Veronika Papyrina
Executive Summary
The comparative stability of joint ventures and wholly owned subsidiaries is a question of interest to both academicians and practitioners. It has received considerable attention in the international business literature; however, the results of prior studies have produced inconclusive results. In practice, a multinational corporation (MNC) selects an entry mode when it decides to expand into the foreign country. That is, the firm often considers the questions when to enter the market and how to do it simultaneously, which suggests that the choice of entry timing and the choice of entry mode may have a joint effect on subsidiary survival. In the current research, Papyrina examines subsidiaries of Japanese MNCs in the People's Republic of China and demonstrates that survival likelihood of wholly owned subsidiaries and joint ventures is contingent on the time when they were established.
The main proposition Papyrina develops is that depending on the timing of entry into an emerging economy, foreign investors face different degrees of uncertainty in the institutional environment, which affects the efficiency and stability of wholly owned subsidiaries and joint ventures. More specifically, Papyrina argues that during the beginning of reforms in the regulatory infrastructure, wholly owned subsidiaries do not constitute an optimal choice, because high institutional uncertainty exacerbates the risks of unrecoverable costs associated with sole ownership. Conversely, contributions provided by indigenous firms in partnerships with MNCs cushion the negative impact of a volatile environment and exceed the disadvantages entailed by shared ownership. Therefore, Papyrina hypothesizes that joint ventures founded during the early stage of institutional reforms are more likely to survive than wholly owned subsidiaries established at that time.
As an institutional environment stabilizes, however, the benefits of joint ventures fall short of their costs, thus making shared ownership a less efficient entry mode strategy. At the same time, a relatively stable regulatory framework facilitates the realization of benefits associated with sole ownership. On the basis on this reasoning, Papyrina hypothesizes that wholly owned subsidiaries founded in the late phase of institutional reforms are more likely to survive than joint ventures set up at that time.
Consistent with expectations, Papyrina finds that joint ventures established in the early stage of reforms in the regulatory infrastructure are more likely to survive than wholly owned subsidiaries, and vice versa for subsidiaries set up in the late phase of institutional reforms. From the managerial perspective, these results underscore the importance of considering the issues of entry timing and entry mode simultaneously. Specifically, the implication is that during the early stage of market-oriented reforms, MNCs may increase survival likelihood of their subsidiaries if they partner with local firms, whereas during the late phase of institutional reforms, foreign investors may be in a better position if they enter with a full control mode.
Biography
Veronika Papyrina is a doctoral candidate in the Ivey Business School at the University of Western Ontario, Canada. She received her BS and MS in Sociology from the Moscow State University, Russia. Her current research interests are in the areas of entry strategies into emerging markets, processing of persuasive communications, and social influence in consumer behavior.
Journal of International Marketing, Vol. 15, No. 3, September 2007
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