources, technological resources, reputation and organizational resources (Grant, 1991, p.6). Adapting the method that Yao et al. (2013) used to measure knowledge complementarity, a survey on resource diversity will be used in the present research to ask senior managers representing each parent firm in sample IJVs how diversified the resources characteristics are from the parent firms by using a seven-point semantic scale. Since the method of Yao et al. (2013) is also conducted in similar regions in China, the content validity is ensured. In the survey, I ask questions such as: How do you compare your partys industry design with your a lliance partner? (strongly overlapping to strongly complementary). Appendix A includes the form of the items for resource diversity. Cooperation effectiveness (the moderating variable).Following the multi-step process (Churchill Jr, 1979) measure developed by Yao et al. (2013) on knowledge absorption effectiveness, I assess cooperation effectiveness in a similar way by asking top managers representing each parent firm in sample IJVs how effective the partners cooperate in the IJVs using a five-item, seven-point Likert-type scale. I ask questions such as: How do you rate the cooperation effectiveness between partners in your IJV: Our joint venture has been very effective in transferring resources among different partners? (strongly agree to strongly disagree). Appendix B includes the form of the items for cooperation effectiveness. Resource sharing (the mediating variable).Adopting the same rationale of measuring cooperation effectiveness, I develop my own items andassess resource sharing in a similar way by asking top managers to rate the level that the partners share the resources in the IJVs using a four-item, seven-point Likert-type scale. I ask questions such as: How do you rate the resource sharing level between partners in your IJV: IJV partners can easily acquire tangible resources occupied by each other for manufacturing activities? (strongly agree to strongly disagree). Appendix C includes the form of the items for resource sharing. IJV performance (the dependent variable).I will use secondary data to assess IJV performance by two constructs: its financial performance (Return on Investment), and also its longevity (Ren et al., 2009). Control variables.Following the study of Yao et al. (2013). I treat IJV size as control variable measuring by the IJV employee number. Since the market dynamism may be another confounding factor, I also control for market dynamism by using Miller (1987) five items. My data collection procedure is: gather the contact information of sample IJVs through the administrative offices of local development zones that are normally the administrative agencies and service providers of IJVs. Then phone calls and emails will be used to reach out to these IJV CEOs and other senior managers to explain the purpose of the present research and solicit participation in the survey. The ideal target response size of IJV is 82 according to GPower 3.1 test (Effect size = .30, ÃŽÂ ± = .05, Power = .80). Im expecting a 40% response rate which is at the high range of typical response rate (15-40%) since I administer the survey through officials of local development zones who are familiar with the IJV leaders. The questionnaires are distributed to participants in 200 IJVs through email, for non-respondents, the first round of following up phone calls or emails will be carried out two weeks after the distribution of the questionnaires, the second round will be carried o ut four weeks after the distribution of the questionnaires. Following the general method adopted by extant researches, I evaluate responses from the respondents and decide which responses to discard depending on the validity. Given the multinational background of respondents, my original questionnaires are designed in English, they are translated into Chinese when assigning to Chinese respondents, then the responses will be back-translated into English. Statistical description of means and standard deviations is provided. Analysis To test hypothesis 1, resource sharing and IJV performance are separately treated as dependent variables in regression analysis. To test hypothesis 2, I measure the moderating effects of cooperation effectiveness by using moderated regression analysis. To avoid potential multi-collinearity, I take both mean-centered independent and moderating variables into the regression (Aiken, West Reno, 1991). DISCUSSION Prior studies has proved that resource based view can be applied to the study in the area of strategic alliance for about two decades (Das Teng, 2000), yet little has been disclosed about the dynamic relationship between resource diversity, resource sharing and alliance performance. In this research, after examining 82 IJVs in China, the results support my hypotheses that cooperation effectiveness will moderate the positive relationship between resource diversity and IJV performance mediated by resource sharing. Theoretical and Managerial Implications The present research focuses on discovering the relationship between resource diversity, resource sharing and IJV performance, and the moderating role that cooperation effectiveness plays. The influence of resource sharing on IJV performance is examined subsequently. Resource based view has been proved a strong tool used to disclose the relationship between firm resources and sustained competitiveness. This research extended the study of resource based view to a more intricate and in-depth level: IJVs, in that compare with average firms, IJVs are formed by parent firms to utilize and share their resources thus achieve the goal of mutual benefits. Therefore, the research brings new insights about how firm resources are constituted and shared and thus affect firm performance in an ever-changing global context. Prior researches has shown that knowledge complementarity has positive effects on new product performance in IJVs (Yao et al., 2013). This research extends the study to a higher level regarding resources occupied by parent firms and bring more generalizability to researchers. It also helps top managers engaging in alliances better utilize their resources. LIMITATIONS AND FUTURE RESEARCH As other researches, this research has its limitations. First, as pointed out by other scholars, the sample source is somewhat monotonous because it only reflects the IJVs in a certain region in China, and the resource diversity might be pre-established since the IJVs in my sample are all formed by a Chinese firm and a foreign firm, this fact shows a certain pattern of partnership that the Chinese firms offer resources to reach local market while the foreign firms offers technological and financial resources (Yao et al., 2013). Future research may extend the study of resource diversity patterns by examining how different resource diversity relationships effect research sharing and IJV performance. Second, I only discussed the model regarding IJVs, however, there are other equity and non-equity inter-organizational collaborations such as technical exchange and consortia (Majchrzak, Jarvenpaa Bagherzadeh, 2014). The effect in the other types of collaborations may vary a lot from the model I examine in IJVs. However, the limitation here also leads to fruitful future research. Study of the resource dynamism and alignment can be delivered on different forms of strategic alliance. APPENDIX A APPENDIX B APPENDIX C REFERENCES      Ã‚   Aiken, L. S., West, S. G., Reno, R. R. 1991. Multiple regression: Testing and interpreting interactions: Sage. Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99-120. Churchill Jr, G. A. 1979. A paradigm for developing better measures of marketing constructs. Journal of marketing research: 64-73. Das, T. K., Teng, B.-S. 2000. A resource-based theory of strategic alliances. 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Performance of International Joint Ventures: What Factors Really Make a Difference and How? Journal of Management, 35(3): 805-832. Wassmer, U. 2010. Alliance portfolios: A review and research agenda. Journal of Management, 36(1): 141-171. Yao, Z., Yang, Z., Fisher, G. J., Ma, C., Fang, E. E. 2013. Knowledge complementarity, knowledge absorption effectiveness, and new product performance: The exploration of international joint ventures in China. International Business Review, 22(1): 216-227. Figure 1 Conceptual model of the current research