Factors influencing international joint ventures’ performance: an investigation into the telecommunicaton industry in laos

MINISTRY OF EDUCATION AND TRANING NATIONAL ECONOMICS UNIVERSITY VIETNAM MINISTRY OF EDUCATION AND SPORT NATIONAL UNIVERSITY OF LAOS LAOS THANSAMAY KOMMASITH FACTORS INFLUENCING INTERNATIONAL JOINT VENTURES’ PERFORMANCE: AN INVESTIGATION INTO THE TELECOMMUNICATON INDUSTRY IN LAOS (Business Administration) Code: 62.34.01.02 A dissertation Summary Submitted to the National Economics University, Vietnam and National University of Laos in fulfillment of requirements for the degree of Doctor of Philosophy in Economics Hanoi, 2014 The dissertation was completed at the National Economics University, Hanoi, Vietnam Supervisor: Assoc. Prof. Dr. Nguyen Thi Tuyet Mai. The 1st commentator: Assoc. Prof. Dr. Nguyen Van Thang - National Economics University The 2nd commentator: Assoc. Prof. Dr. Phouthet KYOPHILAVONG - National University of Laos The 3rd commentator: Dr. Phi Vinh Tuong - Vietnam Institute of Economics The dissertation will be defended against the council of dissertation assessment in National Economics University, Hanoi, Vietnam (or National University of Laos) at (hour) date month year The dissertation is available at the libraries: - The National Library of Vietnam - The Library of National Economics University, Hanoi, Vietnam - The Library of National University of Laos 1 CHAPTER 1: INTRODUCTION 1.1 Research Motivation Lao People Democratic Republic (Lao PDR) is a developing country that is located in the central part of the Indochina peninsula. The telecommunication industry plays a significant role in the national economic development of Laos. In 2008, the telecommunications sector accounted for approximately 1.6 percent of the total GDP and is considered one of the fastest growing sectors in Laos. There are some communication policy studies undertaken by scholars and media and political organization, but research on International Joint Ventures (IJVs) in Telecommunication industry in Laos has been limited. Especially, it seems that very modest attention has been given to investigate IJVs’ performance and factors influencing it in the industry in Laos. Thus, these issues are the focus of this dissertation. Factors influencing IJVs’ Performance in Telecommunication Industry in Laos Many scholars and practitioners have conducted research about what factors affecting the performance of IJVs. However, their research has mainly conducted in the context of the developed countries (Ren et al., 2009). Many previous studies (e.g., Hoang & Rothaermel, 2005; Isobe, Makino, & Montgomery, 2000; Luo, 2001; and Tong et al., 2008) have examined IJVs performance, which enhanced human beings’ knowledge about this attractive topic. However, the conceptualization of IJV performance and factors influencing it remains an often-debated issue in IJV research (Reus & Ritchie, 2004). 2 In recent years, more research attention has been given to study IJVs performance and factors influencing IJVs performance in the context of developing countries (e.g. Phan & Ngo, 2009; Phan et al., 2006; Cao, 2012) but it seems that very modest research attention has been given to investigate the impact of these factors in the context of Laos, especially no study has examined the issue in the Telecommunication industry in Laos. In other words, this attractive topic has not been investigated adequately in the context of Laos, especially in the telecommunication sector. For facilitating the sustainable development and ensure the success of IJVs in the important fields like the telecommunication industry in Laos, it is very essential to have better understanding of the current status of the IJVs’ performance and investigate the determinants of the IJVs’ success or failure. Research objectives and questions While focusing on the main objective of investigating the impact of several factors on performance of the IJVs in telecommunication industry in Laos, this study aims to answer the following questions: 1. What is the overall picture of business performance of IJVs in Lao’s telecommunication industry regarding different aspects of performance based on the theoretical framework? 2. What are the key factors influencing the performance of the IJVs in the telecommunication industry in Laos and what are the impacts of these factors on the IJVs’ performance? In terms of the research scope, the data collected for this study mainly from the three IJVs in the telecommunication industry in Laos.In terms of timing, the collected data mainly cover recent three years (from 2010 to date). The analyses focus on several aspects of IJV’s performance and the factors influencing it. The primary data mainly focus on the perspective from 3 Lao’s partners in the IJVs. 1.2 Theoretical background This study employs the theoretical background regarding IJVs performance and factors influencing their performance (e.g., Cao, 2012, Ren et al., 2009, Bener & Glaister, 2010). On the basis of literature review, performance of IJVs has been assessed through some measurement variables, such as: survival, financial output, overall satisfaction, achievement of individual or joint goals, and learning. Many previous studies have identified that IJVs performance has been influenced by many factors. These factors include control of parent firms, trust, autonomy, national culture differences, corporate culture differences (Bener & Glaister, 2010; cf., Ren et al., 2009), commitment, bargaining power, justice, conflict, effectiveness of conflict resolution, cooperation, and goal compatibility (cf., Ren et al., 2009). 1.3 Research methodology This study employed the case study method. Both secondary data and primary data were collected to develop the three case studies in order to reflect IJVs’ performance and the factors influencing their performance during the time of the research. As this study mainly aims to analyze factors influencing FDI companies’ performance in the selected cases, multiple data collection methods were used to increase credibility and validity. Specific data collection methods used in this study include desk research (for collecting secondary data), observation, interviews (both face- to-face and by telephone), and survey (for collecting primary data). 1.4 Contribution of the Study This study aims to examine several dimensions of the IJVs’ performance and to explore the impact of the key factors on the IJVs’ 4 performance in the context of Lao’s telecommunication industry. The topic of this study is important and interesting that have attracted much attention from previous studies. This study contributes to the literature pertaining to IJVs’ performance and factors influencing them in the context of Laos, a developing country that has received very modest research attention up to date. The findings of this study help to enrich the knowledge about this important topic by investigating simultaneously the key dimensions of IJV performance. Specifically, all five performance dimensions were examined in the context of the telecommunication industry in Laos, including Survival and Longevity of the IJV, Financial Performance/financial output measures, Overall Satisfaction, IJV’s Goal Achievement, and Learning. This study also explored the main factors influencing IJV performance and empirically tested the impact of these factors in four regression models. In addition, with the case study method used in this study, multiple data sources were employed including secondary data (i.e., data collected from internet, company reports, etc.) and primary data sources (i.e., data collected from observation, in-depth interviews, and survey). This method was useful and necessary to obtain better understanding the research issues. Some managerial implications are drawn from the findings of this study. Specifically, the findings provide IJVs’ managers with knowledge and insight that would help better understand and manage the determinants of IJV performance, and therefore help improve performance of IJVs. This study is expected to provide some implications for policy makers in an attempt to create a better business environment and to ensure the favorable conditions for IJVs to achieve better performance in Laos. For the benefit of Lao’s economy and society at large, the local government may want to work 5 together with investors (both local and foreign partners) to jointly develop successful IJVs. 1.5 Organization of the Study This dissertation includes five main chapters as follows. Chapter 1: Introduction Chapter 2: Literature review and conceptual framework Chapter 3: Research methodology Chapter 4: Research findings Chapter 5: Conclusions and discussion 6 CHAPTER 2: LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK This chapter reviews the literature on IJVs’ performance and the factors influencing it. In the first section of the chapter, the literature on the five common measures of IJV performance were reviewed, followed by the review of the key determinants of IJV performance. Finally, the proposed conceptual framework is presented. 2.1 Literature review on International Joint Ventures’ Performance Cao (2012, p.72) noted that although the term IJV has many different meanings, the most common definition of IJV is “a separately legal business venture that involves two or more entities with differentnationalities working together to achieve mutually agreed on business objectives” (Fogler & Reichert, 2002). IJV performance has been known as broad constructs with different dimensions. Ren et al. (2009) reviewed many previous studies on IJV performance and suggested five common IJV performance measures that have been employed in the literature, including Survival, Financial Output Measures, Overall Satisfaction, IJV’s goal achievement, and Learning. The five main measures of IJVs performance are used in this study and are presented in details in the dissertation. Survival and Longevity: refers to the number of years that partners have been working together in the IJV. In literature, many previous studies have used Survival or Longevity as one indicator of IJV performance (e.g., Dhanaraj & Beamish, 2004; Gaur & Lu, 2007; Lu & Xu, 2006; Meschi & Riccio, 2008; Steensma & Lyles, 2000). The reason for using this indicator of 7 IJV performance is that the longer the IJV survives, the more successful it is. In this study, Survival or Longevity are used together with other measures to evaluate the IJVs’performance. Financial Output Measures: Among many indicators of IJVs’ performance, in the literature the researchers’ interest in employing financial output measures such as profitability measures (e.g., ROI, ROA) and market performance measures (e.g., market share) have been increasing (e.g., Lu & Xu, 2006; Luo, 2002a, 2002b, 2005, 2007a, 2008; Robins et al., 2002; Zhang et al., 2007; see Ren et al. as well). In this study, the author decided to employ both objective and subjective measures of IJV performance. Overall Satisfaction: Many previous studies have used managers’ subjective evaluations of the IJV’s overall performance (e.g., Boateng & Glaigster, 2002; Cao, 2012). Since overall satisfaction is a subjective measure, some previous studies have employed also other objective measures of performance such as financial outcomes (e.g., Cao, 2012). Goal Achievement: Achievement of individual and/or joint goals of an IJV has been used as a measure of the IJV performance (e.g., Phan et al., 2006; Lyles & Salk, 1996). Learning: Learning from partners in IJVs has received significant attention and has been considered as an important indicator for the success of an IJV (Phan et al., 2006; Lyles & Salk, 1996). 2.2 Literature Review on Factors Influencing IJVs’ Performance In the literature on IJVs, investigation into factors contributing to IJV performance have been received much interest from the scholars and practitioners (Cao, 2012; Rod, 2009). After reviewing past research in the field, Rod (2009) has summarized the factors that are treated as independent 8 variables influencing IJV’s performance, and classified them into two main groups, each factor of which may have direct of indirect impact on joint venture performance. These factor groups refer to ‘partner compatibility’ (e.g., organizational culture, management/leadership style, strategic match, communication styles, trust, commitment, and propensity to cooperate), and ‘Socio-Economic factors’ (e.g., opportunity costs, relative bargaining power, governance/control over JV, and perceived opportunism). In the context of developed countries, it has been suggested that the success of IJVs may be a function of a number of factors. Bener & Glaister (2010) suggested five main factors influencing IJV performance that have been given significant attention in the literature as determinants of joint venture performance. These factors include parent control (Killing, 1983; Lu & Hebert, 2005), JV autonomy (Hill & Hellriegel, 1994; Lyles & Reger, 1993; Newburry & Zeira, 1999; Zeira & Parker, 1995), trust between partners (Madhok, 1995), national culture differences (Brown et al., 1989; Hennart & Zeng, 2002; Shenkar & Zeira, 1992), and corporate culture differences (Pothukuchi et al., 2002; Sirmon & Lane, 2004; Weber et al., 1996). Besides, based on the review of 54 previous studies in IJV literature, Ren et al. (2009) showed the model of 10 determinants which affect IJVs performance in almost cases of developed and developing countries. Despite being investigated by numerous scholars with different approaches and models, in this study, the author is interested inexploring the impact of five main factors that have been consistently identified as being important determinants to IJV performance and they are also relevant to the context of Laos, namely Control of the IJV, Trust, Cooperation and Commitment, Culture differences, and Goal compatibility. Each factor are discussed in details in the dissertation. 9 2.3 Conceptual Framework On the basis of literature review and suggestions from the interviews with IJVs’ managers, five measures/dimensions of IJV performance and five factors are employed in the research model. Figure 1: A Conceptual Model for Studying Factors influencing International Joint Ventures’ Performance Cooperation & committment Trust Cultural differences Control Goal compatibility IJV Performance Survival/longevity Financial performance Overall satisfaction IJV goal achievement Learning 10 CHAPTER 3: RESEARCH METHODOLOGY The overall research objectives of this dissertation are to evaluate the current status of IJVs’ performance and to understand the factors and their impact on performance of the IJVs in the telecommunication industry in Laos. In order to achieve the set objectives, the case study method was employed. This research used both secondary data and primary data sources. Multiple data collection methods were employed, including interviews, field observation, and survey. In this study, three cases – three IJVs are investigated. This is the main source of information providing insight in Laos telecommunication industry’s IJVsperformance dimensions and the key factors influencing their performance. In this research, primary data for the case studies included both qualitative and quantitative data. For collecting qualitative data, observation and in-depth interviews methods were employed to explore the overall picture of the IJVs performance, especially from the IJVs managers’ perceptions. In addition, several key factors that may influence the IJVs performance were explored. The qualitative findings also help to confirm the theoretical framework that was tested using the survey data. Qualitative data collection Observation For each IJV in this study, the author visited the IJV’s office in Vientiane at least 3 to 4 times per year as business visits. In addition, sometimes the author visited selling stores of the IJVs in provinces in Laos. For LTC, the author attended the meetings with the IJV’s top and middle managers every 3 month. For Unitel and Beeline IJVs, the meetings were less frequent. During the visits and meetings, the author, based on observation, collected data including content of the observed activities and emotional 11 reactions such as the sense of comfort, frustration, stress, or happiness (Nguyen, 2005). The focus of the observation was on the cultural differences between the partners, trust between the partners, and cooperation. The expression of satisfaction of each partner in the IJVs was also observed. In- depth interviews For the interviews, all three IJVs operating in Telecom industry in Laos were selected for investigation. The author used one-to-one interviews, both face-to-face and telephone interview. The interviews were carried out in Laotian. Total of 10 interviews from three IJVs were conducted: 6 with LTC’s managers, 3with Unitel’s managers, and 1 with Beeline’s manager. Each interview average lasted for 30 minutesfor face-to-face interview and lasted for 10-15 minutes for interview via phone. Survey data collection In order to test the hypothesized relationships in the research model we employed the survey data collected from 03 IJVs in the telecommunication industry in Laos. Measures and questionnaire development In the survey, the author employed the scales measuring IJV performance and the factors influencing it. These measures were adopted and modified from past research while taking into account the suggestions from the qualitative study. IJV performance: In addition to the question ‘How long have your IJVs been established?’ to measure longevity/survival dimension of performance, the scale items developed by Lyles and Salk (1996) and an item from Cao (2012) were adopted and modified to measure ‘financial performance’, ‘overall satisfaction’, ‘goal achievement’, and ‘learnings’. Factors influencing IJV’s performance: 12  Trust: four items were adopted from Nguyen (2005);  Cooperation and commitment: four items were developed based on suggestions from past research and the qualitative study;  Control mechanism:four items were adapted from Cao (2012);  Cultural differences: four items were adapted from Simonin (1999);  Goal compatibility: two items were adapted from Ren et al. (2009). Sample A survey was conducted in three IJVs in the telecommunication industry in Laos. Total of more than 200 questionnaires were sent to top managers, middle managers and senior staff at three IJVs, and 87 completed and usable questionnaire were used for final analyses: 31 were from LTC IJV, 30 were from Beeline, and 26 were from Unitel. Data Analysis For the survey data, in order to test the proposed relationships in the research model, several multiple regression analyses were employed. Dependent variables were different dimensions of IJV performance, including financial performance, overall satisfaction, goal achievement, and learning. The independent variables in all these regression analyses were the five factors that were proposed to have impact on performance. Before testing the hypothesized relationships, we performed exploratory factor analyses (EFA) and assessed the internal reliability of the scales used in this study, using coefficient alpha. While the focus of this study is to test the impact of several factors on IJVs’ performance, some descriptive analyses a